SaaS Taxation Changes Effective January 1, 2026
Alt text (SEO): Graphic showing SaaS platforms and digital tax concepts representing changes to software taxation for individual and enterprise users.
Beginning January 1, 2026, the state is implementing major updates to how SaaS is taxed.
SaaS for Individual Use
SaaS purchases for personal or household use will remain taxable at the standard sales tax rate.
(Source: State tax reform legislation, 2026)
SaaS for Commercial and Enterprise Use
SaaS sold for commercial or enterprise computer system use will now be subject to a new 3% tax rate.
(Source: State revenue guidance on digital products, 2026)
Repeal of Custom Software and Custom SaaS Exemption
Custom software and custom SaaS will no longer qualify for exemption and will become fully taxable in 2026.
(Source: Legislative update on software tax classifications, 2026)
2. R&D Exemption Repeal and New Franchise Tax Credit (Jan. 1, 2026)
Alt text (SEO): Illustration of research and development activities highlighting transition from R&D tax exemption to a franchise tax credit.
Under Senate Bill 2206, the existing sales and use tax exemption for R&D activities will be repealed.
What’s Changing?
- The R&D sales tax exemption ends January 1, 2026.
- It is replaced by a more generous and permanent franchise tax credit.
(Source: Senate Bill 2206 fiscal analysis, 2025)
This shift incentivizes ongoing innovation investments rather than providing upfront tax savings at purchase.
3. Updated Sales Tax Holiday Dates Starting August 2025
Alt text (SEO): Back-to-school shopping imagery representing tax-free weekend for clothing, footwear, and school supplies.
Beginning in August 2025, the sales tax holiday will occur:
➡ From the first Friday in August through the following Sunday
This adjustment aligns the holiday with back-to-school shopping patterns and provides consistency for retailers and families.
(Source: Department of Revenue tax holiday schedule, 2025)
Key Takeaways
- SaaS taxation is changing significantly, including a new 3% enterprise-use rate and the end of the custom software exemption.
- R&D incentives shift from a sales tax exemption to a permanent franchise tax credit.
- The sales tax holiday moves to a fixed early-August weekend beginning in 2025.
Changes in Texas sales tax law and Saas