Oklahoma & Arkansas and Sales Tax – SaaS, Software & Other
This month, we continue our blog series with a contrast of a couple of Southern plain states – Oklahoma and Arkansas – specifically their treatment of technology items for sales tax purposes.
Wait! Already know you need help with Oklahoma or Arkansas issues? Please reach out to us at info@miles.roomworksmedia.co.uk
Software as a Service (SaaS) in Oklahoma vs. SaaS in Arkansas
Software as a Service (SaaS) is subject to sales tax in several jurisdictions across the country. Approximately half of states do tax the SaaS revenue stream. Check out our interactive SaaS taxability map here: https://miles.roomworksmedia.co.uk/saas-sales-tax-by-state-map/. As you’ll see below, both states differ regarding their approaches of sales tax treatment of SaaS.
Cloud Computing Services are exempt in Oklahoma.
In Oklahoma, SaaS is treated as a service. Only specified services are subject to sales tax in Oklahoma and SaaS is not specified as a taxable service and is therefore not subject to sales tax in Oklahoma. Oklahoma consistently excludes SaaS and other cloud-based services from sales tax.
SaaS is not taxable in Arkansas.
In Arkansas, SaaS is also considered nontaxable. If the software is hosted remotely and accessed via the cloud, Arkansas does not impose sales tax on the sale of SaaS. The key is that SaaS does not involve a transfer of tangible personal property (TPP) but grants access to the use of hosted software. This type of transaction is not subject to sales tax in Arkansas.
Software in Oklahoma vs. Software in Arkansas
Oklahoma does not impose sales and use tax on prewritten computer software sold electronically. Prewritten software that is delivered electronically is exempt in Oklahoma. It’s important to note that the software cannot be delivered on any tangible media in order to maintain its exempt status. Delivered electronically specifically means delivered to the customer by means other than tangible storage media.
Prewritten computer software delivered electronically is not subject to tax in Arkansas. Software delivered electronically or by "load and leave" are also not taxable in Arkansas. Delivered electronically refers to delivery by non-physical means (e.g., digital or wireless), while electronically covers technologies with electrical, digital, or similar capabilities. “Load and leave” means using tangible storage media for delivery without transferring the media itself to the customer.
The sale of custom computer software delivered electronically is not subject to tax in Arkansas or Oklahoma. Custom software delivered electronically or by “load and leave” in both Arkansas and Oklahoma is exempt from sales tax. Rules may vary by state, but in general, if the software is created and tailored specifically for a single customer and is not resold to other customers then the sale is considered custom, therefore nontaxable in both Arkansas and Oklahoma for sales tax purposes.
Digital Goods
States vary in their treatment of electronically delivered goods including e-books, music, and streaming video. Some states consider all of these types of products to be taxable or not, while others call out specific taxability depending upon the product.
In Oklahoma, digital products are exempt. The state exempts most digital goods from sales tax, including e-books, music, streaming video, and other electronically delivered products.
In Arkansas, digital products are taxable. In contrast, Arkansas imposes sales tax on most digital goods including e-books, digitally delivered audio and audiovisual works and other downloadable digital products. Many digital goods are specifically enumerated as taxable under Arkansas law.
Sales Tax Holidays
States often offer sales tax holidays during specific times of the year, during which certain items are sold tax free. These holidays vary greatly by state. Here’s how Oklahoma and Arkansas shake out.
Oklahoma had a sales tax holiday on August 1st through 3rd on back-to-school clothing and footwear that is $100 or less per unit. For more information on the holiday, click here. https://oklahoma.gov/content/dam/ok/en/tax/documents/resources/publications/infographics/SalesTaxHoliday.pdf
Arkansas had a sales tax holiday on August 2nd to 3rd on back-to-school sales, which includes clothing and footwear that is $100 or less and clothing accessories and equipment that is $50 or less. It also includes school supplies, school art supplies, school instructional supplies and electronic devices. For more information on this holiday, click here. (https://www.dfa.arkansas.gov/office/taxes/excise-tax-administration/sales-use-tax/2024-sales-tax-holiday/)
For more information on sales tax holidays, click here.
Economy
Tulsa is home to the largest airline maintenance base in the world, which serves as the global maintenance and engineering headquarters for American Airlines. In total, aerospace accounts for more than 10% of Oklahoma’s industrial output, and it is one of the top states in aviation engine manufacturing. Because of its position in the south-center of the United States, Oklahoma is a major contributor to weather-related research.
Oklahoma is the top manufacturer of tires in North America. The state also contains one of the fastest-growing biotechnology industries in the nation.
Oklahoma is the 27th most agriculturally productive state, the fifth largest in cattle production and fifth largest in the production of wheat in the U.S. Poultry and swine are its second and third-largest agricultural industries, respectively.
Arkansas’s earliest industries were fur trading and agriculture, with the development of cotton plantations in the areas near the Mississippi River. They were dependent on slave labor through the American Civil War.
Once a state with a cashless society in the uplands and plantation agriculture in the lowlands, Arkansas’ economy has evolved and diversified. Today, six Fortune 500 companies are based in Arkansas, including the world’s #1 retailer, Walmart. Tyson Foods, J.B. Hunt, Dillard’s, Murphy USA, and Windstream are all headquartered in the state. The state’s agricultural outputs are poultry and eggs, soybeans, sorghum, cattle, cotton, rice, hogs, and milk. Its industrial outputs are food processing, electric equipment, fabricated metal products, machinery, and paper products. Mines in Arkansas produce natural gas, oil, crushed stone, bromine, and vanadium.
Tourism is also very important to the Arkansas economy. The official state nickname “The Natural State” was created for state tourism advertising in the 1970s, and is still used today. The state maintains 52 state parks and the National Park Service maintains seven properties in Arkansas. Many cities hold festivals, which draw tourists to Arkansas culture, such as The Bradley County Pink Tomato Festival in Warren, King Biscuit Blues Festival, Ozark Folk Festival, Toad Suck Daze and the Tontitown Grape Festival.
Oklahoma Fun Facts:
- More than 25 Native American languages are spoken in Oklahoma, third only to Alaska and California.
- Cimarron County, in Oklahoma’s panhandle, is the only county in the United States that touches four other states: New Mexico, Texas, Colorado and Kansas.
- More than 500 named creeks and rivers make up Oklahoma’s waterways and with 200 lakes created by dams, it holds the nation’s highest number of artificial reservoirs.
- The Oklahoma Tourism and Recreation department regards Cavanal Hill as the world’s tallest hill at 1,999 feet, and fails their definition of a mountain by one foot.
- An average 62 tornadoes strike the state per year- one of the highest rates in the world. the
- The first Girl Scout cookie sold in the U.S. was in Muskogee, Oklahoma in 1917.
- The world’s first parking meter was installed in Oklahoma City on July 16, 1935.
Arkansas Fun Facts:
- The community of Mountain View is called the Folk Capital of America. This little town preserves the pioneer way of life and puts it on display for visitors at the Ozark Folk Center State Park from March through October.
- The state contains over 600,000 acres of lakes and 9,700 miles of streams and rivers.
- Famous Singer Johnny Cash was born in Kingsland.
- Sam Walton founded his Wal-Mart stores in Bentonville in 1962.
- Mount Ida is known as the Quartz capital of the world.
- Milk was officially designated as the official state beverage in 1985.
- The Ozark National Forest covers more than one million acres.
- The fiddle is the official state instrument and was designated in 1985.
- The state park’s dominant natural feature is Pinnacle Mountain, which rises more than a thousand feet above the Arkansas River Valley. Tourists flock from all over the area to hike this mountain.
- The state is home to the only active diamond mine in the U.S., located at Crater of Diamonds State Park, where visitors can search for real diamonds.
We invite you to further explore Oklahoma and Arkansas in these earlier blogs we crafted over the years. Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether in Oklahoma, Arkansas, or other U.S. States, and help you navigate the complex tax structures arising from multistate operations. Call us to help you achieve the best tax efficiencies.
https://miles.roomworksmedia.co.uk/blog/2021/01/19/focus-on-oklahoma-2/
https://miles.roomworksmedia.co.uk/blog/2022/02/11/focus-on-arkans/
What Sales Tax Software Can’t Do and Why That’s Not the Problem
Why Software Isn’t the Problem
At Miles Consulting, we know that understanding sales tax laws can be complex, especially for SaaS and technology companies operating across multiple states. With different taxability rules, economic nexus thresholds, and filing requirements, it’s no wonder that companies turn to automation to help them keep up.
And the good news is: tax automation software does work. Tools like Avalara, Anrok, and TaxJar are essential for managing high-volume calculations, filings, and reporting.
But here’s the catch: these platforms only work when you know what problem you’re solving.
