If your company licenses software and has employees in more than one state, there’s a good chance you’re paying more sales tax than the law requires—and you may be able to get that money back.
Most companies assume their software vendors are handling sales tax correctly. After all, tax is calculated automatically, it shows up on the invoice, and someone at the vendor presumably set it up properly. In practice, however, this assumption fails regularly—and the result is consistent overpayment by the buyer.
The reason comes down to a mismatch between how vendors apply tax and how U.S. sales tax law actually works for multistate software purchases.
The Rule Vendors Usually Get Wrong
U.S. sales tax is set entirely at the state level—there is no single national rule. Each state decides for itself whether software is taxable, at what rate and under what conditions. Some states tax software broadly. Others exempt it entirely, particularly when delivered electronically. Many fall somewhere in between.
This creates a problem when a company uses software across multiple states. The legally correct approach is to ask: “How much of this software is being used in each state?” Then, you apply each state’s rules only to that portion of the software. That’s the essence of the multiple points of use (MPU) rule. “Points of use” simply means the states where your employees or devices are actually using the software.
What vendors typically do instead is far simpler: They look at where the invoice is billed—usually the buyer’s headquarters—and apply that state’s tax rate to the entire purchase. If your employees are spread across states with lower rates or no software tax at all, you are being overcharged.
