If you’re selling software across state and country boundaries, you’ll need to stay on top of where you might have established sales tax nexus. Now that more and more states are adopting economic nexus rules in addition to physical nexus rules, there’s a chance you could have nexus in places you’ve never set foot.
It’s essential that you track your nexus exposure as you grow and expand. You’ll need to track where you have employees and facilities as well as where your sales volume or sales dollar totals meet a particular state’s economic nexus threshold.
As you can imagine, with 50 states employing their own nexus rules, this can get complicated fast — and all the more so for SaaS sellers. There are a few ways to try to keep up with the ins and out of this situation.
Option #1: Do your analysis by hand
If you are a spreadsheet master and have a head for details (plus a penchant for research), you can attempt to analyze your nexus exposure by hand without the assistance of a template or automation software.
Figuring your nexus on your own will obviously be far easier to do if your nexus exposure is quite limited. For example, if you’re an online retailer who has no employees outside your hometown and a low volume of sales in multiple states, you will be able to figure your nexus exposure in just a few moments – you only have nexus in your home state.
But the minute your sales volume pushes past the nexus threshold in a given state — and the rules for this vary by state — you’ll suddenly be on the hook to register and collect sales tax on your transactions there. It can be tricky to track when you meet that threshold, either for number of sales or dollar total of sales, in each state in which you do business.