Software can calculate sales tax, but it can’t interpret your contracts, categorize your products correctly, or identify past exposure. That’s not a flaw, it’s simply not what these tools were built to do. In fact, many companies assume otherwise because software is often marketed as an all-in-one compliance solution. But without the right groundwork, even the best platforms can only go so far.
So no, software isn’t the problem. The real risk is assuming it’s more intelligent than it is.
What Sales Tax Software Was Never Designed to Do
Software tools are great at what they do:
- They automate repetitive calculations
- They apply current tax rates based on configuration
- They handle filing and remittance tasks across jurisdictions
But there are three critical areas they will not handle for you:
- Determining nexus: Understanding where you’ve created taxable presence requires human strategy, analyzing both physical presence and economic nexus
- Mapping your products or SKUs accurately: This isn’t just about picking a category; it’s about knowing how each line item will behave in every state.
- Resolving historical exposure: Software operates forward. If you have liabilities from the past, it won’t catch or correct them. (And most companies DO have retroactive issues!)
Your software is only as good as the information you give it.
If you haven’t done this foundational work, software might still “work”, but it will be automating the wrong assumptions.
Not sure if your current setup is solving the right problems?
BOOK A COMPLIMENTARY CONSULTATION
When Things Go Wrong (and Why)
Where Sales Tax Software Fell Short and How Our Clients Fixed It:
Case 1: Misconfigured SKUs A mid-sized SaaS business implemented sales tax software assuming it would handle product classification automatically, but their internal SKU structure didn’t match the tax platform’s categorization rules.
As a result, some services were marked as non-taxable in states where they were taxable, and vice versa. Tax was miscalculated on hundreds of transactions.
We helped the company conduct a full SKU audit, remap their catalog to the correct codes, and communicate the issue to affected customers. With the updated configuration in place, they avoided further errors and are now running monthly checks to validate accuracy.
Case 2: Surprise liability during an M&A deal A manufacturing business owner preparing to sell discovered during due diligence that she had created nexus in 27 states, none of which were registered for sales tax. Their software platform had been running without issue, but it hadn’t identified these obligations.
Our team stepped in quickly. We coordinated Voluntary Disclosure Agreements (VDAs), managed retroactive filings, and brought the company into compliance in time to close the sale. What they assumed software would handle, actually required a hands-on, strategic response.
Case 3: Missed exposure across multiple customer types A technology company selling to both enterprises and individuals assumed their home state’s exemption on SaaS applied nationwide. Their software processed transactions, but didn’t account for differing state tax rules. An internal audit uncovered over 15 states with uncollected tax.
We led a multi-state compliance effort, negotiated VDAs, and guided implementation of a more sophisticated software configuration aligned to customer types and revenue streams. Exposure was resolved, and they now use their platform strategically.
Mistakes happen when planning is skipped or misunderstood, often because teams don’t realize how much groundwork is required to ensuring sales tax compliance.
What Happens When You Plan Ahead
Not every story ends in a clean-up. One of our clients brought us in before selecting their software, following the 6-step SaaS sales tax compliance framework we outlined in our previous article.They had a range of SaaS, service, and support SKUs to manage. We:
- Helped choose the right platform
- Mapped every SKU to the correct tax code
- Aligned configuration with business logic and customer segments
As a result:
- Their tax engine was accurate from day one
- No major remapping was needed post-launch
- Customer experience was seamless
What the most prepared companies do differently: they plan for accuracy, not just automation.
Not sure if your current setup is solving the right problems?
BOOK A COMPLIMENTARY CONSULTATION
Expert Support Makes Software Work
One of the most common software-related pitfalls we see is product mapping and it’s not as simple as picking a code from a dropdown menu.
Every revenue stream must be categorized, often using 6–7 digit codes tied to predefined tax categories within your software system.
If you sell SaaS, there’s a code for that. Implementation services? Another one. Hardware? Yet another. Assigning the right codes to the right items across thousands of SKUs in some cases, is essential for correct tax calculation.
And yet most platforms provide little to no guidance on how to choose. Some offer libraries with over 20,000 options, but no insight into which apply where or why.
That’s where we come in. At Miles Consulting Group, we:
- Help clients navigate complex product taxability decisions
- Identify when outdated mappings no longer reflect current rules
- Test whether configuration is actually delivering the right results
- Review system outputs across multiple jurisdictions
We don’t just plug in the tool. We make sure it works for your business.
Our work at Miles Consulting Group starts well before software comes into the picture and continues long after it's installed. We help SaaS and tech companies build a compliance strategy that is proactive, complete, and tailored to the realities of doing business across jurisdictions.
Yes, we work with automation tools. But more importantly, we:
- Analyze where and how our clients are creating nexus
- Determine taxability for complex, mixed product and service offerings
- Identify gaps and risk areas before they become audit triggers
- Configure and test software to reflect accurate business logic
- Offer ongoing support to adjust when rules or operations change
Why expert support matters: tax software can’t assess your full business context, understand how rules apply across jurisdictions, or adapt to the nuanced decisions required for compliance. That’s where our role begins, bringing strategy, clarity, and oversight to every part of the process.
The First Step Is a Nexus Review
Before you invest further in tax automation, or assume your current setup is doing everything it should, step back and ask: Do we actually know where we have nexus, and where we’re exposed?
A nexus review gives you:
- A clear picture of your current exposure
- Strategic guidance for how to remediate it
- Confidence that your software setup reflects reality
BOOK YOUR NEXUS REVIEW NOW
Or contact us at info@miles.roomworksmedia.co.uk
Before You Buy Sales Tax Software: What Every SaaS and Tech Company Needs to Know
At Miles Consulting Group, our mission is to ensure that our SaaS and technology clients are fully informed about their sales tax obligations and the risks that arise when nexus is created.
There’s no doubt that automated tax software solutions can be extremely valuable when implemented, integrated, and managed correctly. But software is not always the simple, streamlined solution it appears to be.
When used too early or in the wrong way, it can create more issues than it solves.
We understand that as a SaaS or technology company, you're likely inclined to see software as the answer, after all, it's the business you're in. But when it comes to sales tax, software alone won't solve everything.
Too often, clients come to us after the fact, after they’ve purchased and implemented automated sales tax tools and tell us they wish they had come to us first.
In this article, we’ll break down exactly where software can help, where it can’t, and what you need to get right before you invest.
Is software ever the complete solution for sales tax compliance?
Let’s be clear up front: at Miles Consulting Group, we’re not anti-software. In fact, we often help our clients select and implement the right tools and when used properly, they can save considerable time and reduce human error.
Clients want to categorize what they’re selling, apply the correct state tax codes, and automate filings. Tools like Avalara, Anrok, and TaxJar provide a way to do this and in principle, they work.
But here’s the problem: in most cases, those same clients assume that once the software is in place, it will manage their entire tax situation. That assumption of “set it and forget it” is rarely correct.
Software doesn’t fix sales tax problems, it automates what you already understand.
In fact, a significant portion of our consulting work is spent cleaning up problems created by software that was purchased and implemented too early, or configured with the wrong inputs.
What does automated tax compliance software actually do?
There are plenty of high-quality tools that, when correctly integrated into your ERP or billing system, can:
- Identify potential nexus triggers based on transaction data
- Apply relevant tax codes and calculate sales tax in real time
- Automate filings and remittances
These tools act as a front-end tax engine, streamlining your workflows. But, and this is critical, they are only as good as the data and assumptions you feed them.
If your company hasn’t correctly determined where it has nexus, or if it applies the wrong product categorization, the software will still process transactions, it just won’t do so correctly. It can result in:
- Tax being collected where it shouldn't be
- No tax being collected where it should be
- Past exposure being ignored completely
Most tools also do nothing to address retroactive sales tax obligations and that's where many companies run into trouble. Applying software and rushing to file when retroactive liability exists can exacerbate the problem. You can’t “software” your way out of liability that already exists.
Not sure if software is right for you yet? We offer a complimentary review to help you assess potential exposure before you get into the weeds with software set up.
Understanding your sales tax profile, before buying software
This is the core issue. Software works well after you've done the groundwork. But it won't do that groundwork for you.
Software can be of great help once you understand your sales tax situation, have figured out where you’ve created nexus, and cleaned up any past exposure. But if you’re not clear on your unique circumstances, no software will save you.
Before working with us, many of our clients don’t know their:
- Current nexus footprint (physical and economic)
- Product/service taxability in different jurisdictions
- Whether existing contracts comply with evolving state laws
If these foundational questions aren’t resolved first, software may speed up the wrong process and make things worse.
We recommend working with an advisor first to:
- Assess where you should be registered
- Review and resolve any past exposure
- Build a roadmap for automated compliance going forward
Only then is it time to invest in software.
Need help getting clear on your past exposure first? Book a complimentary review.
