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‘It depends’ is a commonly used phrase when it comes to sales tax, and a quite frustrating one at that. We know that. But when it comes to taxability, it’s often our answer. 

Understanding the taxability of your company’s products or services is one of the key steps to complying with sales and use tax laws nationwide. But that can be a challenge. Keeping up with states’ sales tax rules was the most-cited worry for 2021 among respondents to our recent survey regarding sales tax and business growth in 2021 –  followed closely by understanding sales tax on products and services. This is not all that shocking when you think of all the nuances of understanding your business's taxability.  

Not only do states vary widely in their nexus thresholds, but taxability also differs across state lines.  If you sell items considered tangible personal property (e.g., physical items), things are a bit easier, as they’re likely taxable for sales and use tax purposes. Similarly, services are generally exempt unless stated otherwise.  

Other products and solutions can be more complicated. Many states’ rules don’t address how some digital products are taxed, for instance. Software as a service (SaaS) is subject to a myriad of rapidly changing tax rules. Telecommunications companies are in a realm of their own and must consider many taxes and fees that other industries do not. Construction, manufacturing, leasing businesses, it all depends.  

Understanding your own state's rules is usually simple, but as your business grows, so does your sales tax obligation. To ensure you stay compliant, you need to watch both the nexus and taxability rules in each state so you understand where you have a sales tax responsibility. There are times when you establish nexus but your product and/or service is not taxable in one state but is in others.  This is a lot for any business to keep up with.  

TaxConnex is an outsourced sales tax department for businesses looking to solve the sales tax puzzle.  By relying on years of expertise and having dedicated practitioners to provide support and answer questions, TaxConnex can help your business stay on top of your taxability and ensure you are maintaining compliance in the states where you have an obligation. Get in touch to learn how we can help you with sales tax on products and services! 

To learn more on this topic – check out our new eBook on Taxability – this blog is a smaller excerpt of this piece and will go into more detail for individual industries.  

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Robert Dumas

Written by Robert Dumas

Accountant, consultant and entrepreneur, Robert Dumas began his public accounting career on the tax staff at Arthur Young & Co., followed by a brief stint at Grant Thornton. In 1998, Robert founded Tax Partners, which became the largest sales tax compliance service bureau in the country, and later sold it to Thomson Corporation. Robert founded TaxConnex in 2006 on the principle that the sales tax industry needed more than automation to truly help clients, thus building within TaxConnex a proprietary platform and network of sales tax experts to truly take sales tax off client’s plates.