Monika Miles, Author at Multi State Sales Tax Solutions

When should a growing SaaS company outsource sales tax compliance?

One of the most common questions we hear from growing SaaS companies is when to outsource sales tax compliance rather than keep handling it in-house. It usually comes up after a stretch of good news: new customers in new states, a product that now includes implementation and support, and a finance team spending Friday afternoons on state registrations. The answer depends on your footprint, your product, and your team's capacity. So in this article we look at what makes sales tax more complex as you grow, the signs that it is time to bring in support, and what good support covers.

Key takeaways: outsourcing sales tax compliance

Bring in outside sales tax compliance support when the decisions start requiring judgment, not just processing.
Economic nexus builds state by state as you grow, and most states now use a $100,000 sales threshold.
Outsourcing makes sense when the cost of specialist help is lower than the cost of your team's time plus the cost of an error.
The best time to get help is before a state notice arrives, while your options are still open.

What makes sales tax compliance harder as a SaaS company grows?

Sales tax obligations grow with the business, and they often grow steadily at first, then quickly. Since the Supreme Court's 2018 decision in South Dakota v. Wayfair, Inc ., states can require you to collect and remit tax based on your sales into the state alone. Most use a $100,000 annual sales threshold, and states have been simplifying their tests around that dollar figure: Illinois retired its 200-transaction threshold in January 2026, and Kentucky followed in August 2026. Cross a threshold in a new state and your obligations there have already begun.

A SaaS company closes a few enterprise deals in new states, builds a customer success team spread across the country, and finds itself with obligations in a dozen states it has never filed in. Remote employees count too, since a person working from home in another state gives you a physical presence there, along with payroll and registration questions of its own.

Then there is the question of what you sell. Forty-five states levy a statewide sales tax, and each jurisdiction decides for itself how to treat SaaS, digital products, and services: one state might tax a subscription in full, another taxes part of it, and another may leave it alone. Some states allow home-rule jurisdictions to impose their own taxability rules at the local level. Add implementation fees, training, support plans, or AI features, and the analysis has to be done line by line. Exemption certificates, marketplace sales, and partner channels each bring their own paperwork.

It accumulates, one customer and one product decision at a time, until the process that worked at $5 million in revenue starts creaking at $15 million.

When should you bring in outside sales tax compliance support?

We would advise bringing in outside support when the tax decisions in front of you require additional judgment rather than just processing. Processing is calculating tax on an invoice and filing the return on time. Judgment is deciding whether your new AI add-on is taxable in New York, or what crossing Georgia's threshold in March means for your registration timeline. The shift from one to the other tends to show itself through a few recognizable signs:

You sell into multiple states, or you are about to.
You are unsure where you have economic nexus, or when you crossed a threshold.
Your offering now includes implementation, training, support, or bundled services.
Registrations, filings, notices, and reconciliations are taking up more of your team's week.
A state notice has arrived, or audit exposure has become a concern.
Your reports give you accurate numbers, but you still need someone to tell you what they mean.

Here is the encouraging part: most of these show up well before a state gets in touch. A company that acts on them early gets to choose its timing, its registration strategy, and its approach to any past exposure. A company that waits for a state to make contact first has fewer choices, because enforcement sets the schedule from that point on.

When does outsourcing make more sense than managing sales tax internally?

Managing sales tax in-house may work well when your footprint is small and stable. A capable controller can track two or three state registrations, file on time, and keep clean records. Plenty of companies run that way for years, and at that scale one person can reasonably stay on top of the rules.

This equation changes with growth. The cost question has three parts: what your team's time costs, what specialist help costs, and what an error costs. That last cost is the easiest to underestimate. Uncollected sales tax becomes your company's liability, with penalties and interest on top, and it accrues gradually. Exposure often builds for three or four years before anyone measures it, and sales tax compliance services cost a fraction of what that cleanup does.

Outsourcing works best as a division of labor. Your team keeps what it is best placed to manage: billing data, customer records, product changes, and the day-to-day numbers. The specialist takes on the state-by-state analysis and strategy. We have laid out the operational side of this in our six-step framework for SaaS companies. If your next thought is a software subscription, we would point you first to what to settle before you buy sales tax software.

What does outside sales tax compliance support actually cover?

A good sales tax consultant starts with a nexus study, which maps where your obligations exist today and where growth will create them next. Taxability analysis comes next: how each state treats each of your revenue lines, including the bundles and services that rarely fit into one category. From there, a registration strategy sequences where and when to register, so you come into compliance on a deliberate schedule. Most of this work moves faster than companies expect. A nexus study for a typical mid-market SaaS company is usually measured in weeks, and it gives you a defensible map to plan against, along with a clear picture of any exposure that needs attention first.

The same advisor handles the harder conversations. Past exposure can often be resolved through a voluntary disclosure agreement, which limits how far back a state looks and reduces penalties. When a notice arrives or an audit opens, you want someone who has responded to hundreds of them. Ongoing filing oversight keeps everything accurate as you grow.

Ready to talk through your sales tax footprint?

If your company has been growing faster than its sales tax processes, we would welcome a conversation. We have spent more than 24 years helping SaaS and tech companies work out where they stand and what to do next.

Contact Miles Consulting Group at info@milesconsultinggroup.com or through our sales tax compliance services page.

Frequently asked questions

When should a SaaS company outsource sales tax compliance?

Bring in outside support when your multi-state footprint, product complexity, or past exposure outgrows what your internal team can confidently manage. Common triggers include crossing economic nexus thresholds in new states, adding services or bundles to your product, and spending material team time on registrations and filings. Acting before a state makes contact preserves the most options.

Is SaaS taxable in every state?

No. Each state sets its own rules. Some tax SaaS like prewritten software, some tax it as a service, and others leave it outside the sales tax base altogether. Treatment can also shift when SaaS is bundled with implementation, training, or support, so the analysis has to cover each revenue line, state by state.