The value of working with a consultancy
Many companies assume that buying sales tax software is the end of the compliance conversation. But often, it’s just the beginning.
Our clients often find themselves stuck once they realize that the software they’ve purchased can’t help them figure out where they have nexus or when they created it, whether they’ve collected the right amount of tax historically, or how to remediate past mistakes.
Nobody wants to pay twice: once for software, and again to fix what it broke.
At Miles Consulting Group, we help SaaS and technology companies:
- Evaluate nexus status and registration requirements
- Analyze product and service taxability across jurisdictions
- Review contracts to ensure compliance with emerging rules
- Implement efficient systems for tax calculations and filings
- Stay current with changing SaaS sales tax rules
- Properly apply tax coding within a software platform
We don't just help you plug in a tool, we help you build a framework that ensures the tool actually does what you need it to do.
Want to see how to get started? Sales Tax Compliance for SaaS Companies: A Step-by-Step Guide
In our step-by-step sales tax compliance guide, we walk you through the right sequence:
- Identify nexus and exposure
- Resolve historical issues
- Choose software that supports the right compliance model
If you’re still figuring out where your risks lie, start there.
The First Step Is a Nexus Review
If you’re considering implementing sales tax software, or already using it, the most important question is: do you actually know where you have nexus, when it started, and what your historical exposure might be? Because the software is not going to tell you this.
This is where most companies go wrong. They automate before they understand their sales tax profile and that’s how they end up paying twice: once for software, and again to fix what it missed.
That’s why the first step in our process is always a nexus review.
It’s a focused diagnostic to help you:
- Identify where you have a taxable presence
- Evaluate whether you're properly registered
- Understand if you have any retroactive exposure
- Decide what kind of software (if any) fits your needs
If you’re serious about avoiding costly mistakes, this is where to start.
We offer a free 30-minute nexus consultation review to assess where you’re at and suggest your next step.
Send us a message if you’d like a second opinion on your current approach.
How SaaS Companies Can Solve Sales Tax Compliance: A 6-Step Framework That Works
You’ve already started thinking about sales tax compliance. Maybe you’ve registered in a few states. Maybe you’ve even bought tax automation software.
But if you’re like most SaaS companies we work with, you’re still unsure: Are we doing this right? What’s missing? And what happens if we’ve overlooked something important?
The truth is, many SaaS finance leaders, especially CFOs, Controllers, and Heads of Finance, are unintentionally non-compliant. Not because they’ve ignored the rules, but because the rules are confusing, tax software is limited, and guidance is often vague or incomplete.
This guide outlines the 6-step framework we use with SaaS and technology clients who want to get compliant and stay that way, without wasting time or money on unnecessary tools or reactive clean-up. Whether you’re just beginning or already knee-deep in filings, this article will help you move forward with clarity.
Why trust us?
At Miles Consulting Group, we’ve been helping SaaS companies with sales tax for over 23 years. Our team includes professionals with backgrounds at Big Four firms, major tech companies, and state tax agencies. We know the roadblocks because we see them every day and we know how to help you navigate around them.
Step 1: Start with a Nexus Review
Not sure where you owe sales tax? Start here. Most SaaS businesses trigger sales tax obligations (aka "nexus") in more states than they realize, but the only way to know for sure is with a thorough nexus and taxability review.
Neglecting this step could mean you owe back taxes to states dating back years, resulting in costly financial penalties. Most states place no limit on how far back they can go if you never registered and they take enforcement seriously.
If you’re heading toward a merger or acquisition, this kind of exposure can create significant issues around successor liability.
At Miles Consulting Group, we help SaaS and tech companies conduct a 25–50 state nexus assessment (depending upon their needs) to identify where they’ve triggered sales tax obligations. We look at:
- Where your employees are based
- Where your customers are located
- What SaaS products and related services you offer
- How long you’ve been operating in each state
We also identify when your obligations began, whether your services are taxable, and how to fix any retroactive exposure.
A proper nexus review helps you:
- Understand where you have economic or physical nexus
- Quantify your risk
- Avoid registering too early or too late
Completing this step first gives you clarity on what to do next, including whether (and how) to invest in sales tax software.
A proper nexus review is the foundation for every other sales tax decision.
Step 2: Map Your Customer Footprint by State
Once you’ve identified the types of nexus that apply to your business, it’s time to audit where your customers are located.
This can feel straightforward, but it’s often more complicated than expected.
For example:
- Are your “customers” the company paying for the subscription, or the end users?
- How do you handle usage across multiple states?
- What if you’re selling SaaS through a marketplace platform?
Customer location has a direct impact on where you may create nexus and need to collect tax. That means mapping out your customer base by both billing and usage, is a critical early step.
If it appears that you do have tax liabilities in certain states, we generally recommend engaging in Voluntary Disclosure Agreements (VDAs). These are confidential programs that allow companies to proactively disclose past-due tax obligations to a state, usually in exchange for penalty relief and limited lookback periods.
In most cases, engaging in a VDA will result in any penalties being reduced, or sometimes fully waived. You’ll be less likely to face legal consequences and can operate without the fear of surprise audits.
Once you know your nexus and estimated tax liabilities, you’ll need to remediate any taxes owed. You can register with the states you’re trading in at the same time as making remediation, which means you’ll then be able to collect sales tax and file returns in those states. From that point forward, you can be confident you’re operating in a compliant manner.
VDAs cannot be managed by software and require expert navigation to avoid non-compliance. If you’re not sure where to start, we discuss this along with other key early compliance steps in this article.
A VDA is often the fastest and safest way to resolve past exposure before registration.
Need clarity on where you might have triggered nexus? We offer a complimentary nexus consultation review to help you assess exposure and avoid downstream issues.
Step 3: Register in the States Where Nexus Applies
Once a SaaS or technology company has established nexus in a state, it is legally required to register for a sales tax permit before collecting any tax. This must be done with each state’s tax authority by completing their online registration process. These permits may be called a sales tax permit, seller’s permit, or sales tax license, depending on the jurisdiction.
Some states charge a small fee for registration, while others offer it for free. Once approved, you’ll receive a unique sales tax ID number for that state, which legally authorizes you to begin collecting and remitting tax.
Important: Registration cannot be completed by software tools alone. Each state’s registration process must be handled individually, and the questions handled thoughtfully. For this reason, we recommend working with a specialist tax consultant who can manage this on your behalf. This not only speeds up the process but helps avoid costly errors—especially for businesses registering in multiple states for the first time.
Registering too early, too late, or in the wrong states can create downstream compliance burdens. Follow your nexus findings carefully.
Step 4: Collect the Tax
Once you've registered in the states where you’ve triggered nexus, it’s time to begin collecting sales tax.
This means updating your billing systems, invoicing software, and payment platforms to apply the correct tax rates based on where your products are shipped. Because tax rates and rules vary widely across jurisdictions and exemptions may apply, doing this manually can be difficult at scale.
Automated sales tax software like Avalara, Anrok, or TaxJar can help manage this complexity. These tools, known as “sales tax engines” integrate with your invoicing systems to apply the correct tax rates and generate detailed reports.
But automation alone isn’t enough. Incorrect product or service coding can result in faulty calculations across multiple states and software can’t always catch those errors. That’s why we advise working with a specialist sales tax consultant who can:
- Validate tax coding accuracy
- Monitor how taxes are applied across different states
- Spot filing mistakes early before they become costly
Even the best software is only as good as the data and configuration behind it. Human oversight is critical.
If you’re invoicing at scale, this step is where errors compound quickly, so getting this right will save time, rework, and compliance risk down the line.
Need clarity on where you might have triggered nexus?
We offer a complimentary nexus consultation review to help you assess exposure and avoid downstream issues.
Step 5: Use Software Strategically, But Not Too Soon
Hands down the biggest problem we see is when clients invest in automated sales tax software too soon. It is almost always the case that SaaS and technology companies understandably view software as the complete solution to all their tax problems and so invest heavily in software tools they believe will make their tax situation simpler to manage.
There is no doubt that software solutions have huge benefits, but a problem we often come across at Miles Consulting is that the software is not always implemented effectively, which means you can run into issues further down the line.
Often when clients come to us they have already invested in software packages, but these are not always the best fit for their needs, meaning they are often paying for services which are not appropriate for their specific circumstances or, they have huge gaps in their compliance process that the software cannot fill.
That doesn’t mean sales tax software is bad, it’s just often used too soon or not set up correctly.
Once the groundwork is done, platforms like Avalara, Anrok, and TaxJar can streamline your calculations and filings, but they still require correct setup, configuration, and ongoing oversight.
Software is a tool, not a solution. If used at the wrong time or in the wrong way, it can introduce more risk than it removes.
