How is a software license sourced for sales tax when its users sit in several states?

Why one license breaks a one-location rule

The sourcing hierarchy in the Streamlined Sales and Use Tax Agreement runs in five steps: the seller's business location if the buyer receives the product there; otherwise the location where the buyer receives it; otherwise an address for the buyer in the seller's business records; otherwise an address obtained during the sale; and, failing all of those, the location from which a digital good or computer software delivered electronically "was first available for transmission" (Streamlined Sales and Use Tax Agreement, Section 310(A)). "Receive" means taking possession of tangible personal property, making first use of services, or taking possession or making first use of digital goods, whichever comes first (Section 311). Washington and New Jersey carry the same hierarchy in their own statutes (RCW 82.32.730(1); N.J.S.A. 54:32B-3.1(a)).

Each step yields one location. For a subscription that employees open from offices in four states on the same morning, that location is usually the billing address or the first place of use, and every other state where the software is used without tax has a use tax claim of its own. The gap produces either double taxation (the billing state taxes the whole charge and the user states tax their shares again) or a collection gap (the seller sources to a state that does not tax the product, and the buyer owes use tax elsewhere that nobody tracks).

The Agreement's answer was to be Section 312, a multiple points of use rule. The text of the Agreement published by Georgia's Department of Revenue, amended through May 24, 2012, shows Section 312 as "Repealed on December 14, 2006," with a note that it would otherwise have taken effect January 1, 2008. States that had enacted MPU provisions in anticipation were left to keep or drop them, and the regimes below are the result.

Washington: a statutory exemption apportioned by users

Washington taxes remote access software as a retail sale. RCW 82.04.050(6)(b) includes in "sale at retail" the charge for the right to access and use prewritten software, custom software or customization where the seller or a third party keeps possession of the software, whether the charge is per use, per user, per license or by subscription. Prewritten software sold outright is a retail sale as well, regardless of the method of delivery (RCW 82.04.050(6)(a)).

The MPU exemption sits in RCW 82.08.0208(4). Retail sales tax "does not apply to the sale of digital goods, digital codes, digital automated services, prewritten computer software, or services defined as a retail sale in RCW 82.04.050(6)(b) to a buyer that provides the seller with an exemption certificate claiming multiple points of use" (RCW 82.08.0208(4)(a)). Only a business or other organization may use the certificate, only for items that will be concurrently available for use within and outside the state, and never for items bought for personal use (RCW 82.08.0208(4)(b)). "Concurrently available for use within and outside this state" means that employees or other agents of the buyer may use the product "simultaneously from one or more locations within this state and one or more locations outside this state" (RCW 82.08.0208(4)(d)). The Department's form is the Digital Products and Remote Access Software Exemption Certificate (WAC 458-20-15502(11); WAC 458-20-15503(507)).

The certificate does not end the tax; it moves it. The buyer reports and pays use tax directly to the Department (RCW 82.08.0208(4)(c)), and RCW 82.12.0208(7)(a) entitles it "to apportion the amount of tax due this state based on users in this state compared to users everywhere." A "user" is an employee or agent of the taxpayer "who is authorized by the taxpayer to use" the product in the performance of that person's duties (RCW 82.12.0208(7)(d)(ii)(A)). The Department may authorize or require an alternative method that fairly reflects in-state and out-of-state use (RCW 82.12.0208(7)(b)(i)), and no apportionment is allowed unless the method is supported by records kept in the ordinary course of business (RCW 82.12.0208(7)(c)). Local use tax is apportioned on the same measure as the state tax (RCW 82.14.457(1) and (2)), and the use tax is sourced to the place of first use in Washington (RCW 82.32.730(10)).