What does a sales tax consultant do?

A sales tax consultant maps where your company has obligations through a nexus study, analyzes how each state taxes your products and services, and builds a registration strategy. The role also covers resolving past exposure, responding to state notices, and supporting you through audits. Good consultants work alongside your finance team rather than replacing it.

Should we wait until a state notice arrives before getting help?

We recommend acting sooner. Before a state contacts you, all of your options are open, including voluntary disclosure programs that limit lookback periods and reduce penalties. Prior contact from a state generally disqualifies you from those programs, so waiting narrows your choices and raises the cost.

What should we do if we discover past sales tax exposure?

Measure it before you register or file anywhere, because registering first can invite questions about prior periods. A voluntary disclosure agreement typically limits the lookback and waives penalties. An advisor can help you weigh which route fits your numbers.

by Monika Miles

Sales tax automation: when does your company also need a sales tax specialist?

Your sales tax automation platform is live, the filings are going out on time, and somehow tax questions are still open and unanswered: Should we collect tax on this new product in Texas? Are we registered everywhere we should be? Why did that invoice surprise a customer in Chicago? The short explanation is that a platform executes tax decisions, but people still have to make those decisions. In this article we cover what a tax platform does well, which decisions stay with your business, and where a specialist adds value to your sales tax setup.

Key takeaways: sales tax automation and specialist support

Sales tax automation handles calculation, filing, and exemption certificates at a scale no team could match by hand.
The platform works from decisions your business feeds it: registrations, product mappings, and customer records.
A sales tax consultant covers the judgment work, from nexus and taxability through notices and audits.
The strongest setups run all three together: the platform, your finance team, and a specialist, each doing what they do best.

What does sales tax automation handle well?

Modern tax platforms are impressive pieces of engineering. Tools like Avalara and Anrok, along with Vertex and a newer generation of AI-driven products, calculate tax in real time across thousands of jurisdictions. They prepare and file returns, manage exemption certificates, and keep transaction records an auditor can actually work from. For a business processing thousands of invoices a month, this is the only realistic way to operate. A company selling into 30 states can face hundreds of filing deadlines a year once state, local, and prepayment schedules are counted, and automation is what makes that volume manageable.

Which sales tax decisions still sit with your business?

Your sales tax platform runs on decisions you and your business needs to make: Where are you registered, and should you be registered anywhere else? Which tax code fits each product? Which customers are exempt, and are their certificates current? What has changed in the business since the system was set up?

Exemption certificates are a good example. The platform can store them, track them, and flag gaps. But someone still has to decide which customers qualify, which form applies in which state, and what happens when a certificate expires mid-contract. Your team and your advisor make those calls, and the platform then applies them. The same is true upstream: tax code mapping involves judgment calls, and packages are often scoped by sales teams rather than tax specialists, so a business can end up running more complexity than its footprint calls for. Both situations are common and both are fixable. Our post on what sales tax software can't do explains why that is by design.

Think about how much your product has changed in the last two years. Since setting up its sales tax platform, a SaaS company (for example) may have launched an AI assistant as a paid add-on, started bundling onboarding into annual contracts, and picked up its first marketplace channel. Each of those changes has a tax dimension, and each one stays invisible to the platform until someone maps it.

Sales tax rules update regularly too. Texas taxes data processing services, a category broad enough to reach many technology offerings. Washington extended its retail sales tax to IT services, custom software, and several other service categories in October 2025, with further adjustments in July 2026. There are also significant sales tax changes afoot starting January 2027 in both California and Colorado. Each state draws its own lines and redraws them regularly. A mapping that was right at implementation can drift out of date while your sales tax platform keeps applying it faithfully.

Where does a specialist fit alongside your sales tax platform?

A sales tax specialist reviews your tax position and applies their expert judgment. This keeps your sales tax platform correctly configured for your specific setup. For example, a nexus review maps where your obligations stand today and where growth is creating new ones. Taxability analysis works through how each state treats each of your revenue lines, including the bundles, implementation fees, and service components that resist neat categories. Importantly, registration strategy sequences where and when to register. Registering everywhere at once can trigger prior-period questions in states where exposure already exists, so your registration order and timing need to be carefully considered.

A configuration review brings that analysis back into the platform. It checks product tax codes against how your business actually sells, confirms registrations match your real footprint, and right-sizes which features you are paying to run. A review like this is often the best way to turn an uneasy feeling about your sales tax position into a concrete list of fixes. Specialists also take on the historical questions, measuring past exposure and weighing voluntary disclosure where it helps. Finally, when a state sends a notice or opens an audit, an experienced advisor responds on the strength of hundreds of prior cases. Our audit defense guide for finance leaders covers what that looks like in practice.

Overall, your platform calculates, files, and keeps records while your finance team manages the data, flags business changes, and reconciles the numbers. Then, your sales tax specialist reviews your tax position and applies their judgement: where you owe, what is taxable, how to resolve the past, and how to answer when a state asks questions.

How do you know it is time to bring a sales tax specialist in?

In practice, there are a handful of situations that indicate your sales tax setup needs to be reviewed by a specialist, including:

You are selling into new states or markets.
You have launched new products, bundles, or services since the platform went live.
An acquisition, restructuring, or new legal entity changed your footprint.
Calculations are surprising you or your customers.
A state notice has arrived.
Your filings and your general ledger tell different stories.

A practical rhythm for most companies is an annual review of nexus and product mappings, plus a fresh look whenever one of the above occurs. Companies in fast-moving categories, AI products among them, often review more frequently because state guidance is still forming around what they sell. Treat periodic specialist review as part of running your sales tax automation to stay up-to-date and catch any changes or updates quickly.

Ready for a second set of eyes on your sales tax setup?

If you would like help reviewing and confirming the decisions underlying your sales tax platform, from nexus and taxability through configuration and past exposure, we would welcome a conversation.

