Most advice on sales tax internet sales still assumes you're shipping physical products from a warehouse. That advice is increasingly dangerous for SaaS founders, software publishers, and digital-product sellers. Your real exposure often depends on where your customers are, which channel made the sale, what you're selling, and whether the platform collecting payment is responsible for the tax.
A marketplace may collect tax on transactions it facilitates while leaving you responsible for sales from your own website. A SaaS subscription may face different treatment from a downloadable template. A platform fee may become taxable even when your customer-facing product is treated differently. The compliance question isn't, “Do I sell online?” It's, “Which transaction happened through which channel, and what tax rules apply to that transaction?”
Table of Contents
- The Physical Presence Rule Is Dead
- Understanding Economic Nexus After Wayfair
- Marketplace Facilitator Laws Versus Direct Sales Obligations
- How VAT and GST Apply to Digital Sales Globally
- The Expanding Tax Net on Digital Services and Platform Fees
- Practical Compliance Options for Online Sellers
- Building Compliance Infrastructure Before You Need It
The Physical Presence Rule Is Dead
The old assumption was simple: if you didn't have an office, employee, warehouse, or other physical operation in a state, you didn't need to collect that state's sales tax. For digital businesses, that assumption no longer works: physical presence is no longer a prerequisite for nexus. But physical nexus still matters. You must separately review offices, employees, inventory, and other physical connections to determine your obligations in each state.
On June 21, 2018, the U.S. Supreme Court decided South Dakota v. Wayfair in a 5-4 ruling and overturned the physical-presence rule associated with *Quill*. The Court held that economic and virtual contacts** can create substantial nexus, meaning a state can require a remote seller to collect and remit sales tax even when the seller has no building, employee, or other physical operation there.
The Wayfair decision summary provides the legal background.
Wayfair removed physical presence as a requirement for nexus, but a physical connection still counts. An office, an employee, or stored inventory in a state needs its own review and can create an obligation by itself.
That change matters even more for SaaS and digital-product businesses because digital companies can sell into many jurisdictions without shipping anything. A solo developer with customers across the country can create tax exposure through sales activity alone. Your code may run from one cloud region, your company may be registered in one state, and your team may work from one location. None of that automatically limits your sales-tax footprint.
Revenue can create an obligation
In the 2018 Wayfair case, South Dakota's law used two bright-line thresholds: more than $100,000 in annual gross sales or at least 200 transactions into the state. The case established the legal foundation for modern U.S. internet sales tax enforcement and changed compliance expectations for online sellers, including businesses selling software and digital services.
That doesn't mean every digital sale is taxable in every state. Product classification still matters. Exemptions still matter. Registration and filing rules still matter. You need to check each state's current rules: an economic-nexus threshold is not a blanket exemption for a seller with physical nexus. Physical presence is no longer the only trigger, and treating it as the sole test is a serious operational mistake.
Practical rule: Track customer location and gross receipts by state before your revenue reaches a threshold. Registration should follow a documented review, not a surprise notice from a tax authority.
Understanding Economic Nexus After Wayfair
Economic nexus connects a seller to a taxing jurisdiction through commercial activity rather than physical facilities. For a SaaS company, that activity usually begins with customer revenue, subscriptions, or other transactions attributed to buyers in a state.
The post-Wayfair pattern is straightforward. As your remote gross receipts grow, you evaluate each state separately. Once your activity crosses that state's applicable threshold, you may need to register, collect tax, file returns, and remit what you collected. The obligation can switch on in one state while you remain below the relevant threshold in another.
Many states adopted a $100,000 sales threshold, although the precise measurement rules and treatment of transactions vary. South Dakota's original framework also included the 200-transaction test, but that test is becoming less central.
Every state with a sales tax now has economic nexus rules. The economic nexus overview describes that pattern, but each state's revenue department publishes the threshold you actually file against.
What substantial nexus means for SaaS
Suppose you sell a subscription through your own checkout. Your company has no office or employee in a customer's state, but your sales into that state grow. The relevant question isn't whether you've rented space there. It's whether your sales activity creates the level of economic connection that the state treats as nexus.
