Software Executive Magazine

February/March 2018

Software Executive magazine helps software executives grow their businesses by showcasing the business best practices of our readers, executives from established and innovative software companies.

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that can be used to integrate into your own checkout or billing systems. NEXT STEPS TO TAKE We have worked to simplify the information in this arti- cle to make it readable. There is room for interpretation since rapid change is happening in this area. If you are already collecting and remitting tax in some states, re- view the list and your nexus to determine if you need to add more states. If you haven't paid sales tax in a state, and you should have, you can submit a Voluntary Dis- closure to the state to resolve back tax issues. Generally this will reduce your penalties and the look-back period. If you don't have a system in place, talk to a tax per- son specializing in state and local tax (SALT). When you do, you'll want to have a 12 month revenue report by state and your payroll register by state to facilitate this discussion. Here are some key points to discuss with a SALT specialist: ▶ Where does my company have nexus? ▶ Where does my company have economic nexus based on our selling process? ▶ In those states where my company has nexus, where does my product offering fit in the defini- tions of S aaS for each state? ▶ Where should I get the tax rates based on the buyer's address? ▶ Should I have already been collecting sales tax in certain states? How much should I have collected? As states continue to look for revenue, these rules will continue to change. Be sure to find a way to keep up to date. S before further action. In simple terms, it would have required all sellers who gross more than $1 million in remote sales per year to collect sales tax from buy- ers in states that meet certain requirements. ▶ The Remote Transaction Parity Act (RTPA) — This bill is similar to the Marketplace Fairness Act, but would have gradually, over a period of four years, required all remote sellers to collect sales tax from buyers, no matter their state. ▶ The No Regulation Without Representation Act — Unlike the other laws, this law would have prohibited all legislation requiring remote sell- ers to collect sales tax. Instead, it would have codified the precedent that a seller must have physical presence in a state to be required to collect sales tax. ▶ The Sales Tax Simplification Act (STSA) — In this law, states who elected to participate in a "clearinghouse" and otherwise take steps to make sales tax collection and filing simple for remote sellers, could require remote sellers to charge sales tax to in-state buyers. ▶ Supreme Court cases — Further, on the federal lev- el, South Dakota has petitioned the U.S. Supreme Court to hear a case that would overturn the cur- rent nexus precedent set by Quill v. North Dakota. The court has yet to decide if they'll hear the case, which could potentially have huge implications for which retailers need to collect sales tax. MONITORING CHANGE To help you follow sales tax changes in the future, here are some useful links: ▶ State by state review of SaaS taxability status with cited sources: www.taxjar.com/saas/ ▶ Every six months, Vertex posts an updated report of changes in all sales tax areas. The "New Sales Tax Report Shows Significant Increase of Rate Changes in First Half of 2017" can be found at www.vertexinc.com/news USING AUTOMATION There are now automated tools to assist you in calculat- ing the sales tax by customer location. In general, these tools allow you to assign a tax code for each of your products, and this code is used to pull up the appropri- ate rate in states that you have activated. After the tax is calculated, the data is used to create and file the state sales tax reports. Some of these tools tie into your own billing system (e.g., QuickBooks). Others provide an API J E N N I F E R D U N N is the chief of content at TaxJar, a software solution that calculates sales tax and then provides reporting and filings, where she specializes in making complicated sales tax topics simple for retailers of all sizes. Read her writing at blog.taxjar.com or get in touch at @TaxJar. C H R I S L I V I N G S T O N is director of product and operations for Vertex Cloud, a sales tax processing solution. Chris works with companies of all sizes, automating end-to-end sales tax processes from calculation and exemption certificates to filing. You can find him on LinkedIn or @VertexInc. S T E V E S E H Y provides ongoing CFO services to multiple SaaS companies that are planning to raise capital. Prior to this position, he did software development/product management and was a CPA auditor for RSM. You can find him on LinkedIn or at Steve.Sehy@yahoo.com. By S. Sehy & C. Livingston & J. Dunn SALES TAX FOR SAAS: AN UPDATE SOFTWAREEXECUTIVEMAG.COM FEBRUARY/MARCH 2018 34 SCALING & GROWING framework

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