Contact Miles Consulting Group at info@milesconsultinggroup.com or through our multi-state tax consulting page.

Frequently asked questions

Can sales tax automation replace a sales tax consultant?

The two do different jobs. Automation executes decisions at scale: calculating, filing, and record-keeping. A sales tax consultant makes and reviews the decisions the platform runs on, including nexus, taxability, registrations, and how to handle past exposure. Most growing companies get the best results from using both.

Why is my tax engine calculating sales tax incorrectly?

Most surprises trace back to inputs rather than the software itself. Common causes include a product mapped to an imprecise tax code, registration settings that no longer match your footprint, outdated customer exemption records, or a business change the setup never captured. A configuration review usually finds the cause quickly.

Can a specialist review an existing Avalara or Anrok configuration?

Yes. A configuration review checks nexus settings, product tax code mappings, and exemption certificate handling against how your business actually operates. It also confirms your subscription level matches your real footprint, since companies sometimes carry more platform than they need.

Does working with a sales tax consultant mean the finance team loses control?

No. Your team keeps operational ownership of the data, the billing systems, and the reconciliations, and it stays the decision-maker. The consultant adds interpretation, state-by-state expertise, and support during notices and audits, then hands you clear recommendations to act on.

Should a consultant be involved during a platform implementation?

Yes, ideally before the configuration is finalized, because decisions made at setup repeat across every transaction afterward. A pre-implementation review of nexus, taxability, and entity structure gives the platform accurate assumptions from day one. If you are still at the selection stage, start with our guide on what to settle before you buy sales tax software.

by Monika Miles

Blog Mini-Series: SaaS Tax Watch: 2027 and Beyond Blog 3

This is the third installment of Miles Consulting Group’s series SaaS Tax Watch, 2027 and beyond. Click here to read Blog #1 and Blog #2.

On September 10, the California Department of Tax and Fee Administration (CDTFA) hosted a second interested parties meeting related to SB 122, which expands California’s sales tax base to include “digital products” as taxable tangible personal property as of January 1, 2027. Despite California’s reputation as a tax unfriendly state, the historical sales tax base was narrow relative to many other states. The inclusion of digital products (and within it, SaaS) marks a substantial expansion of the sales tax base. Prior to the meeting, the CDTFA published a discussion paper on the topic, with draft regulatory language included as exhibits. The agenda for the meeting is linked here.

Miles Consulting Group participated in the meeting with CDTFA officials and other practitioners. The tenor of the meeting was that the current draft of the regulations leaves as many questions as it does answers, and there are still clarifications to work through as part of the rulemaking process. The majority of the discussion focused on three areas:

Place of sale,
Imposition of tax on long term software agreements that bridge January 1, 2027,
Multiple points of use.

We break down these topics, as well as the general imposition of tax on electronically downloaded software and software accessed in the cloud (SaaS) and the next steps in the rulemaking process below. We recognize that readers may be purchasers of software products in California, sellers of software products to California customers, or both. Our recommendations below provide some insights into the practicalities associated with each.”

Imposition/Taxability:

What is clear:

Digital products will be subject to sales tax on January 1, 2027 and beyond. The definition of digital products includes SaaS.

What remains gray:

As with any tax law change, there will be product and service offerings on the margins where application of the new guidance/definitions remains unclear.

For example, California provides an exception for services that primarily involve human effort. We note that Washington State previously had a similar human effort exception from its digital automated service regime, which in practice was almost impossible to sustain in audit defense. It is unclear where the CDTFA will draw the line on services that include both digital and human elements.

Further, it is unclear how California will apply true-object rule concepts to the newly taxable services, for example, a telecommunications service (nontaxable) provided over a SaaS platform (taxable effective January 1, 2027).

A request was made during the meeting to provide more specific examples of common services that the CDTFA will treat as taxable versus nontaxable; it is unclear what additional details will be provided.

Our Recommendation:

Sellers: Consider the pricing and packaging of your services for taxability. Update billing and ERP systems to support California requirements.

Purchasers: Include California sales tax in your budgeting process.

Place of Sale:

What is clear:

A sale of a digital product is deemed to occur in California if the purchaser’s address is in California. If the seller has multiple addresses on file, the regulation provides an order of prioritization: 1) billing address, 2) shipping address, 3) mailing address associated with the payment, and 4) purchaser’s mailing address.

What is gray:

While digital products are not physically “shipped,” in practice many sellers’ invoice presentation may still show both a bill-to and a ship-to address, which may or may not match. There was lengthy discussion in the meeting regarding this type of invoice presentation, as well as the seller’s obligation to try to ascertain customer location. The CDTFA indicated that sellers can rely on an out-of-state address supplied by the buyer for the current transaction. It remains to be seen whether auditors will take a more aggressive approach in the future against sellers who have multiple addresses, or who previously had California addresses for a particular customer.

Our Recommendation:

Sellers: Review your systems and records to determine what address(es) you have on file for your digital product customers. Confirm that your tax engines will properly follow the address prioritization for determining place of use in California.

Purchasers: If you provide a non-California address to your vendors, consider to what degree you may be making a taxable use of software in California.

Imposition of Tax on Long Term Software Agreements that Bridge January 1, 2027

What is clear:

CDTFA officials stated during the meeting that 1) they do not intend for the tax to apply retroactively to periods prior to January 1, 2027, and 2) their focus for determining the timing of the sale is whether the customer gains the right to access before or after January 1, 2027, regardless of when consideration is paid. The proposed regulations provide five examples scenarios to help guide taxpayers.

What remains gray:

There was lengthy discussion on this topic during the meeting, along with requests for additional examples. Specific points of contention were the seeming confusion between a monthly subscription versus a monthly financing arrangement (examples 4 and 5), as well as a lack of clarity on seat-based charges where a company’s right to access may begin in 2026 but the number of seats may increase in 2027.

