State and Local Sales Taxes
New Rules for SaaS Firms and Sales Taxes
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.
What does this mean for you?
In a nutshell, this ruling creates multiple new challenges for SaaS firms related to sales taxes. 2019 will be a busy year in this regard, as many states will be deciding to levy taxes on SaaS firms involved in interstate commerce. Additionally, a few states, such as New York and Texas, already require companies to collect sales tax for their online software services, so this is already critical issue.
There’s a four-step process all SaaS firms should follow:
- Determine if your service offering is taxable in a particular state.
- Figure 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.
- Determine the appropriate amount of state sales tax.
- Calculate all the applicable local sales taxes that also must be collected, in addition to the state’s sales tax.
How can we help?
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 what are literally thousands of taxable jurisdictions across the country.
Laurentian can help you become compliant with all the new and changing sales tax rules for technology and SaaS firms. Contact us today at 703-508-6342.