Should Your SaaS Firm Be Charging State Sales Tax?
In June of 2018, the U.S. Supreme Court decided that individual states can now require companies to collect and remit sales tax from customers, even if the company doesn’t have a physical presence in a particular state. Known as the Wayfair decision, this ruling means that states can now place sales tax requirements on a SaaS firm that does a certain amount of sales in a state, even if that firm doesn’t have either employees or offices in the state.
This ruling creates multiple new challenges for SaaS firms. And it’s important to understand that some states, such as New York and Texas, already require firms to collect sales tax for their online software services.
The process of determining if a firm needs to charge its customers sales tax includes multiple, somewhat tricky steps: The first step is to determine whether your service offering is taxable in a particular state. The second step is figuring out whether your firm meets the revenue threshold in that state. This is the test of “economic nexus” that must be present for a business in order for a sales tax to be required. And the third step is to determine all the applicable local sales taxes that also must be collected in addition to the state’s sales tax.
The penalties for not complying can be steep. At Laurentian, we can assist you in determining your risk level in this post-Wayfair environment by assessing if your services are taxable, if you have economic nexus, and how you can set up systems to process local and state sales taxes for the many thousands of taxable jurisdictions across the country.
The good news is that now there are some dependable cloud accounting tools available to streamline and automate the process. Moreover, these tools can be used with your existing accounting software.
If you’re interested in how Laurentian can help you become compliant with all the new and changing sales tax rules, don’t hesitate to contact us today at 703-508-6342.