Understanding Your Sales Tax Obligations as a Technology or Software Company - A Checklist

Sales and use tax generally applies to the sale or use of tangible personal property and certain services. Since software, and especially Software-as-a-Service, may not be delivered in a tangible form, many technology and software companies have considered themselves exempt from sales and use tax. But this is not always the case. In fact, many states impose sales and use tax on services provided by the technology industry.

Not realizing your sales tax obligation or not acting on a growing obligation could have big repercussions for your business. Don’t put yourself or your company at risk of sales tax non-compliance.

Utilize this quick checklist as a check-up to what you do and don’t understand about your sales tax obligations.

Understanding your current situation:

• Do you know everywhere that your company currently has nexus?

• Do you understand the taxability of your products/services in each of the states in which you have a customer?

• Do you attend tradeshows or conferences outside of your home state?

• Do you have employees or technicians living outside of your home state?

• Are you registered in every state that you’ve established nexus and have taxable sales?

• How are you calculating sales tax? Can you manage this process within your invoicing system (or shopping cart) or do you need sales tax software to calculate the sales tax due?

• Do you have a process in place to file and manage your returns and any communications with jurisdictions?

• Are you prepared in the case of a future audit? Who will manage this and respond appropriately? What is your potential liability if you have not been complying?

• What happens if you have a question related to sales tax? Who will you ask?

• Who will be in charge of monitoring your economic nexus activity?

If you can respond to the majority of these questions with confidence, congratulations, you probably have a pretty good handle on your current sales tax situation. Be sure you continually monitor taxability laws and your economic nexus thresholds as you add new clients. If all of this ever becomes too much, consider outsourcing your sales tax compliance to an expert like TaxConnex!

If you can’t answer yes to all of the above, or you’re confused, you’re in the right place. TaxConnex is an outsourced sales tax provider that provides both consulting and compliance services for businesses looking for help understanding and managing their sales tax obligations. We have a deep understanding of how sales and use tax impacts the technology and software industry. Get in touch to learn how we can help you!

This is an excerpt from a recent guide published by TaxConnex. If you’re looking for more information on how to set up a more sales tax compliant business or want a further check-up into how you are managing sales tax – download our full checklist – Sales Tax Checklist: What Software and Tech Companies Should Consider.