Nexus establishes your connection to a state. Product taxability determines whether you collect on a particular sale. For a taxable subscription, calculate the checkout rate using the state's treatment of SaaS, the applicable sourcing rule, and the state and local rates at the location that rule assigns to the sale.
Validate the address used for that calculation. A ZIP code can span city or county boundaries with different rates.
That requires more than watching total company revenue. You need a jurisdiction-level view of:
- Customer location: Record a validated street address, or the other location evidence a state accepts, for each sale. State totals show threshold progress, while transaction-level location evidence supports the applicable local rate.
- Gross receipts: Separate revenue by customer jurisdiction and transaction channel, including marketplace sales and direct subscriptions. Keeping those streams separate does not itself exclude marketplace revenue from a state's economic-nexus threshold. Apply the state's counting rules to each stream, even where a marketplace collects tax on facilitated sales; assess collection responsibility for direct subscriptions separately.
- Transaction counts: Keep transaction data available where a state still uses a transaction-based test.
- Product category: Distinguish SaaS, downloads, subscriptions, services, and other digital products.
- Channel coverage: Identify marketplace transactions separately from direct website sales.
Monitor before the threshold
The right workflow is proactive. Set a review trigger below each state's threshold, then run the same review for that state before you cross it:
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Find the measurement period. Note whether the state looks at the previous calendar year, the current year, or a rolling 12 months.
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List which sales count. Record whether the test uses gross, taxable, or retail sales, and whether exempt and marketplace sales are included.
Marketplace sales and direct subscriptions can count toward the same threshold, even when only the direct stream is yours to collect on.
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Note the deadlines. Write down when registration is due after you cross the threshold and when collection has to start.
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Confirm product taxability. Check how the state classifies your SaaS or digital product before you switch on collection.
Don't wait until the following filing period to discover that your checkout has been charging the wrong rate or collecting nothing.
Founders selling subscriptions in the United States can use a dedicated SaaS sales tax guide as a starting point, but no generic guide replaces a product and channel review. Your billing system should be able to answer, for every transaction, where the customer is located, what was sold, which channel processed the sale, and whether tax was collected.
Marketplace Facilitator Laws Versus Direct Sales Obligations
Marketplace facilitator laws solve one narrow problem. They often require the platform to collect and remit tax on sales made through that platform. They don't automatically erase the seller's obligations for every other channel.
This distinction catches digital businesses because founders frequently group all online revenue together. App-store sales, marketplace purchases, affiliate-referred orders, social-media storefront sales, direct licensing agreements, and sales from your own website may all appear in the same accounting report. Tax responsibility can differ across those streams.
Map responsibility by channel
A marketplace transaction may be covered by the facilitator's collection process. Your direct website usually demands a separate analysis. If your software business sells through a marketplace and also accepts annual contracts through its own checkout, the marketplace may handle one stream while your company remains responsible for the other.
Build a channel map with four questions:
- Who is the legal seller? Check which party the customer's contract and receipt name as the seller. That party can differ from the one that collects tax under marketplace facilitator rules.
- Who controls checkout? Identify the party that determines the customer-facing transaction flow. Running checkout or processing the payment doesn't by itself make that party responsible for the tax.
- Who collects the tax? Confirm this in the platform's terms and transaction records instead of inferring it from what the platform calls itself.
- Which sales remain uncovered? Reconcile marketplace reports against direct invoices, subscriptions, and payment links.
Channel rule: A facilitator's tax collection generally applies to the marketplace sales it facilitates. Treating that coverage as universal is how direct-channel liabilities disappear from your records.
The same channel analysis applies to merchant-of-record arrangements. A merchant of record is the legal seller on covered customer transactions and takes responsibility for their applicable indirect-tax obligations. A marketplace facilitator can have a statutory collection duty without becoming the legal seller.
A merchant of record explanation can help clarify the difference between a payment processor, a marketplace facilitator, and a party that assumes responsibility for the customer transaction.
If you prefer to watch before you design your reporting, the channel decision is also covered in an optional video.
Reconcile platform reports with your own books
Don't rely on a marketplace summary that combines taxable, exempt, refunded, and direct transactions.
Keep the platform's tax-collected amounts separate from your own sales-tax calculations, and retain reports showing gross sales, tax collected, refunds, fees, and payout amounts.
