Sales tax compliance is a critical yet often overlooked aspect of running a startup. Many founders assume that sales tax only applies to large businesses, but with economic nexus laws, evolving SaaS tax rules, and increasing state sales tax regulations, even early-stage companies must be proactive.
If your startup sells across multiple states or internationally, you may already have a sales tax liability without realizing it. Non-compliance can result in audits, penalties, and unnecessary legal risks—challenges no startup wants to face.
So, when should your company start worrying about sales tax? Let’s break it down.
1. Are Your Products or Services Taxable?
The first step in determining sales tax obligations is understanding whether your products or services are taxable.
- Physical products: Most tangible goods, such as electronics, clothing, and furniture, are subject to sales tax on retail products, though exemptions exist in some states.
- SaaS and digital products: SaaS sales tax compliance varies significantly by state—some treat software as taxable, while others exempt it.
- Services: Some states tax professional services, including IT support, consulting, and digital marketing services.
2. Where Are Your Customers Located? (Understanding Economic Nexus)
Even if your company is based in a state with no sales tax (e.g., Delaware or Oregon), you might still owe tax in other states due to economic nexus laws.
- What is economic nexus? Economic nexus laws require businesses to collect sales tax if they exceed a certain revenue or transaction threshold in a state, even without a physical presence.
- Common economic nexus thresholds: Most states enforce a $100,000 revenue or 200 transactions rule, but thresholds can vary.
✅ Example: If your SaaS startup generates $120,000 in sales from California, you likely have economic nexus in California and must collect sales tax—even if your company operates remotely.
3. Are You Selling to Businesses or Consumers? (B2B vs. B2C Tax Rules)
Your sales tax obligations depend on whether you sell business-to-business (B2B) or business-to-consumer (B2C).
- B2B Sales: Some businesses provide resale certificates or qualify for sales tax exemptions, but sellers must validate and maintain exemption certificates.
- B2C Sales: Selling directly to consumers typically requires sales tax collection and remittance, regardless of exemptions.
4. Have You Crossed a Sales Tax Registration Threshold?
Once you establish economic nexus in a state, you must register for a sales tax permit before collecting sales tax.
🛑 Common Mistake: Collecting sales tax without registering is illegal and can lead to penalties.
🔹 How to register for sales tax:
✅ Identify states where you have nexus obligations.
✅ Apply for a sales tax permit in those states.
✅ Set up automated tax collection on your invoices and checkout pages.
5. Are You Prepared for Sales Tax Audits & Compliance Risks?
Many startups assume they are too small to be audited, but states actively track businesses that exceed sales tax thresholds without registering.
🔹 Signs Your Business Might Be at Risk:
❌ You sell across multiple states but haven’t checked your nexus status.
❌ You collect sales tax without remitting it correctly.
❌ You assume SaaS and digital products aren’t taxable (they are in some states!).
💡 Pro Tip: Automating sales tax compliance with a solution like Complyt ensures your startup collects, calculates, and files taxes accurately—reducing audit risks and avoiding costly penalties.
Conclusion: Take Action Before It’s Too Late
If your startup is selling online, across states, or offering SaaS products, it’s crucial to evaluate your sales tax obligations early to avoid compliance risks.
✅ Actionable Steps for Startups:
🔹 Determine if your product or service is taxable.
🔹 Check where you have economic nexus.
🔹 Identify B2B vs. B2C tax requirements.
🔹 Register for sales tax permits before collecting tax.
🔹 Automate sales tax compliance with a trusted solution.
🚀 Stay Compliant & Avoid Sales Tax Headaches
Managing sales tax manually is time-consuming and risky. Complyt automates your entire sales tax compliance process, ensuring accurate tax collection, reporting, and filing—so you can focus on growing your business.
📞 Book a free sales tax assessment today!