We help clients:
- Select the right tool (if one is needed)
- Implement it properly
- Monitor what automation misses
If you’ve already bought software and aren’t confident in how it’s working, we’re happy to review your current setup.
Step 6: Partner with a Specialist Tax Consultant
While software plays an important role, it cannot fully replace the judgment, insight, and experience of a dedicated tax professional.
At Miles Consulting Group, we specialize in helping SaaS and technology companies confidently manage their multi-state sales tax obligations, not just once, but on an ongoing basis.
Why choose us?
- Over 23 years of experience focused exclusively on sales tax compliance
- Team includes former Big Four advisors, ex-state auditors, and SaaS specialists
- Trusted by scaling and post-acquisition tech companies nationwide
We don’t just advise. We actively:
- Monitor your nexus as your business grows
- Validate your system setups and software configuration
- Utilize technology along with human intervention to properly file returns - monthly, quarterly or annually, as the states require.
- File your returns through state portals, if needed
Whether it’s economic thresholds, product taxability, or state-specific quirks, we help you stay compliant with clarity and confidence.
The right tax partner isn’t just a fallback. It’s your strongest insurance against audit risk and future rework.
What If You’ve Already Started?
If you’ve already registered in some states, or bought software but aren’t sure if you're fully compliant, you’re not alone.
We often step in at this exact moment, helping SaaS teams fix gaps, simplify workflows, and avoid bigger problems later.
If you’d like a second opinion, we’re happy to offer a review.
Sales tax compliance for SaaS doesn’t need to be a guessing game.
Whether you’re prepping for due diligence, scaling to new states, or revisiting what your software missed, the right framework can save you months of rework and thousands in exposure.
We’ve helped SaaS companies at every stage from early growth to post-acquisition build a compliance plan that actually holds up.
Want to talk through your current setup?
We offer a free 30-minute nexus consultation review to assess where you’re at and suggest your next step.
BOOK A CONSULTATION HERE
or Send us a message if you’d like a second opinion on your current approach.
SaaS Tax Basics Checklist
Running a SaaS business means juggling product development, customer success, and growth strategies. But there’s one thing that quietly sneaks up on even the savviest teams: tax compliance.
Whether you’re just getting started or scaling across borders, tax rules for SaaS can feel like a puzzle. The good news? You don’t need to be a tax guru to put the pieces together and stay compliant—you just need the right checklist. And some help from Miles Consulting – this is what we do. Let’s simplify it:
Article Index
Step 1: Know the Game You’re Playing
- Determining whether SaaS products are taxable or exempt in different states.
- Breakdown of states that tax SaaS and those that don’t.
Step 2: Don’t Miss Nexus—It’s Bigger Than You Think
- Explanation of nexus and how it impacts tax obligations.
- Differences between physical and economic nexus.
- Action steps to track nexus across states.
Step 3: Automate Your Tax, So You Can Focus on Growing
- The benefits of automating tax calculations and filings.
- Overview of tax software and integration with billing systems.
- Tips on ensuring timely filing with automated tools.
Step 4: Exemptions—Don’t Let Them Slip Through the Cracks
- Understanding exemptions and when to apply them.
- Importance of collecting exemption certificates for B2B sales and tax-exempt entities.
- Best practices for managing exemption documentation.
Step 5: Get Audit-Ready, Just in Case
- Preparing for potential audits.
- Importance of keeping organized records and conducting internal mock audits.
- Proactive steps to prevent audit-related issues.
Step 6: Keep Track of Filing Deadlines—No One Wants Fines
- Tracking filing deadlines for tax returns across multiple states.
- Tips for setting reminders and using a tax calendar to stay on track.
Step 7: Stay Compliant
- Final checklist for staying compliant with SaaS tax regulations.
- Recap of key steps: knowing where your SaaS is taxable, automating tax processes, managing exemptions, staying audit-ready, and meeting filing deadlines.
- How Miles Consulting Group can assist in navigating SaaS tax compliance.
Would you like more information? We can help. Reach out to us at info@miles.roomworksmedia.co.uk.
Step 1: Know the Game You’re Playing
Before you dive into tax territory, here’s a quick breakdown.
Not all SaaS is created equal when it comes to tax. Some states say, “Sure, tax away,” while others wave it off. Here’s how to handle it:
- States That Tax SaaS: States like Texas and Washington treat SaaS as taxable, calling it either a digital good or a service.
- States That Don’t Tax SaaS: In places like Colorado and Mississippi, SaaS is often exempt from sales tax, (but don’t forget about the local taxes in Colorado!).
- It’s a Mix: Some states tax only certain SaaS products or customer types, and some don’t tax at the state level, but may tax by jurisdiction or city. Illinois is an example of this, with no tax at state level, but with Chicago implementing its own tax called PPLTT— Personal Property Lease Transaction Tax (PPLTT), which applies to the lease or rental of tangible personal property (TPP). Since SaaS is considered a lease of TPP, it falls under this tax. It can get messy, and it’s safe to say, you have to make sure you do your homework.
Quick Action: Know where your customers are located. That’s the first step in figuring out where you need to collect tax. Next step? Visit our SaaS tax page by state – we break it all down there.
Step 2: Don’t Miss Nexus—It’s Bigger Than You Think
Nexus is the sneaky little tax trigger that’s always lurking. If you’re doing business in a state, nexus says, “Hey, you need to collect sales tax here.” It doesn’t matter if you don’t have a physical office—economic nexus is a thing.
- Physical Nexus: Got an office, employees, or a warehouse in a state? Nexus is probably there.
- Economic Nexus: Cross a state’s sales threshold (say, $100,000 in sales), and you’ve got nexus. No physical presence required.
To Do: Keep track of your revenue and transaction counts by state. Nexus laws vary—know when you need to register for sales tax. And again, come to Miles Consulting.
Step 3: Automate Your Tax, So You Can Focus on Growing
Manual tax calculations are a headache waiting to happen. Automating this part of your business is a game-changer:
- Tax Software: There are tools that calculate the correct tax for every state in real-time, so you don’t have to play guessing games.
- Integration: Make sure your tax software talks to your billing system—seamless tax calculation at checkout.
- On-Time Filing: Automation isn’t just for collecting—some tools will file your tax returns for you, so you never miss a deadline.
Quick Tip: Integrating tax automation tools now will save you from a ton of headaches down the line. But remember, nothing beats the human touch – come to Miles consulting.
Step 4: Exemptions—Don’t Let Them Slip Through the Cracks
Exemptions can be your best friend or your worst enemy. If you’re not careful, they can slip right past you. Here’s how to handle them:
- B2B Customers: They might be exempt from sales tax, but you’ll need to grab an exemption certificate to prove it.
- Charities & Governments: Certain entities are tax-exempt. Know who qualifies and when to ask for documentation.
- Don’t Skip the Paperwork: Without proper certificates, you could end up paying tax on exempt sales yourself.
Action Step: Collect exemption certificates at the time of sale, and keep them safe and organized—trust us.
Step 5: Get Audit-Ready, Just in Case
No one wants to deal with an audit, but it’s better to be prepared. You’re doing great on tax compliance, right? Let’s keep it that way:
- Keep Everything Organized: Tax authorities love records. Keep them tidy and ready to go, just in case.
- Mock Audits: Set up an internal audit to spot any issues before the real thing comes knocking.
Pro Tip: Run an internal audit at least once a year to catch any potential red flags before they become a problem.
Step 6: Keep Track of Filing Deadlines—No One Wants Fines
Tax deadlines can sneak up on you. Don’t let them catch you off guard:
- Filing Schedules Vary: Some states want their taxes filed monthly, others quarterly, or even annually. Make sure you know what each state expects.
- Set Reminders: Tax filing deadlines don’t wait. Set reminders well in advance.
Action Step: Use a tax calendar to track deadlines for every state. Missing one can result in fines.
Step 7: Stay Compliant
SaaS tax doesn’t have to be a nightmare. With the right tools and strategies, you can stay compliant without all the stress. Here’s an overview of the checklist:
- Know where your SaaS is taxable.
- Keep an eye on nexus thresholds.
- Automate your tax collection and filing.
- Manage exemptions the right way.
- Be audit-ready and stay organized.
- Never miss a filing deadline.
And remember—you're not alone in this. Miles Consulting Group is here to help you navigate the complexity of SaaS tax compliance, so you can focus on growing your business without worrying about tax traps.
And don’t forget—our new SaaS tax page is packed with guides, tools, and friendly advice to help you stay compliant, wherever your customers are.
North Dakota & South Dakota and Sales Tax – SaaS, Software & Other
This month, we continue our blog series with a contrast of a couple of Upper Plain states – North Dakota and South Dakota – specifically their treatment of technology items for sales tax purposes.