Our Recommendation:

Sellers: Review and understand the structure of your existing agreements that will bridge the January 1, 2027 effective date. Does the contract provide for a single access period, or a series of recurring subscription access periods? If the latter, it appears that tax will apply to access periods that begin in 2027.

Purchasers: Consider timing of entering into long term software contracts, determining whether any such costs could be accelerated into 2026.

Multiple Points of Use (MPU):

What is clear:

California retailers are not obligated to collect and remit sales tax on the portion of software used outside California, as documented to them by their customer. This is a unique approach relative to other states with MPU exemptions, which generally relieve the seller of tax collection altogether and shift the burden to their consumer, who has better visibility into their own use of the software inside and outside of California.

What remains gray:

The CDTFA’s approach will create administrative challenges for sellers, as the California use percentage may fluctuate during the year, which could potentially mire sellers in refund claims or true-ups. Further, the regulation gives the CDTFA power to prescribe any forms and documentation necessary to administer the MPU exemption, but it is unclear exactly what those will look like.

Our Recommendation:

Sellers: Start conversations with customers to understand whether they will avail themselves of the MPU exemption.

Purchasers: Establish a process to identify the percentage of use inside and outside of California.

Emergency Rulemaking:

What is clear:

The CDTFA will finalize emergency regulations on SB 122, which may remain in effect for up to two years.

What remains gray:

Timing and content. The CDTFA estimated that taxpayers would receive notice of the final language sometime during December. It is unclear how much time taxpayers will have to review the latest guidance during the busy holiday season leading up to the January 1, 2027 effective date. Further, as outlined above, there were numerous requests for additional examples in the proposed regulations – it is not certain how many new examples will be included, and to the extent they are, how much clarity they will provide.

Our Recommendation:

Sellers and Purchasers: Stay tuned for further updates!

In the next few months leading up to January 1, we will continue to share updates as new information becomes available. Until then, please reach out to us at info@milesconsultinggroup.com with any questions. Additional updates on the informal rulemaking process are available on the CDTFA’s website

by Monika Miles

New York vs. New Jersey Sales Tax: SaaS, Software & Digital Goods

This month, we continue our state-focused blog series with a look at New York and New Jersey and how each state treats SaaS, software, and digital products for sales tax purposes.

Although these neighboring states share plenty in common, their sales tax treatment of technology products can be quite different. For businesses selling into multiple states, understanding those differences is important for maintaining compliance and avoiding unexpected tax exposure.

Already know you need help with New York or New Jersey sales tax? Reach out to us at info@milesconsultinggroup.com.

SaaS in New York vs. New Jersey

New York: Remote access to prewritten software is generally subject to sales tax. New York treats prewritten computer software as tangible personal property, regardless of whether it is delivered physically, electronically, or accessed remotely.

New Jersey: SaaS is generally not subject to sales tax when the customer simply accesses software remotely and the software is not transferred or delivered to the customer. However, the treatment may differ if the offering qualifies as a taxable information service or includes other taxable components.

This distinction can result in the same type of SaaS offering being taxable in New York but exempt in New Jersey.

Software in New York vs. New Jersey

New York: Prewritten computer software is generally subject to sales tax, regardless of how it is delivered. Custom software designed and developed to the specifications of a particular purchaser is generally exempt.

New Jersey: Prewritten computer software is generally taxable. However, electronically delivered prewritten software may qualify for an exemption when it is used directly and exclusively in the purchaser's business, trade, or occupation. Custom software created specifically for a purchaser is also generally exempt.

Businesses should pay close attention to whether software is prewritten, customized, or entirely custom, as those distinctions can affect the sales tax treatment.

Digital Goods

States also vary in their treatment of electronically delivered products such as e-books, music, and video.

New York: Many standalone digital products are not subject to sales tax. For example, qualifying e-books that do not include prewritten software or another taxable product are generally not taxable. Prewritten computer software, however, is treated differently and remains taxable.

New Jersey: Specified digital products—including electronically transferred digital audio-visual works, digital audio works, and digital books—are generally subject to sales tax. However, specified digital products that are streamed or otherwise accessed but not electronically delivered to the purchaser are generally exempt.

Sales Tax Holidays

States often offer sales tax holidays during specific times of the year, allowing certain purchases to be made tax-free for a limited period. These programs vary significantly by state—and sometimes change from year to year.

New York: New York does not currently have a statewide sales tax holiday.

New Jersey: New Jersey previously offered an annual back-to-school sales tax holiday for certain purchases, including computers, school supplies, instructional materials, and sports or recreational equipment. However, New Jersey repealed its annual sales tax holiday in 2024. Sellers should now collect sales tax on taxable items that previously qualified for the temporary exemption.

For current state-by-state information on sales tax holidays, visit the Federation of Tax Administrators' Sales Tax Holidays resource:

https://taxadmin.org/sales-tax-holidays/

What Should SaaS and Software Sellers Watch For?

Companies selling into New York and New Jersey should pay particular attention to:

Nexus and registration obligations
Where customers use the software or service
How products and services are described on invoices
Whether software is prewritten, customized, or custom
Whether an offering includes SaaS, information services, software, or a combination of services
How bundled products and services are structured

Small differences in how a product is structured, delivered, or described can result in very different sales tax treatment. Sellers should review both their products and their customer locations when evaluating their multistate sales tax obligations.

Frequently Asked Questions

Is SaaS taxable in New York?

Generally, yes. New York treats remote access to prewritten software as taxable, so many SaaS products are subject to sales tax when used in New York.

Is SaaS taxable in New Jersey?

Generally, SaaS is not subject to New Jersey sales tax when customers are simply accessing software remotely and no software is transferred to them. However, the treatment may differ if the offering qualifies as a taxable information service or includes other taxable components.

Is prewritten software taxable in both states?

Generally, yes, although exemptions may apply. New Jersey, for example, provides an exemption for certain electronically delivered prewritten software used directly and exclusively in the purchaser's business, trade, or occupation.