Two features of the Washington rule decide most disputes. First, the measure is authorized users, not log-ins, sessions or billing seats, so the buyer's identity and access records are the apportionment file. The Department's rule illustrates with a buyer that has five authorized users in Washington and five in California and owes use tax on half the price (WAC 458-20-15503(507), Example 30; WAC 458-20-15502(11), Example 35). Second, the certificate has to be in the seller's hands for the seller to stop collecting. Without it, where the sale is sourced to Washington under RCW 82.32.730, "the entire charge is subject to retail sales tax" (WAC 458-20-15502(11)(b)), and the out-of-state share is no longer a matter of apportioning a return; the buyer is left to the refund and credit procedures of the states involved. The rule also states the converse: "Washington use tax still applies to the use of the digital product or digital code used in Washington" (WAC 458-20-15503(507)), so a buyer whose seller sourced the sale to another state still owes Washington use tax on its Washington users. Washington allows a credit against its use tax for retail sales or use tax legally paid to another state on digital goods, digital automated services and services defined as retail sales (RCW 82.12.035).

Ohio: a certificate, any reasonable method, and a shared route

Ohio's sourcing statute keeps a full MPU regime. A business consumer that does not hold a direct payment permit, that buys "a digital good, computer software, except computer software received in person by a business consumer at a vendor's place of business, or a service," and that knows at the time of purchase that it "will be concurrently available for use in more than one taxing jurisdiction" delivers an MPU exemption certificate with the purchase or meets the shared apportionment route described below; on receipt of the certificate the vendor is relieved of collection and "the business consumer must pay the tax directly to the state" (R.C. 5739.033(D)(1)(a)).

The apportionment standard differs from Washington's. The business consumer "may use any reasonable, consistent, and uniform method of apportioning the tax due" that is supported by its business records "as they existed at the time of the sale," reports and pays "the appropriate tax to each jurisdiction where concurrent use occurs," and computes the tax "as if the apportioned amount" had been delivered to each jurisdiction (R.C. 5739.033(D)(1)(b)). Users are one reasonable method; installations, locations or another records-based measure can serve if applied consistently. The certificate stays in effect for all future sales by that vendor to that consumer until revoked in writing, with each later sale apportioned on the facts at its own time (R.C. 5739.033(D)(1)(c)).

Ohio adds a route Washington does not. Where the vendor knows the product will be concurrently available in more than one jurisdiction but the consumer gives no certificate, "the vendor may work with the business consumer to produce the correct apportionment," using any reasonable, consistent and uniform method supported by both parties' books; if the consumer certifies the apportionment and the vendor accepts it, the vendor collects on that basis and, absent bad faith, "is relieved of any further obligation to collect tax" (R.C. 5739.033(D)(2)). Without either a certificate or a certified apportionment, the vendor sources under the general hierarchy in division (C) (R.C. 5739.033(D)(3)). A direct payment permit holder gives no certificate but apportions on the same principles (R.C. 5739.033(E)). The statute closes with a reservation that matters for every multistate license: nothing in it limits a person's obligation "to any state in which a digital good, computer software, or service is concurrently available for use," or its ability to claim a credit for tax legally paid elsewhere (R.C. 5739.033(D)(4)). Ohio's MPU rule allocates Ohio's tax; it does not decide what any other state is owed.

New Jersey: repealed MPU, receipt-based sourcing, and a narrow tax base

New Jersey enacted an MPU provision in 2005, close to Ohio's: section 27 of P.L.2005, c.126 (C.54:32B-3.2) covered "a digital good, computer software delivered electronically, or a service" that would be "concurrently available for use in more than one jurisdiction," relieved the seller on receipt of an MPU exemption form, and let the purchaser apportion. The Legislature repealed that section in the act conforming New Jersey to the Agreement: "Section 27 of P.L.2005, c.126 (C.54:32B-3.2) ... [is] repealed" (P.L.2008, c.123, section 18a), with sections 1 through 18 of the act inoperative until January 1, 2009 (P.L.2008, c.123, section 19). No New Jersey MPU certificate has existed since that date, and a buyer that hands a New Jersey seller one is relying on a repealed statute.