Wait! Already know you need help with North Dakota or South Dakota issues? Please reach out to us at info@miles.roomworksmedia.co.uk
Software as a Service (SaaS) in North Dakota vs. SaaS in South Dakota
Software as a Service (SaaS) is subject to sales tax in several jurisdictions across the country. Approximately half of states do tax the SaaS revenue stream. As you’ll see below, these states differ regarding their treatment of sales tax.
Cloud Computing Services are exempt in North Dakota.
Cloud computing and other subscription-based access services are exempt from sales tax, as long as the software is not transferred to the customer.
SaaS is taxable in South Dakota.
South Dakota treats SaaS as a taxable service. Charges for accessing or using software via the cloud or internet are subject to the state’s sales tax, regardless of whether the software is downloaded or simply accessed remotely. Check out our SaaS map here for more information about the taxability of SaaS in South Dakota: https://miles.roomworksmedia.co.uk/saas-sales-tax-by-state/south-dakota/
Other Software in North Dakota vs. Software in South Dakota
North Dakota does impose sales and use tax on prewritten computer software sold electronically. Sales tax applies to prewritten software (sometimes called “canned” software), regardless of how it is delivered—physically (on disk/CD, etc.), electronically (downloaded), or via load and leave. This means that buying off-the-shelf or standard software for installation or electronic download is subject to North Dakota sales tax. Prewritten software is considered tangible personal property for sales tax purposes.
The sale of custom computer software delivered electronically is not subject to tax in North Dakota.
When software is purchased with equipment, it is exempt only if charges for custom software are separately stated.
South Dakota considers digital products, including software downloaded over the internet or transferred electronically, as taxable tangible personal property. Sales tax must be collected on these sales at the state rate of 4.2%, plus applicable local sales tax, which can bring the total rate up to about 7.5% depending on the location of the buyer. This applies to both business and consumer purchases.
The sale of custom computer software delivered electronically is not subject to tax in South Dakota.
Digital Goods
States vary in their treatment of electronically delivered goods including e-books, music, and streaming video. Some states consider all of these types of products to be taxable or not, while others call out specific taxability depending upon the product.
In North Dakota, digital products are exempt. The state exempts most digital goods from sales tax, including e-books, music, streaming video, and other electronically delivered products.
In South Dakota, digital products are taxable. South Dakota taxes digital products such as e-books, music, streaming services, and software delivered electronically. These are treated similarly to tangible personal property for sales tax purposes.
Sales Tax Holidays
States often offer sales tax holidays during specific times of the year, during which certain items are sold tax free. These holidays vary greatly by state. Here’s how North Dakota and South Dakota shake out.
North Dakota does not have any sales tax holidays.
South Dakota does not have any sales tax holidays.
For more information on sales tax holidays, click here. (https://taxadmin.org/sales-tax-holidays/)
Economy
North Dakota’s earliest industries were fur trading and agriculture. Although less than 10% of the population is employed in the agricultural sector, it remains a major part of the state’s economy. With industrial-scale farming, it ranks 9th in the nation in the value of crops and 18th in total value of agricultural products sold. Large farms generate the most crops. North Dakota has about 90% of its land area in farms with 27,500,000 acres of cropland, the third-largest amount in the nation.
The state is the largest producer in the U.S. of many cereal grains, including barley, durum wheat, hard red spring wheat, oats, and combined wheat of all types. The state is the second leading producer of buckwheat. As of 2007, corn became the state’s largest crop produced, although it is only 2% of total U.S. production. North Dakota is the second leading producer of sugarbeets, which are grown mostly in the Red River Valley. The state is also the largest producer of honey, dry edible peas and beans, lentils, and the third-largest producer of potatoes.
The energy industry is also a major contributor to the economy. North Dakota has both coal and oil reserves. Shale gas is also produced. Lignite coal reserves in Western North Dakota are used to generate about 90% of the electricity consumed, and electricity is also exported to nearby states. North Dakota has the second largest lignite coal production in the U.S. However, lignite is the lowest grade of coal.
North Dakota is considered the least visited state in the country because it does not have a major tourist attraction. Nonetheless, tourism is North Dakota’s third largest industry, contributing more than $3 billion to the state’s economy annually. Outdoor attractions like the 144-mile Mah Daah Hey Trail and activities like fishing and hunting attract visitors. The state is known for the Lewis & Clark Trail and being the winter camp of the Corps of Discovery. Areas popular with visitors include Theodore Roosevelt National Park in the western part of the state. The park often exceeds 47,000 visitors each year.
The service industry is the largest economic contributor in South Dakota. This sector includes the retail, finance, and health care industries. Citibank, which was the largest holding company in the United States at one time, established national banking operations in South Dakota in 1981 in order to take advantage of favorable banking regulations. Ellsworth Air Force Base is the second largest single employer in the state.
Agriculture has historically been a key component of the South Dakota economy. Although other industries have expanded in recent decades, agricultural production is still very important to the state’s economy, especially in rural areas. The five most valuable agricultural products include cattle, corn, soybeans, wheat and hogs. Agriculture related-industries include meat packing and ethanol production which, also have a considerable economic impact on the state. South Dakota is the sixth leading ethanol-producing state in the nation.
North Dakota Fun Facts:
- North Dakota is the leading producer of sunflowers in the United States.
- The state produces enough soybeans to make 483 billion crayons each year.
- The world’s largest French Fry Feed is held every year in Grand Forks, during Potato Bowl USA. A new record was set on September 10, 2015, when 5,220 pounds of French fries were served.
- Explorers William Clark and Meriweather Lewis and the Corps of Discovery spent more time in what is now North Dakota than any other place on their journey.
- North Dakota is home to more wildlife refuges than any other state. Wildlife viewing and birding opportunities are abundant.
- The world’s largest buffalo monument stands tall on the hill in Jamestown, ND. This 26-foot-tall, 60 ton concrete giant has been standing watch over Jamestown since 1959.
South Dakota Fun Facts:
- It is the 17th largest state in the Union.
- Eastern South Dakota has many natural lakes, mostly created by periods of glaciation.
- In North America, the continental pole of inaccessibility is in Southwest South Dakota, about 7 miles north of the town of Allen.
- The Mammoth Site near Hot Springs is a privately owned attraction in the Black Hills. A working paleontological dig, the site has one of the world’s largest concentrations of mammoth remains.
- Billy Mills, from the town of Pine Ridge, competed at the 1964 Summer Olympic Games in Tokyo, becoming the only American to ever win a gold medal in the 10,000-meter event for running.
We invite you to further explore North Dakota and South Dakota in these earlier blogs we crafted over the years. Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether in North Dakota, South Dakota, or other U.S. States, and help you navigate the complex tax structures arising from multistate operations. Call us to help you achieve the best tax efficiencies.
Focus on North Dakota - Multi State Tax Solutions | Miles Consulting Group
Focus on South Dakota - Multi State Tax Solutions | Miles Consulting Group
A buyer’s guide to sales tax and successor liability in M&A transactions
Here at Miles Consulting Group, we understand how critical it is for companies negotiating mergers and acquisitions (M&A) to stay ahead of complex tax obligations, including successor liability. When acquiring a business, there are tax liabilities that should be considered during the due diligence process, yet buyers often overlook these and are caught off guard after the purchase. They can then face unexpected, and sometimes hefty, financial penalties as a result.
Our aim with this article is to help buyers understand the tax obligations of M&A, the liability risks of different types of acquisition, how tax liabilities differ between states, and finally, how buyers can mitigate the risks associated with sales tax and successor liability.
What is successor liability in M&A?
Successor liability refers to the legal principle that holds a buyer responsible for a seller’s outstanding obligations, such as unpaid sales tax, following the acquisition of a business. When a business is acquired, there is a risk that the buyer could become responsible for the seller’s unpaid sales tax obligations. This liability can arise regardless of whether the transaction is structured as an asset purchase or a stock/equity purchase, and it should be a critical area of focus during due diligence. Successor liability can include unpaid back taxes, penalties, environmental violations, and interest if the seller failed to remit sales tax properly. If you’re not protected against successor liability when you acquire a business, you may face audits, financial penalties or lawsuits.
What triggers successor liability during a business acquisition?
Failure to obtain a tax clearance certificate or bulk sales release: Many states require sellers to obtain a clearance certificate before transferring assets. *Without it, you may be liable for unpaid sales taxes. This is an area that we frequently see tripping people up. Most states require that at minimum, you notify the state at least 10 - 30 days before a sale. They may also request bank information where the escrow account will be held and/or an affidavit from the seller that there is no tax due to the state.
De facto merger or continuation: When a deal functions like a merger in substance, or when the buyer effectively carries forward the seller’s business with the same operations, staff or leadership, courts may deem it a continuation and impose successor liability.
