Software is taxable in Georgia only in specific circumstances: prewritten software sold on a physical medium like a disc or flash drive is subject to sales tax, while prewritten software delivered electronically, custom software, and software-as-a-service subscriptions are not. A 2024 rule change added sales tax to certain digital products sold with permanent-use rights, but that change left the long-standing exemption for electronically delivered software intact. The state rate is 4%, and combined state and local rates run up to about 9% depending on location.1Georgia Department of Revenue. Sales Tax Rates – General
Prewritten Software: Delivery Method Decides It
Prewritten software, sometimes called canned software, is any program designed for general use and sold to multiple customers without substantial customization. Georgia’s statutory definition of tangible personal property explicitly includes prewritten computer software,2Justia Law. Georgia Code 48-8-2 – Definitions which is what pulls it into the sales tax system. But taxability turns on how the software actually reaches the buyer.
Software sold on a tangible medium (a disc, flash drive, or any other physical format) is taxable as tangible personal property at the combined state and local rate.3Legal Information Institute. Georgia Comp. R. and Regs. R. 560-12-2-.111 – Computer Software and Computer-Related Services
Prewritten software delivered electronically or through load-and-leave installation is exempt from sales and use tax under O.C.G.A. § 48-8-3(91).4Justia Law. Georgia Code 48-8-3 – Exemptions This exemption has been in place for years and survived the 2024 digital goods expansion.
Documentation matters more than most buyers realize. If the delivery method isn’t shown on the invoice or purchase contract, the Georgia Department of Revenue presumes the software was delivered on a tangible medium, and the burden shifts to the buyer to prove otherwise.5Georgia Department of Revenue. Letter Ruling LR SUT-2018-10 – Software An invoice that reads only “Software License — $5,000” gives the DOR an easy path to tax the transaction. Contracts and invoices should state the delivery method plainly.
Use tax closes the loop on out-of-state purchases. When a Georgia business buys taxable software from a vendor who doesn’t collect Georgia tax, the buyer owes use tax at the same rate on first use in Georgia.6Georgia Department of Revenue. What is Subject to Sales and Use Tax So the physical-media rule cannot be sidestepped just by buying from a seller outside Georgia.
Custom Software Is Treated as a Service
Software built from scratch to a single customer’s specifications is a professional service under Georgia rules, not tangible personal property, and it is not taxed.3Legal Information Institute. Georgia Comp. R. and Regs. R. 560-12-2-.111 – Computer Software and Computer-Related Services Delivery method doesn’t change that. Even if a developer hands you the finished product on a USB drive, the transaction is still a service, because what you paid for was the creation of unique code.
Modifications to prewritten software work differently. Paying a vendor to customize an off-the-shelf program does not convert the base software into custom software. The base license fee keeps its prewritten classification and remains taxable when delivered on physical media. However, if the customization charges are separately stated on the invoice, those charges qualify as non-taxable professional services.3Legal Information Institute. Georgia Comp. R. and Regs. R. 560-12-2-.111 – Computer Software and Computer-Related Services Bundle everything into one line item and the DOR can tax the whole amount. How the invoice is structured directly changes the tax bill.
SaaS and Cloud Subscriptions Are Not Taxable
Software as a Service and other cloud-based subscription products stay outside Georgia’s sales tax. The DOR’s 2024 digital goods rule explicitly excludes SaaS.7Georgia Department of Revenue. Adopted Rule 560-12-2-.118 – Digital Goods The same rule also excludes any transaction where the buyer does not receive permanent-use rights, or where continued access depends on continued payment.
The reasoning fits Georgia’s framework. SaaS users don’t take possession of a copy of the software. They access it remotely, the vendor hosts it, and access ends when payment stops. Nothing tangible transfers, and no permanent-use right is granted. Most of what businesses buy today (payroll platforms, CRM tools, project management apps, cloud accounting) falls into this bucket and carries no Georgia sales tax.
Watch for misclassification. Some products marketed as SaaS actually grant a permanent license with cloud hosting attached. If the buyer receives permanent-use rights and the transaction isn’t contingent on continued payments, it can fall outside the SaaS exclusion. The license agreement controls, not the marketing.
