SaaS Sales Tax

Your SaaS company is growing, your sales tax exposure doesn’t have to.

Register, collect sales tax and file your returns in one simple platform.

Speak to us for all your sales tax requirements.

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How Sales Tax Works for SaaS

SaaS sales tax refers to the sales tax applied to Software as a Service (SaaS) products. These are software applications accessed over the internet rather than downloaded and installed on a device.

There isn’t a uniform sales tax for SaaS across the United States (or globally). Each state has its own rules for what is taxable and how it’s taxed. This can make it complex for SaaS companies to determine where they need to collect and remit sales tax.

Here’s a breakdown of how SaaS sales tax works:

  • Taxability: Whether or not SaaS is taxable in a particular state depends on how the state classifies it. Some states view it as a service, while others see it more like a tangible product (like software).
  • Tax rates: Even if SaaS is taxable in a state, the tax rate can vary. Some states have a blanket sales tax rate, while others might have different rates depending on the type of service or good being purchased (e.g., reduced rate for business purchases).
  • The burden of collection: The sales tax responsibility typically falls on the seller (the SaaS company). However, there can be exceptions depending on the state and the specific situation.

Due to the complexities of SaaS sales tax, many SaaS companies choose to use automation tools or partner with tax professionals to ensure they are compliant with each state’s regulations.

Does Your State Charge Sales Tax On SaaS Products?

State

SaaS Taxable?

State

SaaS Taxable?

State

SaaS Taxable?

Alabama

Yes

Louisiana

Yes

Oklahoma

No

Alaska

Yes

Maine

No

Pennsylvania

Yes

Arizona

Yes

Maryland

No (business only, as of 7/1/2022)

Rhode Island

Yes

Arkansas

No

Massachusetts

Yes

South Carolina

Yes

California

No

Michigan

No (unless downloadable component)

South Dakota

Yes

Colorado

No

Minnesota

No

Tennessee

Yes

Connecticut

Yes

Mississippi

No

Texas

Yes (80%)

Florida

No

Missouri

No

Utah

Yes

Georgia

No

Nebraska

No

Vermont

No (as of 7/1/2015)

Hawaii

Yes

Nevada

No

Virginia

No

Idaho

No

New Jersey

No

Washington

Yes

Illinois

No

New Mexico

Yes

Washington D.C.

Yes

Indiana

No

New York

Yes

West Virginia

Yes

Iowa

Yes (except business)

North Carolina

No

Wisconsin

No

Kansas

No

North Dakota

No

Wyoming

No

Kentucky

Yes (as of 1/1/2023)

Ohio

Yes (business)

   

Our Clients

Return assistance technology for eCommerce businesses.

Integrations:
Sector:
Cloud Computing, SaaS
Tax Challenges:
Sales Tax Compliance

Light novel and manga magazine subscriptions.

Integrations:
Sector:
Digital Products, e-books, SaaS
Tax Challenges:
Sales Tax Compliance
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Our Solution For SaaS Sales Tax

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How We Help SaaS Merchants

Yonda tax saas integrations

Integrations

Filing your sales tax returns with Yonda is simple. Customers can log into our secure, cloud-based platform to upload the required data – but for a more automated solution, Yonda can easily connect with the business applications you use to generate the sales reports.

Here are the most common systems we integrate with.

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FAQs

1. Is SaaS Taxable?

Yes.

Even though the U.S. tax system was designed before the Internet, most have updated their rules so they can tax software companies.

Your tax exposure and approach to managing sales tax will depend on your specific product – but more than 30 states in the USA tax SaaS or other software in some form.

Even if you have no physical or legal presence in a State, your SaaS product can be taxable. Your tax exposure will be based on your sales in that state.

2. Is SaaS Charged For Sub Fees?

If your SaaS is taxable in a state, you’ll have to collect tax when billing customers in that state – but only if you have created nexus.

When a customer signs up or is billed for their subscription, their final price must include sales tax.

You might need a solution that integrates with your billing stack – this will depend on whether you decide to pay out of pocket or pass the tax on to customers.

3. Where Should I Collect Sales Tax?

You need to determine if you have sales tax exposure in any state. If you have nexus in any state, you should collect sales tax there.

We will explain your obligations based on your SaaS product, sales activity and where your customers are based.

Once you understand how it impacts your business, we do all the work: from sales tax permits to filing returns and talking to tax offices – you won’t need to do anything.

4. What Are The Risks Of Non-Compliance?

Non-compliance can end up costing you up to 5% of your taxable SaaS revenue.

If you should be collecting sales tax and are not, you’re operating non-compliantly and are at risk.

There can be reputational and financial exposure  – you legally owe the tax you haven’t charged, plus penalties and interest.

Tax non-compliance will be flagged during due diligence on any transaction (raising funds / M&A acquisition / listing).

Our Other Services

Since we are a full tax compliance solution we can offer you many more services. Here are some of our others that you may find handy:

dropshipping-usa-exchanges-practices

Nexus Monitoring

Free sales tax nexus monitoring helps you understand your tax obligations in every state. We monitor your sales in each jurisdiction, letting you easily stay on top of which US states you need to collect sales tax in, based on your sales and order volume.

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Sales Tax Calculation

Forget manual calculations and ensure you collect the right sales tax! Yonda integrates seamlessly with your checkout or billing system, automatically applying the appropriate tax rate based on your customer’s location.

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laptop-online-registration-tax

Automated Tax Filing

Filing sales tax returns just got easier! Simply provide your US sales data, and Yonda takes care of the rest. We connect securely to your website, accounting, or payment systems to automatically import your sales data each month. No manual entry is required!

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