What remains is the receipt-based hierarchy of N.J.S.A. 54:32B-3.1(a), as the Division applies it to software in N.J.A.C. 18:24-25.8. Where the purchaser does not receive the software at the seller's location, the sale "is sourced to the location(s) where receipt by the purchaser occurs," and "[r]eceipt may occur at multiple locations if the seller delivers the software to multiple locations," provided the seller "receives delivery information from the purchaser by the time of the invoice" (N.J.A.C. 18:24-25.8(a), as set out in Technical Bulletin TB-51(R), Taxability of Software (issued July 5, 2011)). The Division's example shows the limit of that rule: a purchaser headquartered in one state with locations in two others receives electronically delivered software on its server in the second state, its employees in all three states use it, and the sale is sourced to the server's state; the seller "has no responsibility to source the retail sale to any other state" (TB-51(R)). For term licenses and subscriptions, the initial payment is sourced like the sale, and renewals move only if the seller learns that the software's location has changed; sourcing renewals to the original location without that information "will not constitute bad faith" (N.J.A.C. 18:24-25.8(c), as set out in TB-51(R)).

For business software, the New Jersey sourcing question arises less often than the state's place in multistate planning suggests, because the tax base is narrow. Remote access is not a sale of tangible personal property in New Jersey: because software as a service "only provides the customer with access to the software and the software is not 'delivered electronically,' it is not the sale of tangible personal property," and use of a software application is not an enumerated service (Technical Bulletin TB-72, Cloud Computing (SaaS, PaaS, IaaS) (July 3, 2013)); the Division's letter ruling reached the same result where the software was only accessed by the user and not transferred (LR 2012-4-SUT (June 22, 2012)). The exception is SaaS used to furnish information services, which the bulletin treats as taxable information services. Prewritten software delivered electronically is taxable tangible personal property, but receipts from sales of it "used directly and exclusively in the conduct of the purchaser's business, trade or occupation are exempt," and the exemption does not reach software delivered by a load and leave method (N.J.S.A. 54:32B-8.56, as amended by P.L.2008, c.123, section 11). New Jersey's multi-location sourcing therefore matters mostly for software on tangible media, load and leave installations, and electronically delivered software that is not used exclusively in a business. Where it applies, the use in New Jersey of prewritten software bought at retail without payment of sales or use tax is subject to use tax (TB-51(R), applying N.J.S.A. 54:32B-6), so a New Jersey buyer whose seller sourced the license to another state carries the New Jersey question itself.

New York and the guidance route

New York reaches a users' portion result without a certificate. The Department's guidance provides that "if a purchaser has employees who use the software located both in and outside of New York State," the seller "should collect tax based on the portion of the receipt ... attributable to the users located in New York," and that the local situs is "the location from which the purchaser uses or directs the use of the software" (Tax Bulletin ST-128, Computer Software (August 5, 2014)). The library's article on New York's taxation of SaaS and the location of its users covers the proof that decides the out-of-state share. For a multistate license, the difference is structural: New York puts the apportionment on the seller's collection, while Washington and Ohio put it on the buyer's direct payment.

One license, four answers

A design software publisher sells an annual subscription to a firm whose software is accessed remotely and never downloaded. The firm has 200 authorized users: 80 in Washington, 60 in Ohio, 40 in New Jersey and 20 in a state that does not tax the product. The invoice goes to the firm's headquarters in Ohio. The publisher is registered in all four states.

Washington's share is 40 percent of the charge, 80 of 200 authorized users (RCW 82.12.0208(7)(a)), and the firm's 20 users in the fourth state, which produce no tax of their own, still count in that denominator. If the publisher sources the sale to the Ohio billing address, the firm owes Washington use tax on that share directly (WAC 458-20-15503(507)). If the publisher sources it to Washington, the certificate is what keeps the publisher from charging Washington sales tax on the whole charge (WAC 458-20-15502(11)(b)).