Express or implied assumption of liability: When a purchase agreement explicitly states, or it can be reasonably interpreted, that the buyer accepts specific obligations, successor liability may arise as a legal consequence.
Fraudulent transfer: If a deal appears intentionally designed to sidestep creditors, including tax authorities, courts may interpret it as a deceptive transaction and assign liability to the buyer.
Asset vs stock purchase: Which carries more sales tax risk?
Asset purchase: Although this type of transaction typically carries a reduced risk of successor liability, that risk isn’t fully eliminated. Buyers aren’t usually held responsible for a seller’s obligations unless certain exceptions apply, such as a de facto merger, fraudulent transfer, or an express assumption outlined in the purchase agreement. However, several states enforce statutes that impose successor liability for outstanding sales taxes, particularly when bulk sale requirements or clearance certificates are overlooked.
Stock/equity purchase: This form of transaction carries an elevated risk of successor liability, as the buyer takes ownership of the entire business, including all assets and existing liabilities. This may include unresolved or previously undisclosed sales tax obligations that transfer with the entity.
State-by-state differences in sales tax liability
Successor liability rules vary widely by state. Some (e.g., Illinois and Pennsylvania) impose it through tax statutes covering sales, income, franchise, and withholding taxes. Others rely on common law principles like de facto merger or fraudulent transfer.
States such as New York and Pennsylvania require advance notice of asset transfers and may assign liability if bulk sale procedures are skipped. In some states, relief may be available if the buyer secures a tax clearance certificate or bulk sale release (e.g., California, Texas, New York).
In Texas as well as several other states for example, courts may impose liability if the deal appears structured to evade creditors, using multi-factor fraud tests.
Economic nexus rules, adopted by all sales-tax-collecting states mean a business can owe sales tax even without a physical presence, and that exposure can transfer to a buyer post-acquisition.
You can see why it makes sense to discuss any M&A deal with a specialist tax consultant ahead of time as the differing state obligations make this a complex area to interpret, manage and plan for.
Need help navigating sales tax compliance across multiple states? Schedule a consultation with Miles Consulting Group.
8 ways to protect yourself from successor liability in M&A
Successor liability related to sales tax presents a notable risk in mergers and acquisitions. To manage this exposure, make sure you perform rigorous due diligence, structure the deal strategically, and incorporate robust contractual safeguards. The degree of risk is heavily influenced by state-specific regulations and the transaction’s structure. But by integrating legal, financial, and procedural controls throughout the process, you can significantly reduce your vulnerability to inherited tax obligations.
Below you’ll find our buyer’s checklist that’s been designed to help you avoid unexpected tax liabilities and ensure a penalty-free acquisition.
- Conduct thorough sales tax due diligence
- Conduct in-depth due diligence to uncover outstanding sales tax obligations, nexus concerns, or compliance gaps. This should include a review of historical filings, payment records, and any communications with relevant tax authorities.
- Verify the seller’s compliance with applicable state and local sales tax laws, keeping in mind that regulations and associated risks differ significantly from one jurisdiction to another.
- Comply with bulk sale and notification procedures
- In many states, buyers must comply with statutory bulk sale rules or submit formal notices to tax authorities during asset acquisitions. Following these procedures helps safeguard against inheriting unpaid sales tax obligations from the seller.
- If the seller fails to comply, buyers may choose to retain a portion of the purchase price until the state verifies that all sales tax obligations have been settled.
- Structure the transaction carefully
- Asset purchases typically provide greater protection from successor liability compared to equity deals, though exceptions can apply. To mitigate risk, buyers should ensure the purchase agreement explicitly defines which liabilities are accepted and which are excluded.
- Use clear, narrowly defined language in the purchase agreement to prevent the risk of implicitly taking on unwanted liabilities.
- Obtain tax clearance certificates
- Where applicable, obtain tax clearance certificates from the appropriate state tax authorities. These documents confirm that the seller has settled all sales tax obligations, helping to reduce your exposure to successor liability.
- Use escrow, deferred consideration, and indemnities
- Consider negotiating an escrow or deferred payment arrangement and setting aside a portion of the purchase price to cover any sales tax liabilities that may surface after closing.
- Incorporate strong indemnification clauses in the purchase agreement, obligating the seller to cover any pre-closing sales tax liabilities identified post-transaction.
- Include targeted indemnities for known risks, particularly where standard warranty and indemnity insurance does not cover identified tax exposures.
- Get insurance
- You can take out insurance to cover you against potential sales tax liabilities. These policies are especially valuable when the seller cannot or will not offer adequate indemnity, though they can be expensive and may exclude certain exposures.
- Pursue Voluntary Disclosure Agreements (VDAs)
- If historical sales tax liabilities do emerge, you can reduce your exposure by initiating VDAs with state tax authorities. VDAs often shorten the lookback period and mitigate penalties for prior noncompliance.
- Make sure the seller stays accountable post-closing
- You can stipulate that the seller remains in existence for a defined period after closing. You can also delay passing on the sale proceeds until all tax liabilities are cleared. This ensures that the seller has resources available to satisfy any indemnity claims that may come to light during the M&A process.
Sales tax and successor liability can pose hidden risks in M&A deals, especially if buyers overlook jurisdictional differences or fail to investigate the seller’s compliance history. Proactive due diligence is therefore key to identifying exposures early and shaping protective deal terms.
How Miles Consulting Group helps buyers & sellers in M&A
At Miles Consulting Group, we specialize in state sales tax remediation as a result of M&A transactions. We can assist both buyers and sellers and our services include:
- Nexus Studies: Identify economic nexus obligations across states, helping companies assess where sales tax may be due. (It’s helpful to engage in these studies before the deal - particularly on the seller side. But we can also assist with this during the deal, or even after to clear up exposure.)
- Taxability Reviews: Clarify how products are taxed in various jurisdictions, ensuring that your business complies with state-specific laws. This might be particularly useful in the technology space where the taxability of items such as software, SaaS, information services, and digital products may be confusing.
- Documentation Cleanup: Ensure that exemption certificates and sales tax filings are accurate and audit-ready, minimizing the risk of post-transaction disputes.
- Audit Defense: Protect your business during state audits, helping to resolve issues quickly and minimize penalties.
- M&A Readiness: As a seller, prepare for buyer scrutiny by proactively addressing tax liabilities and ensuring your business is in compliance with all relevant state tax laws. On the buyer side, review the nexus, taxability and possible exposure of the seller.
State tax compliance is a critical component of successful M&A transactions. For all parties involved, addressing nexus, exemptions, and documentation early can safeguard valuations, streamline negotiations, and reduce risks. Whether you’re buying or selling, understanding the nuances of state tax laws is essential for a smooth, compliant transaction.
Don’t know where to start? We do. Contact Miles Consulting Group today to ensure your M&A transaction is smooth, compliant, and successful. Book a consultation, drop us a line, or send us an email at info@miles.roomworksmedia.co.uk
Maryland’s New SaaS Sales Tax: What SaaS and Tech Companies Need to Know
Here at Miles Consulting Group, we understand how important it is for SaaS and technology companies to stay ahead of evolving tax regulations. Maryland’s new 3% sales tax on Software as a Service (SaaS) and related digital services, effective July 1, 2025, is a significant change that could impact your business in multiple ways. This article will help you understand what’s changing, why it matters, and what steps you can take to stay compliant with confidence.
A Modern History of SaaS Sales Tax Compliance in Maryland
Maryland’s taxation of SaaS and digital services has shifted considerably in recent years. In 2021, Maryland expanded its sales tax to include digital products and services sold to individual consumers. However, SaaS transactions sold to business users, particularly in enterprise environments, often remained exempt from tax.
With the passage of Maryland HB 352, Maryland is reinstating a sales tax on SaaS, now at a 3% rate, starting July 1, 2025. While the state has not explicitly detailed its motivations, this move aligns with a broader trend among states to modernize tax codes to include more digital services. This update to the digital services tax in Maryland highlights the state’s focus on ensuring its tax revenue keeps pace with the growth of the digital economy.
What’s Changing in 2025?
Starting July 1, 2025, Maryland will apply a 3% sales and use tax to:
- Software as a Service (SaaS)
- Data processing and web hosting
- Custom software development and IT consulting
- System and application software publishing
Previously, some SaaS transactions used solely for business-to-business enterprise purposes were often exempt. Now, these transactions will be taxed at the new 3% rate. SaaS sold to consumers or non-enterprise uses will continue to be taxed at the existing 6% rate.
Understanding these SaaS sales tax compliance requirements is essential for businesses operating in the state.
