Reviewed and updated October 16, 2026
Start with the transaction
Software as a service is not taxed uniformly across the United States. A state may distinguish remote access from downloaded software, bundled services, data processing and custom programming. A subscription label alone does not establish the result. Review the actual contract, how the product is delivered and who uses it.
Customer addresses matter. Keep billing addresses, service locations and exemption documents, and check the jurisdiction’s sourcing rules before choosing a tax rate. A customer’s headquarters may not be the only relevant location when users work in multiple states.
Check nexus before collecting
Physical presence and economic nexus are separate ways a seller can become responsible for registration. Remote-sales thresholds, included transactions and measurement periods vary. Review each state’s revenue department guidance rather than applying one national dollar threshold. Marketplace collection may cover some sales without removing every registration or reporting obligation.
Build the accounting workflow
Map each product to its tax treatment, separate taxable and exempt revenue and record collected sales tax as a liability rather than sales income. Reconcile subscription billing, processor settlements, refunds and returns every month. Document the reasoning behind exemptions and keep certificates accessible.
Before expanding into a new market, prepare a sales-by-state report and a product description for review. Tax automation can implement a decision, but it cannot replace establishing the correct treatment. Jacobwise & Co. can help organize the bookkeeping and identify tax questions that need a jurisdiction-specific review.
Official sources
This guide provides general information. The rules depend on the tax year, jurisdiction and your circumstances. Ask our team which filing or planning steps apply to you.