What about custom software?

Custom software designed specifically for a purchaser is generally exempt from sales tax in both New York and New Jersey.

Why does product classification matter for SaaS and software companies?

Small differences in how a product is structured, delivered, described, or bundled with other services can change its sales tax treatment. Proper classification can also affect sourcing, nexus, registration, and collection requirements.

A Little Local Trivia

No state-focused blog would be complete without a little local trivia!

New York: Lake Placid is the only U.S. location to have hosted the Winter Olympics twice, first in 1932 and again in 1980.

New Jersey: Thomas Edison's famous Menlo Park laboratory was located in New Jersey, where he conducted work on inventions including the phonograph and electric light.

Explore More About New York and New Jersey

We invite you to further explore New York and New Jersey in these earlier blogs we've published over the years:

Focus on New York
https://www.milesconsultinggroup.com/blog/2020/04/14/focus-on-new-york/

Focus on New Jersey
https://www.milesconsultinggroup.com/blog/2020/09/09/focus-on-new-jersey-2/

Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether you're doing business in New York, New Jersey, or other U.S. states. We can help you navigate the complex sales tax issues that arise from multistate operations and identify opportunities to improve compliance and tax efficiency.

Have questions about your specific situation? Contact us at info@milesconsultinggroup.com.

by Monika Miles

Deal-ready sales tax: a practical playbook for multi-state tech companies

There is plenty of content about sales tax in M&A out there, but very little for the funded, middle-market tech company: $20 million to $150 million in revenue, customers in multiple states, a mix of SaaS and services, and a board that expects the business to be acquisition-ready.

For companies at that stage, multi-state sales tax compliance is rarely a reason a deal dies. It is, however, one of the most common reasons a deal slows, gets smaller, or more heavily escrowed than it needs to be.

Read our guide to getting your company's sales tax deal-ready and get prepared for the usual questions buyers and investors ask.

Key takeaways: getting deal-ready on sales tax

Buyers rarely walk away over sales tax, but unquantified sales tax exposure routinely turns into escrows, indemnities, and purchase price adjustments.
Economic nexus rules mean growing tech companies often owe registration in states they have never set foot in, with thresholds commonly starting at $100,000 in sales.
Being deal-ready rests on six pillars: a nexus map, documented taxability logic, a rational registration footprint, exemption certificate discipline, numbers that add up, and a known audit history.
Remediation tools such as voluntary disclosure agreements work best when you start them before a transaction is in motion, not during due diligence.

How growth builds sales tax exposure

The pattern we see repeatedly involves a growing tech business with revenue increasing rapidly across states. Oftentimes, the tax process that was adequate at $5 million doesn’t get upgraded to match that growth. Since the Supreme Court's 2018 decision in South Dakota v. Wayfair, Inc., states can require sellers with no physical presence to collect sales tax once they cross economic thresholds. Most states set that bar at $100,000 in annual sales, and a growing number have dropped their transaction-count tests entirely, which makes revenue alone the trigger. For instance, a $40 million SaaS company can cross thresholds in 25 or more states without ever opening an office outside their home state.

Your product does not sit still either. New modules, usage-based pricing, implementation services, training, and support each carry their own taxability treatment, and those treatments differ by state.

Then there is the assumption we hear most often: "our tax software handles it." Calculation software applies the rules you configure. It does not decide where you have nexus, whether your products are taxable, or whether your historical exposure requires cleanup. If the configuration reflects decisions nobody has revisited in three years, your software is confidently automating yesterday's answers.

What "clean enough" means: the six pillars of deal readiness

Deal-ready does not mean spotless books and a perfect filing history in all 50 states (although that would be great!). It means you can explain to a sophisticated buyer or investor where you have obligations, how you decided, and what you are doing about any gaps. In our experience, that comes down to six pillars:

Nexus map. A state-by-state view of where you likely have sales tax nexus, physical and economic, and when it started.
Taxability logic. Documented reasoning for how each product and revenue type is treated in your key states: SaaS subscriptions, professional services, support, training, credits.
Registration footprint. A registration list that aligns with your nexus map, with a rationale for any deliberate gaps.
Exemption and customer documentation. A working process for collecting, validating, and storing resale and exemption certificates, and applying them in billing.
Your financials add up and reconcile. Collected tax, filed returns, and the general ledger line up well enough that variances are explainable and quantified.
Audit and notice history. You know what has been audited, what is open, and how state notices get handled.

If you can check most of these boxes, you are in decent shape for whatever comes next, whether that is a raise, a sale, or a pointed question from the board. The bar you are aiming for is defensible and managed, not flawless.

The sales tax questions buyers and investors will ask

Diligence teams have seen enough tech deals to know where the bodies are buried, and with 45 states plus the District of Columbia levying statewide sales taxes, there are plenty of places to look.

Here are the sales tax questions that tend to come up:

Where do you file today, and why those states?
How do you decide whether your SaaS, software, or services are taxable in each state?
What is your process for tracking economic nexus thresholds as you grow?
Have you ever been audited for sales tax, and what was the outcome?
If there is exposure, how big is it and what is the plan?

None of these questions are unreasonable, and none should be answered for the first time in the middle of a live deal. Companies that fare well present a short narrative (here is where we file and why), a quantified exposure range (worst case is X, concentrated in these states), and a timeline (here is what gets fixed before close and what gets fixed after).

A four-step roadmap to get deal-ready

Step 1: run a focused nexus study

Start with your top 10 to 15 states by revenue, plus any state where you clearly exceed common economic thresholds. You should then have an overview showing state, nexus type, start date, and registration status, alongside a high-level taxability view of your main product lines in those states. A nexus study at this scope takes weeks rather than months, and it is where an experienced advisor adds the most value, because nexus and taxability judgments are exactly where self-assessment tends to go wrong.