What the 2024 Digital Goods Rule Changed
Beginning January 1, 2024, Georgia started taxing “specified digital products,” “other digital goods,” and “digital codes” when sold to an end user with permanent-use rights and not conditioned on continued payment.7Georgia Department of Revenue. Adopted Rule 560-12-2-.118 – Digital Goods This reaches items like e-books, music downloads, and digital artwork bought outright.
The rule does not override the existing exemption for electronically delivered prewritten computer software. The DOR’s rule text spells this out directly: electronically transferred prewritten software remains exempt, and that exemption does not extend to specified digital products, other digital goods, or digital codes.7Georgia Department of Revenue. Adopted Rule 560-12-2-.118 – Digital Goods
So if you buy a traditional software license delivered as a download, the 2024 change did nothing to you. If you buy digital content with permanent ownership rights, the change likely made it taxable. The line between “prewritten computer software” and “other digital goods” can blur for some products, so businesses selling or buying digital content should review how each product is classified.
Exemptions That Can Remove the Tax Anyway
Several exemptions can eliminate sales tax on a software purchase that would otherwise be taxable.
Government Purchases
Sales to the U.S. government, the State of Georgia, and Georgia counties and municipalities are exempt when paid directly with appropriated government funds.4Justia Law. Georgia Code 48-8-3 – Exemptions The exemption depends on the payment source: it requires payment by government warrant on appropriated funds, not simply that the buyer is a government entity.
Manufacturing Machinery and Equipment
Georgia exempts machinery, equipment, industrial materials, and packaging supplies that are necessary and integral to manufacturing tangible personal property.8Justia Law. Georgia Code 48-8-3.2 – Exemptions for Manufacturing Software that directly controls or is embedded in manufacturing equipment can qualify. Manufacturers claim this exemption using Form ST-5M.
Resale
Software bought for resale is exempt on the same terms as any other tangible personal property purchased for resale. The buyer provides the seller with a completed Georgia Sales Tax Certificate of Exemption (Form ST-5) documenting the resale purpose.9Georgia Secretary of State. GAC Subject 560-12-3 – Forms Applicable to Sales and Use Tax Tax then falls on the final consumer.
High-Technology Data Centers
Georgia offers a sales and use tax exemption on qualifying equipment purchases for high-technology data centers. Eligibility depends on minimum investment thresholds and job creation requirements that vary by the population of the county where the data center is located.10Georgia Department of Revenue. Data Centers Sales and Use Tax Exemption – Aggregate Expenditures by County Businesses building or expanding data centers should review O.C.G.A. § 48-8-3(68.1) and DOR Rule 560-12-2-.117 for the specific figures that apply to their county.
Selling Software into Georgia from Out of State
Remote sellers must register, collect, and remit Georgia sales tax once they exceed $100,000 in gross revenue or 200 separate retail transactions delivered into the state during the current or previous calendar year. Sales made through marketplace facilitators are generally excluded from the seller’s own count, since the marketplace handles collection on those transactions.
This threshold applies to sales of tangible personal property, so it is most relevant to sellers shipping physical software media into Georgia. Sellers who deliver software electronically may have no taxable transaction to worry about in the first place, because of the electronic-delivery exemption. Sellers of taxable digital products under the 2024 rule should track their Georgia sales volume.
Quick Reference: Georgia Software Taxability
- Prewritten software on physical media: taxable at the combined state and local rate.
- Prewritten software delivered electronically or by load-and-leave: exempt under O.C.G.A. § 48-8-3(91).4Justia Law. Georgia Code 48-8-3 – Exemptions
- Digital products with permanent-use rights (since January 1, 2024): taxable if not conditioned on continued payment.7Georgia Department of Revenue. Adopted Rule 560-12-2-.118 – Digital Goods
- Custom software: not taxable, treated as a professional service.3Legal Information Institute. Georgia Comp. R. and Regs. R. 560-12-2-.111 – Computer Software and Computer-Related Services
- SaaS and cloud subscriptions: not taxable.7Georgia Department of Revenue. Adopted Rule 560-12-2-.118 – Digital Goods
- Modifications to prewritten software when separately stated on the invoice: not taxable.3Legal Information Institute. Georgia Comp. R. and Regs. R. 560-12-2-.111 – Computer Software and Computer-Related Services
The difference between a taxable and exempt software purchase in Georgia usually comes down to three things a buyer can actually control: whether delivery is electronic and clearly documented as such, whether customization work is broken out on the invoice, and whether the license grants permanent ownership or subscription access.