Each stream then reconciles from its own record:
| Stream | Source record | Gross sales to reconcile | Tax collector | Fee or refund adjustment | Payout check |
|---|---|---|---|---|---|
| Marketplace sales | Platform sales and tax report | Sale amount before platform fees, excluding separately collected tax | Marketplace, under facilitator rules | Identify fees, refunds, and other payout adjustments | Match payout to gross sales, fees, refunds, and tax retained by the marketplace |
| Direct sales | Your invoices and checkout records | Invoice sale amount, excluding separately collected tax | You, where collection is required | Identify processor fees, refunds, and settlement adjustments | Match settlement to invoiced sales, collected tax, fees, and refunds |
| Refunds | Refund log and credit notes | Refunded sale amount, with refunded tax recorded separately | Party that collected original tax | Confirm who refunds tax and records the adjustment | Match the refund to the original transaction and correct reporting period |
A platform fee lowers what reaches your bank, but it doesn't automatically lower the sales amount you report for tax. Tax the marketplace already collected and remitted isn't remitted again as your own liability.
That separation protects you from two opposite errors. You may collect tax on a sale the marketplace already handled, or assume the marketplace covered a direct sale that never passed through its system.
Channel structure is not a minor accounting detail. For digital sellers, it's a primary tax-control decision.
How VAT and GST Apply to Digital Sales Globally
Selling software across borders can create VAT or GST obligations that sit well outside U.S. sales tax. The Tax Foundation overview puts global e-commerce at $26.7 trillion in 2019, about 30% of world GDP.
When that report was published, 101 countries had implemented VAT or GST on cross-border online sales. It also reports that more than 50 had adopted OECD recommendations for effective VAT collection on those sales. See the Tax Foundation overview of global digital taxation for the cited figures and policy context.
The operating principle is destination taxation. The customer's location usually drives the tax treatment, not the location of your company or server.
Location works together with how the supply is classified, whether the buyer is a business, and the rules of the country where the buyer sits.
The EU customer-location rule
For B2C electronically supplied services in the EU, tax is charged in the customer's country rather than the seller's country. This rule has applied since January 1, 2015, under Article 58. The European Commission's explanatory notes on electronically supplied services explains the customer-location approach and the evidence businesses need to support it.
For a software seller, that means checkout must do more than authorize a card. It should capture and retain location evidence that supports the rate and jurisdiction selected for the transaction. Depending on the transaction and applicable rules, that evidence may come from customer address data, billing information, or other checkout signals. Your tax process needs a defensible record, not just a calculated amount.
Choose a reporting route
A seller can register in each destination country where an obligation exists, or use the One-Stop Shop, OSS, to centralize reporting for eligible EU transactions.
For electronically supplied services, EU-established businesses use Union OSS for eligible sales to consumers in other EU countries. Businesses with no EU establishment use Non-Union OSS for services supplied to EU consumers.
OSS centralizes eligible EU returns. You still classify products, determine customer location, apply the right rate, retain evidence, and reconcile returns to transaction records. VAT or GST obligations outside the EU require separate reporting.
Use this practical sequence:
- Classify the supply: Decide whether you're selling software, an electronically supplied service, a digital product, or another service.
- Determine the buyer type: B2C and B2B treatment can differ, so preserve the customer's business information where relevant.
- Validate location: Make location evidence part of the checkout and billing workflow.
- Select registration coverage: Check which OSS scheme your establishment qualifies for, then compare it with local registrations.
- Reconcile continuously: Match tax calculations, refunds, invoices, and filings.
Sellers expanding beyond the United States should review VAT registration for software sellers before international demand becomes an administrative emergency. The key input is customer location, and your checkout is where that input must be captured correctly.
The Expanding Tax Net on Digital Services and Platform Fees
Generic internet sales tax guides usually focus on a taxable product moving from seller to buyer. That model is too narrow for modern digital commerce. States are increasingly examining SaaS, IT services, software publishing, web hosting, and the fees charged by platforms around the transaction.
The review includes services sold, services purchased, and platform fees. Your company may need to evaluate what you sell to customers, the services you provide, the services you buy, and the fees associated with operating through a marketplace.