This first step is also where we spend much of our time with new clients. If a nexus study sounds like the right place to start, our nexus and multi-state tax consulting page explains how we approach them.

Step 2: quantify exposure

Work from recent periods and material states, and sort findings into three buckets: registered but possibly under-collected, not registered but likely should be, and gray areas where taxability is genuinely unclear. What you need to understand here is your estimated exposure of $X to $Y, concentrated in named states and product lines.

Step 3: choose remediation that fits your timeline

Voluntary disclosure agreements let you come forward, cap the look-back period, and reduce or eliminate penalties; the Multistate Tax Commission's program even allows a single application across many states. Where exposure is small, registering and getting current going forward may be enough. Where timing does not allow cleanup before a deal, quantify, reserve, and disclose with a plan. For B2B sellers, confirming customers' exemption status or prior use tax payments can shrink the number before you remediate anything.

Step 4: lock in the basics so the problem stops compounding

Align your tax software configuration with your documented taxability logic, and make new products and new states trigger a tax review. Put a working exemption certificate process in place. Reconcile collected tax, filed returns, and the general ledger quarterly, and review your audit and notice handling so nothing sits unanswered.

When your board or a buyer asks where things stand, you want to be able to say three things: here is where we stand, here is what we know is imperfect, and here is how we are fixing it. In our experience, transparency plus a plan beats silence in every deal. A word of caution here, each of these steps are best carried out by or alongside an experienced sales tax consultant.

Ready to get deal-ready on sales tax?

If your company is 12 to 24 months out from a raise, a sale, or a serious board conversation about either, this is the moment to start, while the timeline is still yours rather than a buyer's. Miles Consulting Group works with middle-market tech companies on exactly this kind of readiness work, from a first nexus study through transaction due diligence.

Frequently asked questions

Does our tax engine handle multi-state sales tax compliance for us?

Only partly. Calculation software applies rates and rules to the configuration you give it. It does not determine where you have nexus, decide whether your products are taxable in each state, or resolve historical exposure. Those judgments still have to be made, documented, and kept current as your products and footprint change.

How far back can states assess unpaid sales tax?

If you were required to register and never did, most states face no statute of limitations, so the look-back can reach to when your obligation began. That is why voluntary disclosure agreements matter: they typically cap the look-back at three to four years and reduce or eliminate penalties.

We only sell to other businesses. Do we still have sales tax obligations?

Often, yes. B2B sales are only exempt when a valid exemption or resale certificate supports them, and in many states SaaS and software are taxable regardless of who buys them. Without documentation, those sales are treated as taxable on audit.

What is a voluntary disclosure agreement and when does it make sense?

A voluntary disclosure agreement (VDA) is a negotiated arrangement in which a company comes forward to a state before the state finds it, in exchange for a limited look-back period and reduced penalties. VDAs make the most sense when you have clear nexus, material exposure, and time to complete the process before a transaction begins.

How long does it take to get sales tax deal-ready?

For most middle-market companies, a focused nexus study takes weeks, quantification a month or two, and remediation such as VDAs three to six months per state, often run in parallel. Starting 12 to 24 months ahead of a planned transaction leaves room to fix issues on your terms.

by Monika Miles

Streamlined Sales Tax: what it solves, what it doesn't, and how to decide

One of the most common questions we hear from growing companies is some version of: "We need to register for sales tax in multiple states. Is there a way to do this once?” Sooner or later that search leads to the Streamlined Sales Tax program, which offers exactly that promise for its member states: one free registration covering all of them. The program is real, it is useful, but it is also widely misunderstood. Registering is the last step in a sales tax compliance strategy, not the first, and Streamlined Sales Tax only covers part of the map.

Read on to learn what the Streamlined Sales Tax program is, what it covers, what it does not, and whether it is the right fit for your business.

Key takeaways: the Streamlined Sales Tax program

The Streamlined Sales Tax (SST) program lets businesses register for sales tax in all 24 member states through a single free registration system, the SSTRS.
Roughly half the country participates: 23 full SST states plus Tennessee, while California, New York, Texas, Florida, Illinois, and Pennsylvania are not members.
SST does not determine where you have nexus, whether your products are taxable, or what to do about past exposure; those questions come before any registration.
Registering in states where you have no obligation creates filing requirements you did not need, so the analysis should always precede the paperwork.

What is the Streamlined Sales Tax program?

The program has been around longer than you can probably guess. The Streamlined Sales and Use Tax Agreement grew out of a project launched by the National Governors Association and the National Conference of State Legislatures in 1999, long before economic nexus existed. The goal was to make sales tax simpler and more uniform across states, partly in hopes of persuading Congress and the courts that remote sellers could reasonably be asked to collect it. The Streamlined Sales Tax Governing Board now administers the agreement and certifies that member states comply with it.

Today the program has 24 member states: 23 full members and Tennessee as an associate member. The SST states include Washington, Michigan, Minnesota, New Jersey, North Carolina, Ohio, and Wisconsin. However, the absent states matter just as much: California, New York, Texas, Florida, Illinois, and Pennsylvania. These are the states where most multi-state businesses have their largest exposure. They are not part of the SST program and follow their own sales tax registration and filing processes.

What SST simplifies for growing businesses

To its credit, the SST program’s most durable achievement is uniformity. Member states have adopted more than 100 standardized definitions for products, services, and administrative terms, so "prewritten computer software" or "delivered electronically" means the same thing in Ohio as it does in Iowa. If you have ever worked through 50 states' worth of conflicting definitions, you really know what an accomplishment that is.

The practical centerpiece is the Streamlined Sales Tax Registration System (SSTRS): one free registration that covers every member state you select. The program also certifies private Certified Service Providers, whose software and return services member states compensate for qualifying remote sellers. That arrangement can reduce compliance costs in member states, although it is worth checking whether a provider's recommendation is influenced by the State in which it gets paid.

