Is it true that SaaS Companies Ignore Sales Taxes and VAT until 2022? -

What I've noticed during my work has been that it's not uncommon to see SaaS and software companies not to charge transaction-related tax (sales taxes TVA, GST, etc. ).

And I get it.

VAT, sales taxes , and GST can be very difficult to comprehend and can be very. These are not the field IT professionals would like to spend their time on.

Think about delay in tax-related transactions consequences that extend beyond the payment of certain unpaid taxes in the near future.

I spoke to the Tax Director of the entire world, Rachel Harding who was the most informed person I've spoken to regarding the tax issue.

She told me about:

• 40% penalty and interest Software companies were liable for 40% in interest and penalties if they've not paid taxes on sales in the state.
• Multi-million dollar valuation adjustments from historical sales tax noncompliance during acquisition due diligence.

Plus numerous others.

Our own opinion: no it isn't wise to avoid tax obligations up to 2022.

In this blog post will discuss three things SaaS companies must be aware of regarding taxes. The majority of the information is taken from my conversation with Rachel and you can see all of the video from the discussion below if you're interested in hearing the full variety of her opinions.

Three things SaaS Companies Need to Understand Concerning Sales tax

1. Sales Taxes are calculated based upon the place of purchase not the seller.

Sales tax can be quite challenging (especially in countries like that of that of the U.S.), but usually, the primary thing to remember is that sales taxes are collected in the place that the benefit of the product is earned (aka the area where the customer lives). This doesn't depend on the location of your business or the place of your office or business.

The most crucial data to identify the origin of the sales comes from the invoice, along with the address of the server. This means that SaaS will be taxed the exact similar way to items, but not in the same way as services. It's a fact that just 20 of the U.S. states with sales tax systems are actually taxing SaaS. In 2018, if there's enough taxes on sales in an area that exceeds the amount allowed, the law says that there is an economic cross-border nexus (a huge shout-out to South Dakota v. Wayfair to this concept! ).

A threshold for sales is the amount of sales you're able to achieve within a certain region before the tax deadline arrives. Every tax area (whether it's at a territorial level, state or even a country) is different in its method of delineating a threshold.

2. The Tax Laws and Regulations have Changed Dramatically in the Last Ten Years.

VAT, sales tax and other taxes that go along to transactions have changed during the last 10 years. Certain adjustments are more crucial than others, and have changed the tax landscape entirely.

Two major changes that have happened in the past include:

• From January 1st of 2015, which was the 1st day of January 2015 The EU demanded software companies to accept VAT payment and pay the tax depending on the location of the user not the actual location of the company or the employees.
• In 2018 , it was the year in which the U.S. Supreme Court ruled that states are able to charge sales tax on purchases made from out-of-state sellers (including those who sell online) regardless of the reality that the seller does had no presence established within the state that has to pay tax ( South Dakota v. Wayfair, Inc.). (A.k.a. The main reason behind writing this post is that everyone who is not a resident along with businesses of every size should be conscious of the sales tax, as well as how it is set up.)

If SaaS is tax-deductible, it is the subject of discussion in a variety of ways too.

In the U.S., Florida and California don't have to collect sales tax on SaaS subscriptions. However, New York and Pennsylvania do.

Massachusetts didn't require sales tax collection for SaaS. In 2020, however, the state will classify SaaS costs as "personal tangible asset" that is a sign that SaaS subscriptions will fall into the tax bracket for sales. taxation in the state.

This isn't only happening in the U.S.

In our conversation, Rachel offers several examples of how tax laws are changing to SaaS enterprises around the globe.

The reality is that not everyone SaaS chief executive or founder has to be an expert on taxation. Far away.

It is important to remember that you must be aware enough to do it correctly as well as finding an accountant is certain of.

3. If You've Followed It Properly If You've Followed It Correctly, You Don't Have to spend anything additional

"If your following the proper procedure technically, then the net zero won't pose any problem," Rachel explained.

Sales tax is a consumption taxit is a tax imposed on the buyer, not your company. The tax shouldn't be something you're having to pay for. It's up to you to collect to pay the sales tax on behalf of your client and then pay it back to the public entity responsible. The buyer is responsible however it is the seller's responsibility.

"It's when you're performing wrong that you're not putting it in the form of an obligation or cost in your account. If you do not, you'll not be able to calculate tax on sales for the years after when it was due. The tax is then paid out of your the pocket."

Four Ways SaaS Companies Can Manage VAT Four Ways SaaS Companies Can Control VAT and Sales Taxes

Then what? How can SaaS firms determine the tax withheld they are required to pay and what are the best ways to pay the taxes around the world?

Four ways that we've seen SaaS businesses use to fulfill the tax requirements related to transactional tax:

1. Pay attention not to

In this post, we've explained the fact that not paying sales tax is the most popular method of making this mistake, yet it's one that can lead to your business being confronted with tax bills for years together with charges, penalties as well as other charges. The length of time that advantages of this method decreases. Although online retail continues to grow, so too will the volume of demand, and the capacity to control it.

2. Self-Help

Making your taxes yourself is an option that can work great for large companies which have the resources needed for managing their taxes by having employees within the company.

It's just not as simple as adding an automated tax tool to your sales software you're using.

SaaS companies also need to think about:

• Verify that your information are safe and easily accessible.
• Knowing what is taxable in addition to the tax rate to be to be.
• Monitor tax thresholds so you are aware of the deadline to pay taxes and return the tax return.
• Ensure that all the correct sums are paid and filing returns on time with all tax authorities which there's an obligation. This could happen every month, quarterly, and every year.
• Be aware of the latest tax laws and regulations.
• Responding to inquiries and notices of tax officials. Are they claiming that they are scams or are they legal?

This can be challenging to finance departments who don't have the necessary knowledge about the latest technology, and could cause discontent and increased turnover.

3. Employ an accounting firm

If you choose to contract out your tax obligations that means you have smaller internal resources that can be used and it will add cost. And rather than a customized strategy, the use of an accountant generally means the firm will take an approach which is at the highest standard, regardless of whether you prefer an individual strategy.

The perspective is one that only an insider tax professional could provide -- one which relies upon understanding the taxes, tax regulations, and how they all intersect.

4. Use the services of an Merchant of Record (MoR) and outsource the liability

We are the principal merchant for any transactions made on your site, which is the reason we are responsible of collecting and paying taxes on your behalf. If you're looking to handle taxes, tax reductions, taxation rules or transactions exempt from tax, B2C or B2B, everything is handled by us.

Merchants of record will also be on your side should you face tax audits, or other issues that come up. In the event of an audit, we'll help and lead in order for you to concentrate on developing and growing your SaaS company.

What's the most effective method to manage your Company?

It's possible that this all seems overwhelming, but the most effective thing you could do is not do anything.

As Rachel stated, "I can never promise that you won't get audited. The only thing I can guarantee is that little actions taken now will make you a better possible candidate for a successful and prosperous future."

To figure out the most efficient option for your business, you must evaluate the resources available as well as alternatives.

"It's vital to understand what requirements your company and area of operation and the general tax law (duh), and what dangers you're willing accept."

Nathan Collier Nathan Collier is the Director of Content and Community of .

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