News for Iowa Businesses:’s Online Learning Platform is Subject to Sales Tax as SaaS

July 29, 2021

Cloud computing concept. Software as a Service. SaaS. Communication network.

By: Betsy Goldstein, SALT Manager

At a glance

  • The main takeaway: There has been much debate across states regarding the taxability of software and services accessed online.
  • Impact on your business: The Iowa Department of Revenue’s ruling regarding, and the taxability of its online learning platform as SaaS, has major implications for businesses that provide similar services.
  • Next steps: If you have questions about the sales taxability of your business’s transactions, contact Aprio’s State and Local Tax (SALT) team for assistance.

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The full story:

One area in which we continue to see states issue new guidance is software and services accessed via the internet.

These days, many services involve some element of software, so the question for businesses is whether the state will view their transactions as a taxable provision of software — i.e., software as a service (SaaS) — or as the sale of a nontaxable service that involves an incidental element of software. This was the issue addressed in a recent Iowa Department of Revenue declaratory order.[1]

Breaking down the case

In this declaratory order, (which we’ll refer to as the “petitioner”) requested a determination of whether its six online learning platforms were subject to sales tax. The petitioner offers six learning plans that are only accessible through its online platform. The platform is a virtual learning environment that offers users access to thousands of on-demand digital courses that teach academic subjects, professional topics and vocational licensure preparation.

Each of the six learning plans has slightly different features and target users (which include college and college-bound students, vocational students and teachers). Generally, those features include access to the materials, course questions, interactive quizzes, online proctored exams, grading information, online tutoring and guidance counselors. Access to tutoring and guidance counselors may be limited depending on the plan, but additional tutoring interactions may be purchased. All tutoring interactions are conducted through the platform’s communication portal, which functions like an email inbox, since tutoring interactions do not occur in real time.

The petitioner earns revenue from monthly subscriptions to its platform, the price for which varies depending on the learning plan chosen by the user. Users subscribe and can access the platform using their computer or mobile device (the mobile app itself is free). The courses are not available to download, but in some cases, they may be temporarily cached.

How did the Iowa Department of Revenue rule on sales taxability?

While Iowa’s code and administrative guidance do not define SaaS or speak directly to its taxability, the Department has provided informal guidance on their website stating that SaaS is a taxable service which means:

“[T]he sale, storage, use or other consumption of vendor-hosted computer software, such as software accessible on the cloud. ‘Vendor-hosted computer software’ means computer software that is accessed through the internet or a vendor-hosted server, whether the access is permanent or temporary, whether any downloading occurs, or whether the software is hosted by the retailer of the software or by a third party. The content or material accessed by way of software as a service does not impact the taxability of the software itself.”[2]

The issue for the state to address is whether these revenues represent the provision of taxable software (i.e., SaaS) or whether they are more appropriately categorized as a nontaxable service, such as an education service. Ultimately, this is a subject analysis based on the specific facts and circumstances and is often the type of issue for which a ruling request is made.

The Department determined that all of the petitioner’s subscription revenues are taxable as SaaS because the platform is hosted on the petitioner’s servers and is accessed by customers via the internet. The Department also noted that the petitioner charged users for accessing the software based on a monthly subscription basis. The fact that each learning plan has varying content and features — some of which would not be SaaS on their own — did not impact the taxability conclusion because all of those features are only accessible via the platform.

The bottom line

This ruling highlights that nontaxable education services provided in-person can become taxable when that same service is provided in an online environment. That taxability determination, however, is going to vary by state and may depend on other factors, such as whether the class is live online or on-demand, or whether the user is paying for each class individually or on a subscription basis.

These issues apply to any service that was previously provided by a live person and is now provided via a software application. If you are unsure about how a state would treat your transactions for sales tax purposes, Aprio’s SALT team can advise your business with regard to your specific situation and, if warranted, request a ruling from the state. We will make sure that your business is compliant with sales tax going forward so that you do not incur unexpected tax liabilities and penalties.

We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Betsy Goldstein, SALT Manger, at  Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at for more information.

[1] In the Matter of, LLC, Sales and Use Tax Declaratory Order, Docket No. 2020-310-2-0649 (April 20, 2021).

[2] “Taxation of Specified Digital Products, Software, and Related Services,” Iowa Department of Revenue,, accessed July 2021.


Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.