Nexus and Compliance Considerations
If your SaaS or technology company is selling into Maryland, it is essential to assess whether you have sales tax nexus in the state. Generally, Maryland requires you to collect and remit sales tax if your business:
- Has a physical presence in Maryland, such as employees or offices
- Exceeds $100,000 in annual sales to Maryland customers or completes 200 or more separate transactions in the state
Even without a physical presence, crossing these nexus thresholds means you must collect and remit the 3% SaaS tax on applicable services. This is a key aspect of Maryland sales tax nexus that SaaS and tech companies should not overlook.
Real-World Scenarios for SaaS and Tech Companies
At Miles Consulting Group, we assist many SaaS and technology clients with sales tax compliance across the country, including navigating the digital services tax in Maryland. Here are scenarios that may apply to your business:
Scenario 1:
A SaaS company that primarily serves clients outside of Maryland sees increased demand from Maryland enterprises. As sales exceed $100,000 or 200 transactions annually, the company must register and collect the 3% SaaS tax.
Scenario 2:
A technology firm that traditionally offered hardware now bundles SaaS subscriptions as part of its product suite. While the hardware may already be taxable, the SaaS component requires separate attention under Maryland’s new 3% SaaS tax rules 2025.
Scenario 3:
A SaaS provider has long-term contracts signed before July 1, 2025, and assumes these are exempt. However, periodic payments due after July 1 will likely be considered separate transactions and therefore taxable.
These scenarios highlight the importance of reviewing your business model, customer base, and contracts to understand your Maryland SaaS tax obligations.
Steps to Prepare and Stay Compliant
Managing Maryland’s new SaaS sales tax requirements does not have to be overwhelming. Here’s how to get started:
- Conduct a Nexus Review: Assess sales and customer base to determine if you exceed Maryland’s thresholds for sales tax nexus.
- Analyze Taxability: Review your offerings to understand which services are subject to the 3% SaaS tax rate and which remain at 6%.
- Review Contracts: Identify any periodic payments or renewals that may become taxable after July 1, 2025.
- Update Billing and ERP Systems: Ensure they can handle multiple tax rates and apply the correct charges.
- Seek Expert Advice: At Miles Consulting Group, we are a little obsessed with sales tax and enjoy helping SaaS companies stay compliant with digital services tax regulations. If you do not have a dedicated sales tax expert, now is the time to bring one on board.
- Collect and Store Exemption Certificates: Maintain records to support any tax-exempt transactions.
Summary Table: Maryland’s New SaaS Tax
Use this table to identify risk areas and opportunities to refine your compliance processes:
| Topic | Details |
| Effective Date | July 1, 2025 |
| New Tax Rate | 3% on SaaS, data processing, custom software, IT services |
| Legacy Tax Rate | 6% on consumer SaaS and non-enterprise uses |
| Nexus Thresholds | $100,000 sales or 200 transactions |
| Exemptions | Some cybersecurity services, tax-exempt organizations |
| Registration Required | Yes, if nexus is met |
Implications for Your Business
Maryland’s new 3% SaaS tax represents a significant change in how the state approaches the taxation of digital services. For SaaS and technology companies, this is more than just another tax; it may affect your sales strategy, invoicing processes, and customer relationships. Taking the time to understand and prepare for these changes now can help you avoid surprises and remain compliant with Maryland SaaS tax regulations.
How Miles Consulting Group Can Support You
At Miles Consulting Group, sales tax is our specialty. We help SaaS and technology companies stay up-to-date with evolving sales tax compliance requirements. Our team can help you:
- Evaluate your nexus status and registration requirements
- Analyze product and service taxability
- Review and update contracts to ensure compliance with Maryland’s new SaaS sales tax
- Implement systems and processes to handle tax calculations and filings efficiently
- Provide ongoing support so you are always prepared for changes in SaaS tax rules
If your business needs support with Maryland’s new 3% SaaS tax or any other sales tax compliance challenges we would love to assist you. Contact us at info@miles.roomworksmedia.co.uk
Top Challenges in Multi-State SaaS Sales Tax
The Top Challenges in Multi-State SaaS Sales Tax (And How to Stay Ahead)
Growing a SaaS business across state lines? That’s exciting—new markets, more customers, and plenty of opportunities. But remember, as your reach expands, so do your tax obligations. Multi-state sales tax compliance can sneak up on even the most seasoned finance teams. One moment you're scaling and smiling; the next, you're sorting through a maze of tax codes.
Let’s take a look at the biggest sales tax challenges SaaS companies face when operating in multiple states—and how to tackle them without losing sleep (or valuable time). And as always, Miles Consulting can help. Here’s what we’ll cover here:
- Challenge #1: Navigating Nexus Laws
- Defines nexus and explains how it creates a sales tax obligation.
- Physical vs. economic nexus and how these vary by state.
- The importance of tracking sales activity across states to determine nexus.
- Challenge #2: Taxability of SaaS Products
- The inconsistent tax treatment of SaaS across different states.
- How B2B vs. B2C sales can affect tax obligations.
- Examples of states where SaaS is taxable, exempt, or treated ambiguously.
- Challenge #3: Complexities of Exemptions
- Common types of exemptions (B2B, non-profit, government).
- The need for proper exemption certificate collection and documentation.
- Potential liabilities from missing or incomplete certificates.
- Challenge #4: Administrative Burden and Compliance Costs
- The logistical challenges of filing in multiple states—different portals, filing frequencies, and requirements.
- The time and resource drain on internal finance teams.
- Challenge #5: Risk of Audits and Penalties
- Key audit triggers: late filing, incorrect rates, missing documentation.
- How some states aggressively audit remote sellers.
- Conducting internal reviews and fix issues before auditors find them.
- What’s the Next Step?
- The five major compliance challenges and provides a checklist for staying ahead.
- Seek expert help to reduce risk and focus on growth.
Would you like more information? We can help. Reach out to us at info@miles.roomworksmedia.co.uk.
1. Challenge #1: Navigating Nexus Laws
Ah, nexus. The word alone sounds weighty—and unfortunately, it lives up to its name.
Nexus is what triggers your responsibility to collect sales tax in a state. And it’s not one-size-fits-all.
- Physical Nexus: If you’ve got a remote employee, office, traveling salesperson or server in a state, you might have nexus there.
- Economic Nexus: This one’s tricky. Even if you don’t physically operate in a state, high sales volume alone can create a tax obligation.
Some states, like Texas, have relatively clear thresholds. Others, like New York, have their own nuanced rules for SaaS. And then there’s South Dakota, whose Wayfair case set the tone for economic nexus nationwide.
Action Step: Regularly monitor your sales activity in every state. If you're hitting economic thresholds, it's time to register and start collecting tax. Don’t wait for that notice— try to be proactive. It looks good for you, and you get peace of mind.
For more general information on nexus by state, click here.
2. Challenge #2: Taxability of SaaS Products
So, is your SaaS product taxable? Well… it depends.
Some states see SaaS as a tangible good, others classify it as a service, and some don’t tax it at all. It’s like trying to hit a moving target.
- Taxable SaaS States: Think Texas, Washington, and New Mexico and around 20 other states—SaaS is taxable here.
- Exempt States: Colorado and Iowa often exempt SaaS (though don’t forget about home-rule local taxes in places like Denver, Boulder and Colorado Springs – they tax SaaS).
- It’s Complicated: In Illinois, for example, SaaS might fall under the Personal Property Lease Transaction Tax in Chicago—but not the statewide sales tax.
Also: B2B vs. B2C matters. Selling to a business might require a different tax treatment than selling to an individual.
For a little more clarity, take a look at our State Nexus Cheat Sheet for SaaS.
Explore our SaaS Taxability Map for a comprehensive overview by State.
Quick Tip: Map out your customer base. Where are they located? Are they B2B or B2C? Understanding this helps you determine how to apply tax correctly.
3. Challenge #3: Complexities of Exemptions
On paper, sales tax exemptions sound simple enough: if a customer is exempt, you don’t collect tax. Easy, right?
Not quite.
In reality, exemptions are one of the most misunderstood areas of sales tax compliance—and one of the easiest ways to get tripped up. Here’s what makes them tricky:
- You need documentation—every single time. That means collecting a valid exemption certificate from your customer. It’s your proof that tax wasn’t due, and without it, you're still on the hook.
- Each state plays by its own rules. The forms, required fields, expiration dates, and rules for accepting out-of-state certificates can vary widely. What works in Texas may not fly in New York.
- One bad file can cost you. Missing, expired, or incomplete certificates can lead to retroactive tax bills, penalties, and interest during an audit—even if the customer was truly exempt.
Exemptions often come into play with B2B transactions, non-profits, resellers, or government agencies—but none of it matters if your documentation doesn’t hold up under scrutiny.
Pro Tip: Always collect exemption certificates at the time of the sale. Waiting until later—or until you get that dreaded audit notice—can leave you scrambling. Store them in a secure, organized, and easily searchable system so you’re never caught off guard.
