How to Handle Sales Tax and VAT for SaaS

In the US, a state can only make you collect sales tax if you have "nexus", a sufficient connection with the state. For a long time that meant physical presence: an office, employees or inventory. That changed with a Supreme Court decision. The Nevada Department of Taxation summarizes it: in South Dakota v. Wayfair, the Court ruled that states can require remote sellers to collect and remit sales or use tax on sales delivered into their state, regardless of whether the seller has a physical presence.

States responded with economic nexus thresholds based on sales into the state. As one example, Nevada's page, read on 2026-10-17, says remote sellers must register if in the previous or current calendar year they have more than $100,000 of retail sales into Nevada, or 200 or more separate retail transactions. Thresholds, measurement periods and what counts toward them differ by state, and states change them. The Sales Tax Institute's state chart shows states that have removed transaction-count thresholds or changed dollar thresholds since they first adopted them. Always check the current rule on the state's own site.

Three points founders often miss:

• Physical presence still counts. The Streamlined Sales Tax organization notes that the obligations for a seller with physical presence did not change under Wayfair. A remote employee working from their home can create nexus in that state. Ask an accountant how your team's locations affect this.
• Registration has a deadline. Nevada, for example, requires registration by the first day of the month that begins at least 30 days after the threshold is reached. Track your sales by state monthly so you see the threshold coming.
• There is a shortcut for some states. Streamlined Sales Tax offers one registration for all Streamlined member states and certified service providers that handle calculation and filing.

Nexus tells you whether you must collect in a state. Taxability tells you whether your product is taxed there at all. The two are separate questions.

Anrok explains that the taxability of SaaS varies by state, depending on how it is classified: some states treat it like tangible software, some as a service, some as a digital good, and some leave it untaxed. TaxJar's state table shows how much detail hides inside a "yes". It notes that Iowa taxes SaaS except when used for business purposes, and that Texas treats SaaS as a data processing service that is partly taxable and partly exempt.

That gives you a two-question test for each state:

Note the middle cell. Some states expect registration once you have nexus even if most of your sales are exempt. Your product's specific features matter too. A bundle of software, data and human services can be classified differently from software alone.

The European Union taxes digital services sold to consumers in the customer's country, at that country's VAT rate. The key distinction is whether your customer is a business or a private consumer.

Selling to businesses (B2B). Stripe's EU VAT guide explains that for cross-border B2B sales, the reverse charge method often applies, in which case the buyer pays the VAT directly to their government rather than through you. Vatcalc describes the invoice side: the supplier issues an invoice without VAT, with a note that the reverse charge applies and often the customer's VAT number. Validate business customers' VAT numbers at checkout and keep the result.

Selling to consumers (B2C). You charge VAT at the customer's country rate. To avoid registering in every member state, the EU offers the One Stop Shop. The EU's official guidance describes it as one registration, one return, one payment for all your EU sales, filed through the portal of one member state. For businesses established outside the EU, the relevant route is the Non-Union scheme, which covers services supplied to EU consumers with a quarterly return. The same page notes you may need to keep records for up to 10 years in case of audits.

Proving where the customer is. Because the rate depends on location, you need evidence. Stripe says you generally need two pieces of evidence that confirm your customer's location, drawn from sources such as billing address, IP address, bank location and the country that issued the card. Collect these automatically at checkout and store them with each transaction.

The UK follows similar logic under its own rules. GOV.UK's guidance says that if you supply digital services to UK consumers, those supplies are liable to UK VAT, and that if you are based outside the UK you will need to register for UK VAT. Anrok's UK guide, read on 2026-10-17, states that for nonresident businesses selling digital products to UK consumers, registration is required from the first B2C sale, with no registration threshold, while B2B sales use the reverse charge.

GOV.UK also covers the gray zone of customers who say they are businesses but have no VAT number. It allows other evidence of business status, such as a link to the customer's business website. Otherwise, treat the sale as business-to-consumer.

Beyond Europe, the pattern repeats. Vatcalc reports that over 120 countries have VAT obligations on digital services supplied by non-residents to consumers, and that most use the reverse charge for B2B, while a small number also tax B2B sales directly. Each country has its own thresholds, rates and filing schedules.

Once you know your obligations, you choose how to meet them. There are three common models.

A merchant of record (MoR) resells your product and takes on the tax obligations of the seller. Stripe describes an MoR as the legal seller on the transactions it covers, taking on indirect-tax compliance, fraud and chargeback liability, and dispute management. Paddle, which sells an MoR service, describes it as a legal entity responsible for selling goods or services to an end customer, including collecting sales tax. The trade-offs are higher per-transaction fees and less direct control over checkout, payment methods and the customer relationship.

A useful rule of thumb: if most of your revenue is B2B in one country, start with automation software and your accountant. If you sell to consumers in many countries from the start, an MoR can remove most of the registration and filing work. Confirm with your accountant exactly which obligations an MoR takes over and which remain yours, such as income tax and sales outside the MoR.

1. Map your sales. Export revenue by customer country, US state and business or consumer status for the last twelve months.
2. Check US nexus. Compare sales by state against each state's current threshold, and list states where you have physical presence or employees.
3. Check taxability. For each nexus state, confirm whether your product is taxable for your customer types.
4. Check international obligations. Identify countries where you sell to consumers, and whether the EU One Stop Shop or a UK registration applies.
5. Collect evidence at checkout. Capture billing address, IP country, card country and VAT numbers, and validate VAT numbers automatically.
6. Choose your operating model. Do it yourself, automation software or merchant of record.
7. Register before you collect. Most jurisdictions require registration before you charge tax.
8. Fix the past. If you have been over a threshold for a while, ask an accountant about voluntary disclosure options before registering.
9. Calendar every filing. Returns are due monthly, quarterly or annually depending on the jurisdiction.
10. Review quarterly. Thresholds, rules and your sales mix change. Re-run steps 1 to 4 each quarter.

Expert agents and tax playbooks on platforms such as Quanta Intelligence can help you prepare these questions, but the final answers must come from a qualified tax adviser who knows your facts.