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@milesconsultinggroup.com.
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@milesconsultinggroup.com —we’re here to help your SaaS business scale smartly and stay compliant.
