Your SaaS business is experiencing rapid growth. You scale your operations and serve customers across the US. However, there are some points that you should pay attention to at this stage.
As your SaaS business scales, it becomes more and more complex to comply with sales taxes, both in the US and internationally.
Sales tax is one example of this complexity: if your business serves customers in the US, you need to comply with sales tax laws specific to each US state where you meet registration thresholds.
What is US Sales Tax?
US sales tax is a tax charged by the U.S. government on the sale of goods and services. Retailers usually collect sales tax at the point of purchase and then pass it on to the government. Since the dawn of sales, this has been a somewhat confusing endeavor, and digital products have made it even more complex.
Many factors contribute to the complexity of sales tax compliance and financial reporting in the United States, and each factor is crucial for SaaS companies to understand. If you're scaling your business, let's start with the most critical elements to tackle:
Economic Nexus
If your business is selling SaaS, software, or digital products and services in a US state, you may be required to register and pay sales tax in that state, regardless of whether you have a physical connection there which is called “Economic Nexus”.
South Dakota - Impact of the Wayfair Case
As online sales increased across the US in the 2010s, states realized they were losing billions of dollars in sales tax. As a result, they started pushing for a new compliance standard. Before 2018, nexus in the US generally referred to physical nexus, and you only had to pay sales tax if you had a de facto presence in one state.
However, in June 2018 South Dakota v. After the Wayfair decision, sales tax in the US has become much more complicated for online sellers. The Supreme Court agreed with South Dakota that states should collect sales tax where businesses have economic ties. Since this precedent was set, most states have followed suit and imposed their own connectivity standards.
Sales Thresholds
The sales threshold is a fixed amount of revenue in that country’s currency. When your sales /revenue passes the threshold amount, your business is required to register for local taxes.
Different states set different sales thresholds and may also have different evaluation periods and enrollment periods. Because of these complexities, it's critical that SaaS leaders and founders check each state's connectivity laws.
Different state and Territory Regulations
Currently, there are more than 14,000 tax jurisdictions in the US, each with its own rates, rules, and regulations, making it incredibly confusing and time-consuming to track taxes.
Sales tax legislation in the US is different in each state and applies different base rates.
SaaS, Software and digital goods companies suffer badly from the complexity of being taxed. Every time you add a product or service to your core product, potentially complex changes occur to your sales tax link. Software is taxed by numerous categories and criteria, and the system has not always kept up with changes in technology.
This will cause confusion and frustration for business owners, regardless of their experience, as products can be taxed at different rates depending on who is purchased, where they are purchased, and whether the product is taxable in a particular state, jurisdiction, or business size.
Currently, there are cloud-based platforms in the market that help you to manage tax compliance globally. Among them, TaxJar is the most popular and one of the most experienced in sales tax. TaxJar’s cloud-based platform automates the entire sales tax life cycle across all of your sales channels — from calculations and nexus tracking to reporting and filing. With innovative technology, they simplify sales tax compliance so their customers can grow with ease.
What if you want Sales tax calculation for each draft invoices that are created for your Nexus States? Or Sales tax reporting for all posted invoices in all States?
You can get through this complex process without stressing your SaaS B2B business process. Now, the Younium-TaxJar integration helps you scale without hassle in the US market.
With Younium-TaxJar integration, you can enable live tax calculations on your invoices, easily report, save time with subscription billing, and automate all your calculations and exemptions. For more detailed information about the Younium-TaxJar integration, you can visit our connectors page or contact us.
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