What SST does not solve for growing businesses

Registration was never the hard part of sales tax; it is simply the paperwork that follows it. SST does not tell you where you have nexus, or when you crossed a state's economic nexus threshold, which in most states starts at $100,000 in annual sales. It does not decide whether your SaaS platform, implementation services, or digital products are taxable in a given state. It does not manage exemption certificates, defend audits, or quantify what you already owe. SST's own guidance is direct on this point: outside limited state amnesty programs, registering through the system does not relieve any liability relating to prior sales.

The one-button framing also carries a risk: over-registration. Register in all 24 member states when you have obligations in eight, and you have just signed up for 16 sets of returns, notices, and costs you did not need. Also, in the half of the country outside the SST states, including the largest state economies, you are back to state-by-state sales tax registration regardless. A tool that covers part of the map, for part of the compliance lifecycle, should be used deliberately rather than reflexively.

Should your business use the SST program?

For some businesses the answer will be “yes” with the addendum “as one component of a growth and sales tax plan”. Ecommerce sellers, SaaS companies, manufacturers, and distributors with confirmed obligations across several member states can save time on administrative work through the SSTRS, and qualifying remote sellers may benefit from the compensated provider arrangements.

As always with your sales tax affairs, what matters is the order you do things in. First, establish where you actually have nexus and when it began.

Second, determine whether your products and services are taxable in those states.

Third, quantify any historical exposure and decide how to resolve it, because registration alone does not erase it.

Once you’ve answered these questions, your registration route should be clearer and the SST may prove a useful administrative shortcut for the member-state portion of your sales tax strategy. Businesses that get this sequence right spend less, register in fewer states, and hold up far better under audit than those who simply signed up to SSTRS and worked out the details after the fact.

Ready to build a multi-state sales tax strategy?

If you are weighing where to register, whether SST fits, or what to do about the states it does not cover, we can help you answer the strategy questions first.

Contact Miles Consulting Group at info@milesconsultinggroup.com or book a consultation through our sales tax compliance services page.

Frequently asked questions

What is Streamlined Sales Tax?

Streamlined Sales Tax (SST) is a cooperative program among 24 states, administered by the Streamlined Sales Tax Governing Board, that standardizes sales tax definitions and administration. Its registration system lets a business register for sales tax in every member state through one free application.

Which states are Streamlined Sales Tax (SST) states?

There are 23 full SST states, including Washington, Michigan, Minnesota, New Jersey, North Carolina, Ohio, and Wisconsin, plus Tennessee as an associate member. The full current list of Streamlined Sales Tax states is published by the SST Governing Board.

Is California part of Streamlined Sales Tax?

No. California is not an SST member, and neither are New York, Texas, Florida, Illinois, or Pennsylvania. Businesses with obligations in those states must register and file with each state directly, whatever they do in the SST states.

Does registering through SST cover past sales tax liability?

No. SST registration is forward-looking only, and the program's own guidance confirms it does not relieve liability for prior sales. Historical exposure is usually addressed separately, often through a voluntary disclosure agreement negotiated before you register.

Do I need to register for sales tax in every state?

No. You generally need to register only in states where you have nexus, whether physical presence or economic nexus from crossing a sales threshold. Registering more widely than your obligations require creates unnecessary filing requirements, which is why a nexus analysis should come before any registration, through SST or otherwise.

by Monika Miles

Blog 2: From the Rockies to Revenue: Understanding Colorado House Bill 26-1223

As Colorado continues to evolve its sales and use tax landscape, one of the most significant developments in 2026 is House Bill 26-1223. The bill expands the definition of taxable computer software to software delivered by any means, including compact disc, download, or remote access through the internet, and includes applications installed on mobile devices. As a result, certain cloud-based software and remotely accessed software may become subject to Colorado sales and use tax beginning January 1, 2027, unless an exemption applies.

Colorado’s Previous Stance to Digital Goods

Before HB 26-1223, Colorado’s statutory definition of taxable computer software generally depended on whether the software was prepackaged for repeated sale or license, governed by a tear-open nonnegotiable license agreement, and delivered to the customer in a tangible medium. Software provided through an application service provider, delivered electronically, or transferred by load-and-leave delivery was excluded from that tangible-medium rule.

The unclear standard for SaaS taxability led to inconsistent tax treatment across jurisdictions and audit exposure for SaaS vendors and their customers. For information on historical tax treatment to SaaS or questions, email us at info@milesconsultinggroup.com

HB 26-1223: Expanded Definition of Computer Software

HB 26-1223 expands Colorado’s definition of taxable computer software. “Computer software” is defined as a set of coded instructions that are both designed to cause a computer or other electronic device to perform a task and delivered by any means, including compact disc, download, or remote access through the internet. The definition also includes applications installed on cellular phones, tablets, or other mobile devices.
However, software developed for use by a particular user and software governed by a negotiated license agreement remain exempt.

Under section 39-26-713(3), the sale, storage, use, or consumption of computer software is exempt from Colorado sales and use tax if the software is governed by a negotiated license agreement or developed for use by a particular user. “Negotiated license agreement” means a written agreement or contract that is individually bargained between the licensor and licensee and signed in writing by authorized representatives of both parties before or at the same time as the licensee’s access to or use of the software.

What Should SaaS Companies Do Now?

Practical considerations to remain in compliance with Colorado might the review of your companies’ product classification in the state. By conducting a line-by-line analysis of all cloud services and modular offerings, a SaaS vendor can determine precisely how extensively they may fall within the “specified digital product” definition.