Ohio's share depends on Ohio's taxability of the product, a separate question, and on what the firm delivered. With an Ohio MPU certificate, the firm apportions by any reasonable, consistent and uniform method supported by its records and pays Ohio directly (R.C. 5739.033(D)(1)). With a certified apportionment the publisher accepts, the publisher collects on the agreed Ohio share (R.C. 5739.033(D)(2)). With neither, the publisher sources the charge under division (C), which on these facts usually means the Ohio billing address (R.C. 5739.033(D)(3)), and whatever relief the firm has for its out-of-state users lies in the credit and refund rules of the states involved.

New Jersey's 40 users produce no New Jersey tax, because remote access software is not a taxable sale there (TB-72). If the publisher instead sold the same product as an electronically delivered term license installed on a server in New Jersey, New Jersey would source the whole license to the server's location (TB-51(R)), and the firm's direct and exclusive business use would bring it within the exemption of N.J.S.A. 54:32B-8.56 unless the delivery were load and leave.

The questions the statutes leave open

Who counts as a user is the first. Washington's statute counts authorized employees and agents, and its rules repeat that definition and illustrate it with headcounts; neither the statute nor the rules address concurrent-seat licenses, service accounts, contractors outside the employee and agent definition, or API calls with no human user. Ohio's "reasonable, consistent, and uniform" standard accommodates any of these, which also means an examiner can test the choice. A buyer with a mixed licensing model has no statutory answer in either state and carries the burden of showing the method fairly reflects use.

Change over the term is the second. Ohio ties apportionment to the consumer's records "as they existed at the time of the sale" (R.C. 5739.033(D)(1)(b)), so a subscription whose user mix moves during the year is not re-apportioned on the statute's face until the next sale or renewal. Washington requires records kept in the ordinary course of business (RCW 82.12.0208(7)(c)) but does not say as of when users are counted, which leaves a buyer with seasonal or growing headcount to pick a measuring date and apply it consistently. New Jersey's renewal rule moves the source only on information the seller receives, and protects the seller that never received any (N.J.A.C. 18:24-25.8(c)).

The third is the mismatch between states. A certificate valid in Washington means nothing to a New Jersey seller, Ohio's statute expressly preserves every other state's claim, and a state with no MPU rule can source the whole license to one address while the user states assess their shares. Credits for tax paid to another state are the safety valve, but each state's credit statute has its own scope; Washington's, for example, names digital goods, digital automated services and services defined as retail sales (RCW 82.12.035). Whether a given credit reaches a given software product is a question for each state's statute.

The fourth is statutory drift. RCW 82.04.050 was amended in 2025 and twice in 2026, one 2026 act applies in part retroactively, and the reviser's notes show its subsection lettering changing again on January 1, 2029, which moves the cross-references in RCW 82.08.0208 and 82.12.0208. The MPU rule is in the current text, but a certificate program built on 2024 citations needs checking against it.

Practice notes

The sound sequence for a multistate license starts with the product, not the address: whether the offering is remote access, an electronic download, load and leave or tangible media decides whether each state taxes it at all, and New Jersey's answer for a business buyer is often that it does not. The second step is a user map by state, built from the identity and access records that Washington treats as the measure and that Ohio accepts as a reasonable method. The third is the certificate decision, made at the time of sale: a Washington or Ohio MPU certificate shifts the tax to the buyer's direct payment and belongs in the seller's file when the sale is invoiced, though Washington relieves a seller that obtains a completed certificate within 90 days after the sale (RCW 82.08.050(7)(a)), and no New Jersey certificate exists to deliver. A seller in this position keeps certificates by state with the same discipline as resale certificates, and a buyer keeps the apportionment workpaper behind each direct payment; where no certificate arrived in time, the out-of-state share becomes a refund or credit question under each state's own procedure. G&G State Tax Group provides sales and use tax sourcing analysis, certificate programs and refund claims for multistate software purchasers and sellers alongside its state and local tax practice.