Here’s more information on exemptions for both sellers and purchasers.
4. Challenge #4: Administrative Burden and Compliance Costs
Let’s be honest—multi-state tax compliance isn’t just a legal hassle. It’s a logistical beast.
You’re juggling:
- Dozens of state portals and filing systems
- Different tax rates, filing frequencies, and reporting requirements
- Constantly evolving laws (hello, policy updates!)
Whether you’re relying on spreadsheets or DIY tax tools, keeping up eats into valuable time and resources.
What Helps: Automating your tax process with the right software can cut costs and keep your team focused on growth—not government forms.
However, having said that, while automation is great, it should never be your first step. Start with the human touch – nothing beats it. At Miles Consulting, this is what we do. Contact us now.
5. Challenge #5: Risk of Audits and Penalties
No one likes the word audit. But if you’re selling in multiple states without fully understanding your tax obligations, it’s a risk you can’t afford to ignore.
- Filing late (or not at all) can trigger penalties and interest.
- Misapplying tax rates or missing exemption certificates? That’s audit bait.
- Some states are more aggressive than others in flagging remote sellers.
Get Ahead: Conduct internal audits annually. Make sure your nexus tracking, tax collection, and exemption documentation are up to date. If something looks off, fix it before a state auditor comes knocking.
6. What’s the Next Step?
Multi-state sales tax compliance is complex—no sugar-coating that. But it doesn’t have to derail your momentum. With the right strategies (and support), you can tackle these challenges head-on.
Here’s your checklist:
- Track nexus in every state you sell to
- Understand where and how your SaaS transactions are taxable
- Manage exemption certificates like a pro
- Streamline your compliance processes to cut costs
- Stay ahead of audit risks with good documentation
Need a hand? That’s what we’re here for. At Miles Consulting Group, we help SaaS businesses like yours stay compliant and confident—so you can get back to scaling.
Let’s talk. Reach out to us at info@miles.roomworksmedia.co.uk or book a consultation today.
State Nexus Cheat Sheet for SaaS
To start, here’s a quick recap:
Nexus refers to the connection between a business and a state that obligates the business to collect and remit sales tax on taxable sales within that state. For SaaS (Software as a Service) providers, nexus can be established through:
- Physical Presence: Having offices, employees, traveling salespeople or property in the state.
- Economic Nexus: Exceeding a state's sales or transaction thresholds, even without a physical presence.
Understanding nexus is crucial for SaaS businesses to ensure compliance with varying state tax laws. And having said all of that, a cheat sheet to help make it all a little clearer would be a big help, right? Here it is - Miles Consulting has your back with a quick reference guide on nexus by state, important thresholds, and anything else you may need to know. Here’s what we’re covering here:
- State-by-State Nexus Guide
- Table: SaaS Taxability, Rates, and Thresholds by State
- Thresholds and Exceptions
- Common Nexus Thresholds
- Notable State Exceptions
- What to Do If You Have Nexus in a State
- Registering for a Sales Tax Permit
- Collecting and Remitting Sales Tax
- Filing Requirements
- Recordkeeping Best Practices
Would you like more information? We can help. Reach out to us at info@miles.roomworksmedia.co.uk.
1. State-by-State Nexus Guide
Below is a summary of states where SaaS is taxable, along with their nexus thresholds and any unique considerations:
| State | SaaS Taxable? | State Rate | Local Tax? | Combined Rate | Economic Nexus Threshold | Notes |
| Alabama | Yes | 4.00% | Yes | Up to 11.00% | $250,000 annual sales | SaaS classified as tangible personal property. |
| Arizona | Yes | 5.60% | Yes | Up to 11.20% | $100,000 annual sales | SaaS considered rental of tangible personal property. |
| Colorado | Varies by locality | 2.90% | Yes | Up to 11.20% | $100,000 annual sales | State exempts SaaS; some home-rule cities tax it. |
| Connecticut | Yes | 1.00% | No | 1.00% | $100,000 annual sales | SaaS is taxable as a digital good at 6.35% for personal (non-business) use. |
| District of Columbia | Yes | 6.00% | No | 6.00% | $100,000 annual sales | SaaS is taxable. |
| Hawaii | Yes | 4.00% | Yes | Up to 4.50% | $100,000 annual sales | General Excise Tax applies to SaaS. |
| Illinois (Chicago) | Yes (in Chicago only) | 11.00% | Yes | 11.00% | $100,000 annual sales | Subject to Chicago’s Personal Property Lease Transaction Tax |
| Kentucky | Yes | 6.00% | No | 6.00% | $100,000 or 200 transactions | SaaS is taxable as a digital service. |
| Louisiana | Yes | 4.45% | Yes | Up to 11.45% | $100,000 annual sales | SaaS is taxable; local rates vary. |
| Massachusetts | Yes | 6.25% | No | 6.25% | $100,000 annual sales | SaaS is taxable as a digital good. |
| New Mexico | Yes | 5.125% | Yes | Up to 9.25% | $100,000 annual sales | Gross Receipts Tax applies to SaaS. |
| New York | Yes | 4.00% | Yes | Up to 8.875% | $500,000 annual sales | SaaS is taxable as a digital service. |
| Ohio | Yes | 5.75% | Yes | Up to 8.00% | $100,000 or 200 transactions | SaaS is taxable. |
| Pennsylvania | Yes | 6.00% | Yes | Up to 8.00% | $100,000 annual sales | SaaS is taxable as a digital good. |
| Rhode Island | Yes | 7.00% | No | 7.00% | $100,000 or 200 transactions | SaaS is taxable. |
| South Carolina | Yes | 6.00% | Yes | Up to 9.00% | $100,000 annual sales | SaaS is taxable. |
| South Dakota | Yes | 4.50% | Yes | Up to 6.50% | $100,000 annual sales | SaaS is taxable. |
| Tennessee | Yes | 7.00% | Yes | Up to 9.75% | $100,000 annual sales | SaaS is taxable as a digital service. |
| Texas | Yes | 6.25% | Yes | Up to 8.25% | $500,000 annual sales | SaaS is taxable as data processing services at 80%. |
| Utah | Yes | 4.85% | Yes | Up to 8.35% | $100,000 or 200 transactions | SaaS is taxable. |
| Vermont | Yes | 6.00% | Yes | Up to 7.00% | $100,000 or 200 transactions | SaaS is taxable. |
| Washington | Yes | 6.50% | Yes | Up to 10.40% | $100,000 annual sales | SaaS is also taxable under B&O tax. |
| West Virginia | Yes | 6.00% | Yes | Up to 7.00% | $100,000 or 200 transactions | SaaS is taxable. |
Note: Rates and thresholds are subject to change. Always consult the respective state's Department of Revenue for the most current information.
Or of course, come to Miles Consulting. This is what we do.
2. Thresholds and Exceptions
As you can see, most states establish economic nexus based on:
- Sales Revenue: Common thresholds are $100,000 or $500,000 in annual sales.
- Transaction Volume: Some states use a threshold of 200 transactions annually.
Exceptions:
- Colorado: While the state does not tax SaaS, several home-rule cities (e.g., Denver, Boulder) impose local sales taxes on SaaS products. Find out more about the home-rule here.
- Alabama: Nexus thresholds are updated annually. For tax years beginning on or after January 1, 2024, the sales threshold is $250,000.
3. What to Do If You Have Nexus in a State
So, you’ve determined you have nexus in a state—what now? Don’t worry, it’s manageable. Here’s a simple checklist to keep you on track:
- Register for a Sales Tax Permit
First things first—get registered. Visit the state’s Department of Revenue website to apply for a sales tax permit. It’s your official green light to start collecting tax. - Collect Sales Tax
Once you're registered, it's time to start collecting sales tax on your taxable SaaS sales in that state. Most states make this easy with online portals and clear rate information. - File Sales Tax Returns
Depending on the state, you’ll need to file returns monthly, quarterly, or annually—even if you didn’t collect any tax during a period. Think of it as a regular check-in with the state. - Maintain Records
Keep clear, organized records of your sales, the tax you collected, and your filings. It’ll save you time (and stress) if you ever face an audit—or just need to double-check something down the road.
As your SaaS business continues to grow and cross state lines, so do your tax obligations. What qualifies as nexus today might evolve tomorrow—and the penalties for falling behind can be steep. Whether you're just crossing a threshold or already collecting in multiple states – and whether you’re a foreign business or within the US - now is the time to be proactive.
Use this cheat sheet as your first step toward compliance—but don’t stop here. Stay updated, review your exposure regularly, and when in doubt, partner with professionals who live and breathe state tax law. And that’s us. Contact Miles Consulting Group at info@miles.roomworksmedia.co.uk —we’re here to help your SaaS business scale smartly and stay compliant.
