Overview

Since the Supreme Court’s decision in South Dakota v. Wayfair, Inc. (2018), states have expanded the reach of sales tax rules to out-of-state sellers based on economic activity rather than physical presence alone (South Dakota v. Wayfair, 2018). For remote SaaS companies in 2025, that means you must evaluate both where your customers are located and how each state treats SaaS, digital products, and related services.

How nexus is determined for SaaS

  • Economic nexus: Most states use an economic threshold — often based on annual gross receipts from sales into the state or a minimum number of transactions — to trigger nexus. Thresholds and tests differ by state and may change, so verify each state’s rule before assuming you’re exempt (state departments of revenue).
  • Physical presence: Offices, employees, independent contractors, sales reps, or owned servers in a state can create physical nexus.
  • Click‑through and affiliate rules: Having referral links, affiliates, or in‑state agents can create nexus in some states.
  • Marketplace‑facilitator and marketplace laws: If you sell through platforms, the marketplace may be required to collect tax on your behalf — but you still need to understand taxability and registration obligations.

Real‑world example (illustrative)

TechSolutions, a California-based SaaS seller, sells subscriptions to customers in many states. In 2025 it exceeded a state’s economic threshold (hypothetical) and therefore had to register, collect, and remit tax in that state. Even if a platform collects tax for marketplace sales, TechSolutions still needs to track where sales are taxable and maintain exemption documentation where appropriate.

What SaaS companies should review

  1. Taxability: States vary on whether SaaS, cloud-hosted software, and support/maintenance are taxable goods, services, or non-taxable. Always confirm the product classification with the state department of revenue.
  2. Threshold monitoring: Track state-by-state sales and transaction counts monthly. Many companies use automation to avoid missing a trigger.
  3. Physical connections: Track employees, contractors, servers, offices, trade shows, or inventory that could create nexus.
  4. Registration and filing: If you meet a state’s nexus test, register promptly to minimize penalties and consider voluntary disclosure where appropriate.

Professional strategies to stay compliant

  • Run an annual (or more frequent) nexus study: Use accounting data to map sales by state and flag thresholds. In my practice, quarterly checks reduce surprises at year-end.
  • Use tax automation: Sales tax engines (Avalara, TaxJar, Vertex) help with sourcing, taxability, and rate updates, but you still need to confirm product taxability per state guidance.
  • Maintain exemption certificates: If you have exempt customers, store and manage their certificates centrally and review expiration dates.
  • Limit voluntary physical footprint: Where possible, control where employees and servers are located to reduce unintended physical nexus.
  • Keep documentation: Retain registration confirmations, returns, exemption certificates, and nexus studies for audit defense.

Common mistakes and pitfalls

  • Relying only on physical presence: After Wayfair, economic nexus is now widespread; no physical presence doesn’t guarantee exemption.
  • Assuming uniform taxability: One state may tax SaaS while a neighboring state does not; don’t assume cross-state rules are identical.
  • Ignoring marketplace implications: Just because a marketplace collects tax doesn’t remove all seller obligations (reporting, registration, or remittance can still apply for some sellers).

Short FAQs

  • When should I assess nexus? Continuously — perform a detailed review at least annually and after business changes (new employees, rapid sales growth, platform changes).
  • What if I haven’t been collecting tax? States can assess back taxes, interest, and penalties. Many states offer voluntary disclosure programs that limit look‑back periods and penalties; consult a tax professional.

Internal resources

Authoritative sources and where to verify rules

  • Supreme Court, South Dakota v. Wayfair, Inc., 2018 (establishing economic nexus doctrine).
  • State departments of revenue — check each state’s official guidance on economic nexus and SaaS taxability (e.g., California Department of Tax and Fee Administration, Texas Comptroller).
  • Streamlined Sales Tax Governing Board and Multistate Tax Commission for summaries and model approaches.

Professional disclaimer

This article is educational and does not constitute legal, tax, or accounting advice. Nexus and taxability rules vary by state and change frequently; consult a qualified tax advisor or attorney for guidance tailored to your business.

Last reviewed: 2025