Recent examples show the direction
Three state changes covered in the mid-year tax report show how differently states draw the line:
- Maryland: A 3% tax on certain IT services, including software publishing and web hosting, took effect July 1, 2025. Under Technical Bulletin 56, qualifying enterprise-use SaaS is taxed at 3% and individual-use SaaS at 6%. Where both apply, the higher rate applies.
- Louisiana: Sales tax expanded to digital products and services, including SaaS.
- Texas: The 2025 rule classified certain marketplace-provider services, such as storing listings and compiling sales analytics, as taxable data processing. A later executive order directed deleting that provision, and a proposed amendment would remove marketplace and platform fees from taxable data processing.
For SaaS founders, product classification can't stop at “software.” Ask whether the customer receives access to hosted functionality, a downloadable product, a support service, a data-processing service, or a bundled offering. A creator platform should also examine whether its marketplace commissions and seller-facing fees receive separate treatment.
Audit the surrounding service stack
A practical review should include:
- Customer subscriptions: Determine how each jurisdiction treats the recurring access or service.
- Implementation and support: Separate onboarding, consulting, training, and technical support where the rules require it.
- Hosting and publishing: Review whether your service model resembles taxable IT or web-hosting activity.
- Platform economics: Examine listing fees, commissions, data-processing charges, and other seller-facing amounts.
- Bundled pricing: Document how you allocate a single price across different taxable and nontaxable components.
Scope warning: Tax can attach to the service stack around a digital product, not only to the download, subscription, or license the customer sees.
This is why a single “internet sales” toggle in a payment dashboard isn't enough. Your tax engine, invoice descriptions, contracts, and accounting categories should describe the actual commercial model. If the product changes, the tax analysis needs to change with it.
Practical Compliance Options for Online Sellers
Digital sellers have three credible operating models. None removes the need for accurate product data and customer-location records, but each assigns the work differently.
Manual registration and internal control
A small seller with limited jurisdictions may register directly, configure tax rules, file returns, and maintain exemption documentation. This approach gives you control and may fit a straightforward product catalog, but the workload grows as economic nexus, channel coverage, refunds, and international VAT/GST enter the picture.
What you own: every registration, threshold check, return, and payment. If a deadline slips, nobody else catches it.
That includes exemptions. Business status alone does not exempt a U.S. software purchase, so before you skip sales tax, confirm the product and state qualify.
Then collect the required certificate, match it to the purchaser, keep it on file, and recheck it where the state sets an expiry. VAT works differently: there you check the buyer's business status and VAT ID.
If you run all of this in-house, a virtual CFO for ecommerce brands can tighten the bookkeeping and reconciliation side. The registrations and filings stay yours.
Tax automation with your own entity
Tax calculation and filing software can monitor thresholds, calculate jurisdiction-specific tax, and support registrations and returns. Your company still owns the compliance relationship, so you must configure products correctly, review notices, maintain registrations, and reconcile data from marketplaces and payment providers.
What the software covers: checkout calculation, exposure monitoring, registration, return preparation, submission, and remittance are separate services. Check each one against your plan.
A tax line on the invoice shows the amount and nothing more. Confirm registration, filing, and payment in your own records.
If the tool collects and validates exemption certificates, you still decide which products and buyers qualify, and you review what it flags.
Merchant of Record
A Merchant of Record can assume responsibility for the customer transaction, including applicable indirect-tax collection, filing, and remittance within its coverage model. This can be a strong fit for SaaS companies and indie makers that want to avoid building a tax department, but you still need to review contract terms, supported countries, product eligibility, refunds, reporting, and payout reconciliation.
