Before 2018, a SaaS company could serve customers in all 50 states with no physical presence and collect no sales tax outside its home state. South Dakota v. Wayfair changed that. Every state with a sales tax now imposes economic nexus obligations on out-of-state sellers who cross their threshold - most commonly $100,000 in sales or 200 transactions per year. For SaaS specifically, taxability varies dramatically: some states tax all SaaS, some tax none, some distinguish B2B from B2C, and the definitions shift constantly. Getting this wrong creates audit exposure across multiple states simultaneously.
Pre-Wayfair: Physical nexus required for sales tax collection obligation. A SaaS company with servers and employees only in California owed California sales tax but not New York sales tax, regardless of how many New York customers it had.
Post-Wayfair (June 2018): Economic nexus is sufficient. A SaaS company with $150,000 in annual sales to Texas customers - and no Texas office or employees - has Texas nexus and must register, collect, and remit Texas sales tax if Texas taxes its product category.
Standard threshold (45+ states): $100,000 in sales OR 200 transactions in the state per year. Some states use AND instead of OR. Some states have lower thresholds. All thresholds should be monitored in real time.
Wayfair only creates a collection obligation - it does not determine taxability. If the destination state does not tax SaaS, economic nexus is irrelevant for that state. The taxability question is where SaaS companies spend most of their sales tax analysis time, because state treatment is inconsistent and evolving.
| State | SaaS Taxability | Key Rule |
|---|---|---|
| New York | Taxable | SaaS taxed as "information service" and "software service"; very broad interpretation |
| Texas | Taxable | SaaS taxed as "data processing service" at 80% of charges (20% exempt) |
| Pennsylvania | Taxable | SaaS taxed as "computer software"; broad coverage |
| Tennessee | Taxable | SaaS subject to sales tax as specified digital product |
| California | Generally not taxable (B2B) | SaaS not a "sale of tangible personal property"; B2C with data storage may be taxable in limited circumstances |
| Florida | Generally not taxable | SaaS not taxable unless custom software delivered electronically; ongoing legislative activity - monitor |
| Illinois | Taxable (B2C); B2B often exempt | MyTax Illinois rulings have expanded scope; B2B exemption requires certificate |
| Washington | Taxable | Washington's B&O tax applies to SaaS revenue separately from sales tax analysis |
Many states that tax SaaS exempt B2B transactions under a resale exemption or a manufacturing exemption. A SaaS company selling project management software to another business that uses it internally will have different tax treatment than one selling directly to consumers. The mechanism is the resale exemption certificate - if the business customer provides a valid exemption certificate, the SaaS vendor does not collect sales tax on that sale. The SaaS vendor must retain the certificate to support the exempted sale in an audit.
For SaaS platforms that are marketplaces - connecting buyers and sellers on a platform - the marketplace facilitator rules in most states require the platform to collect and remit sales tax on behalf of third-party sellers. If your SaaS product facilitates transactions between your customers and their customers, the marketplace facilitator analysis applies and creates obligations that go beyond your own subscriptions.
The standard approach for a growing SaaS company: (1) Monitor economic nexus exposure in real time - once you cross a threshold in a state, you have 30-60 days to register in most states; (2) Determine taxability in each nexus state before registering - registering in a state where your product is not taxable creates unnecessary compliance costs; (3) Implement automated sales tax calculation (Avalara, TaxJar, Vertex) integrated with your billing system - manual calculation does not scale; (4) Collect and validate exemption certificates for B2B customers; (5) File returns - most states require monthly or quarterly filing depending on revenue volume.