Your 2023 guide to navigating SaaS sales tax in the US

Learn how to navigate SaaS sales tax in 2023. Stay compliant by understanding sales tax nexus, state-wise tax rates, and automation tools to manage taxation efficiently.

Running a Software as a Service (SaaS) business is exciting. But when it comes to sales tax, things can get tricky. As your business grows and reaches more states, you'll face new tax rules. In 2023, 23 US jurisdictions tax SaaS in some way. Understanding these laws is key to staying compliant.

What is sales tax nexus?

Sales tax nexus is a term that tells you where you need to collect sales tax. If your business has a certain connection, or "nexus," with a state, you must collect sales tax there.

In the past, a physical presence like an office or employees created this nexus. But a 2018 court case, South Dakota v. Wayfair, Inc., changed that. Now, states look at your sales revenue or a number of transactions to determine nexus. This is called economic nexus.

Each state has its own rules for sales tax nexus. These rules can change often. To stay compliant, you need to keep up with these changes. You might need to work with a tax professional or use tax software for this.

Is SaaS taxable?

SaaS is a way to deliver software over the Internet. This means businesses don't need to install and run software on their own computers. But is it taxable?

Each state has its own view. Some see SaaS as a tangible product. Others see it as an intangible service. Tangible products are usually taxable, while services often aren't. But it's not always this simple. Some states might see SaaS as a digital good, which could be taxable in some states and not in others.

To stay compliant, you need to understand the tax laws in each state where you do business. And remember, these laws can change. Staying up-to-date is key to avoiding tax problems.

How to collect sales tax

Collecting sales tax can be complex, especially if you do business in multiple states. Here are the three main steps:

  1. Register for a sales tax permit: You need to do this in each state where you have nexus.
  2. Collect and record sales tax: Once you're registered, you need to collect the right amount of sales tax. This can be hard because tax rates can vary by state, county, and city. Tax software can help with this.
  3. File and pay sales tax: You need to file regular sales tax returns and pay the tax you've collected. Each state has its own rules and deadlines for this.

If you don't follow these steps, you could face penalties and fines. So it's important to stay on top of your sales tax duties.

Making sales tax compliance easier with automation

SaaS taxation can be complex. That's why many businesses use tax compliance software. A good platform can:

  1. Connect to your billing and HRIS systems to get the data it needs
  2. Keep track of your sales tax duties in all jurisdictions
  3. Calculate and collect the right sales tax in real time
  4. Handle tax returns, registration, and payments

By automating sales tax, you can avoid mistakes, save time, and stay compliant more easily. Plus, you'll reduce the risk of penalties and keep your cash flow healthy.

2023 SaaS sales tax rates by state

States where SaaS is Taxable States Where SaaS is Taxable

Managing SaaS taxation can be tough. But with the right information, technology, and professional advice, you can handle it. This will help you stay compliant and maximize your revenue.

If you need expert help and an automated solution, our team is here for you. We can help you navigate SaaS tax compliance, so you can focus on growing your business. Get in touch with us today to start automating your sales tax compliance.

Navigating the world of SaaS sales tax doesn't have to be a daunting task. With the right tools and information, you can confidently grow your business in any market. Remember, knowledge is power. Stay informed, stay compliant, and keep growing.

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