Buyer verification: For business or exempt buyers, use the provider's verified exemption or VAT ID process. Sales outside its coverage stay on your books.
| Approach | Best For | Complexity | Cost drivers | Risk Level |
|---|---|---|---|---|
| Direct registration and manual filing | Sellers with simple products and limited jurisdictions | High as coverage expands | Varies by registrations, advisors, and internal time | Higher if monitoring is inconsistent |
| Tax automation with your entity | Growing sellers that want control over registrations and filings | Moderate to high | Varies by software, filing volume, and professional support | Moderate, dependent on configuration |
| Merchant of Record | SaaS and digital-product businesses selling across borders | Lower operational burden | Provider transaction fees and commercial terms | Lower administrative exposure, subject to provider scope |
Choose based on operating reality
Use direct registration when you can maintain a reliable jurisdiction calendar and your product classification is stable. Use tax automation when your team can own the underlying registrations and audit trail. Consider a Merchant of Record when global selling is central to your growth and the cost of managing registrations, filings, remittance, and customer-location evidence would distract from product work.
Before you choose, price the whole model, including the work nobody invoices you for:
- Manual: adviser fees plus the internal hours spent on registrations, filings, notices, and reconciliation.
- Automation: processing, billing, tax calculation, registrations, filings, implementation, and notice support, wherever each is charged separately.
- Merchant of Record: what the transaction fee already includes, plus any extra charges in the commercial terms.
Creem's rate: 3.9% + 40¢ per successful transaction, with processing, tax, invoicing, compliance, and dispute handling included and no monthly or setup fee. A $100 sale leaves $95.70 after the transaction fee.
Bank payout charges are separate. The 40¢ transaction fee is fixed, so it takes a bigger share of a small order, and your order size and volume set the total.
Creem is a Merchant of Record and the legal seller on covered transactions. It provides checkout, subscription billing, and sales-tax, VAT, and GST collection, filing, and remittance for buyers in 190+ countries, including U.S. sales tax in 28+ states.
Seller onboarding and payouts are open to eligible businesses and individuals registered in 87 countries. That model is one option for sellers that want those obligations handled through the transaction platform rather than managed independently.
Building Compliance Infrastructure Before You Need It
Reactive compliance is expensive because the correction happens after money has already changed hands. If you cross an economic nexus threshold without registering or collecting, you may need to investigate historical transactions, correct invoices, fund unpaid tax from company cash, and respond to notices. You also may not be able to recover tax cleanly from customers after the sale.
Build the control system while your transaction volume and product catalog are still manageable.
Put these controls in place
- Threshold monitoring: Track gross receipts and relevant transactions by customer jurisdiction and channel.
- Location evidence: Store the data used to determine the buyer's location and tax treatment.
- Product classification: Maintain a tax category for subscriptions, downloads, hosted software, support, and bundled services.
- Registration workflow: Assign an owner for identifying, approving, and completing jurisdiction-specific registrations. For each finding, record the jurisdiction, channel, product classification, why the obligation applies, which legal entity holds it, the action required, its deadline, and the owner.
- Filing reconciliation: Match returns against invoices, refunds, marketplace reports, and payment payouts. When tax amounts don't match, find the cause and keep the evidence of how you resolved it.
- Change management: Reassess tax treatment when you add a new plan, service, country, marketplace, or fee structure.
- Filing calendar: For each registration you hold, record the filing frequency, the return and payment deadlines you confirmed with the authority, and whether each return is done. Check the authority's rules before skipping a period with no sales, because some still expect a return.
- Notice handling: Log each tax notice with the date received, jurisdiction, affected period, response deadline, owner, supporting records, and how it was resolved.
Founder decision: If your team can't explain who collects tax on every revenue channel, your infrastructure isn't ready for national or global scale.
The practical recommendation is simple. Don't build a sprawling manual process if your business is designed for international digital sales. Choose either a tax automation stack that your team can operate confidently or a Merchant of Record arrangement whose coverage matches your markets and products.
Start by exporting your transactions, grouping them by customer location and channel, and identifying every state or country where your current process may be incomplete. Then document the decision for each channel and implement the required collection, reporting, and reconciliation controls before the next growth push.
Where a gap involves sales you already made, document a separate review for that jurisdiction. Moving future sales to a Merchant of Record does not resolve earlier obligations. Review those periods when you register or change providers.
Creem gives SaaS and digital-product sellers a Merchant of Record model with automated checkout tax calculation, collection, filing, and remittance, alongside subscriptions, invoices, payouts, and digital-product tools.
If your channel review shows gaps you would rather not staff, try Creem for the channels where they appear. From their next sale, the filing calendar and notice log above are Creem's job, not yours.