Ensure your billing systems can identify and tax each taxable SaaS component correctly, track exemption certificates, and report by jurisdiction. Customer agreements should reflect the state and local sales tax that will be imposed on taxable subscriptions. Consider carve-outs or pass-through clauses in your contracts, if your business model factors tax as a cost. Lastly, monitor your exposure to identify when the USD 100,000 threshold is met. Miles Consulting Group can help with these next steps, and we are happy to help! Please reach out to our team at info@milesconsultinggroup.com

HB 26-1223 marks a clear stance in Colorado’s approach to taxing cloud-based software and remote computing services. Getting ahead of potential exposure now could save a lot of money down the road.

by Monika Miles

Should you fight your sales tax audit assessment? A decision framework for finance leaders

The letter has arrived. The sales tax audit is over, the assessment is larger than you expected, and you have a limited window to respond. Our strategic guide to audit defense covers how to manage the audit itself; this article addresses the decision that comes after it.

Should you fight the assessment, settle it, or, in some states, pursue both at once? We have advised on this point many times, and the answer is: it depends. But of course, "it depends" is only useful if you know what it depends on. Here is the framework we use.

Key takeaways: deciding whether to fight or settle a sales tax assessment

Five factors drive the decision: your likelihood of success, the dollar exposure, precedent risk, the multi-state ripple effect, and your ongoing relationship with the state.
Settling is often the smarter move when the cost and uncertainty of fighting exceed the realistic savings.
Some states let you pursue settlement and appeal in parallel, keeping both options open until one resolves.
Whatever you decide, the outcome of this audit will influence your next one, in this state and in others.

The five-factor framework for responding to a sales tax audit assessment

As we work with clients facing an assessment, we consider these five questions each time.

Likelihood of success. How defensible is your position, on the law and on the documentation? For instance, a strong legal argument with weak records is a weak case. Auditors and appeals officers decide on evidence, so a review of your exemption certificates, invoices, and sales tax filings comes first.
Dollar exposure. Fighting a $40,000 assessment may not make sense once professional fees are considered, whereas a $2 million assessment usually justifies a full evaluation of your options. With combined state and local rates topping 10% in the highest-rate states, assessments scale quickly with revenue, so calculate the cost of each option before committing to one.
Precedent risk. An assessment covers a defined period of time, but your position on how your products are taxed applies to every period that follows. If you concede a taxability question now, you may be conceding it for years of sales to come, so a small assessment can carry a much larger long-term cost.
The multi-state domino effect. Will contesting or conceding draw attention in other states where you have similar exposure? We cover this in more detail below, but it should be part of the decision from the beginning.
Business relationship with the state. If you will be filing in this state for the next 20 years, an aggressive fight over a marginal issue may cost more goodwill than it recovers. Your audit history stays on record and informs how the state approaches you in the future.

When settling is the smarter move

Nobody enjoys writing a check for tax they believe they don't owe. But fighting has real costs: professional fees, management time, interest that keeps accruing on the unpaid balance, and the risk of losing outright. An appeal tends to be all or nothing on each issue; you win the point or you don't.

Settlement trades the chance of total victory for certainty. In our experience, it is usually the smarter move when the disputed amount is modest relative to the cost of the fight, when your documentation has gaps that would weaken your case in an appeal, or when a fast, final resolution carries its own value, for example ahead of a financing round or the sale of the business.

Bottom line: the goal is to keep the most money with the least risk.

Are you unsure how long an appeal may take for your circumstances? Contact us to discuss your specific issue and situation.

Settling and appealing at the same time

In some states, including California, you can pursue a settlement while your appeal is still moving. The two processes run side by side, and the settlement option generally stays open until the appeal is finally decided.

We recently used this approach for a client facing a disputed issue of roughly $200,000 in a California sales tax audit. We believed the position was strong, but it was harder to prove than we would have liked, and an appeal would have been all or nothing. So we did both: we filed the appeal to preserve the client's rights and opened settlement discussions at the same time.

The state came back at close to 50 cents on the dollar. The client accepted, recovering roughly $100,000 on a $200,000 issue, with no further fees and no risk of losing the appeal outright. Would the appeal have delivered more? Possibly, but it could have delivered nothing a year later and at a greater cost. Where you need to be careful is assuming you must choose one route at the outset. Whether both options are open and whether pursuing them together makes sense, depends on the state and on the specific facts of your case.

The voluntary disclosure angle: clean up exposure before the next audit finds it

An audit shows you exactly how a state views your business. If the auditor found unregistered obligations or untaxed product lines, the same issues may exist in states that haven't contacted you yet.

That is where a voluntary disclosure agreement (VDA) comes in. A VDA lets you approach a state before it approaches you, typically in exchange for a limited lookback period and a waiver of penalties. The key is timing: once a state has contacted you about a tax type, the VDA door for that state generally closes. The short period after an audit ends gives you the opportunity to map your exposure everywhere else, while the VDA option is still available. Resolving an assessment in one state and then waiting for the next notice to arrive is typically the most expensive way to manage multi-state exposure.

The multi-state domino effect and how your audit history follows you

States talk to each other more than most CFOs and controllers realize. Registration data, audit referrals, and information-sharing arrangements mean a finding in one state can prompt questions from other states. This is especially true where the underlying issue is the same everywhere you sell, such as the taxability of your SaaS product or your economic nexus footprint.

The audit also follows you within the state. Your prior audit results inform how the next examination is scoped, and many states weigh your audit and compliance history when deciding whether to waive penalties. The position you take now will carry into the next audit cycle. Getting ahead of the domino effect means treating the assessment as information: quantify the same exposure in your other states, then decide, state by state, whether to disclose proactively, register prospectively, or hold your position.

Reasonable cause penalty abatement in practice

Even when the tax is owed, the penalties often aren't set in stone. Most states can waive penalties where you exercised reasonable diligence: you relied on written advice, you had systems in place that failed in an understandable way, or your compliance history is otherwise clean. Texas, for example, presumes you've requested a penalty waiver during an audit and tells you the outcome with the audit results, whereas other states require a written request with documentation.

The practical points to follow: ask early, ask in writing, and support the request with documented evidence. Penalty relief can materially reduce the final cost of a six-figure assessment, for example, and in our experience it is one of the less contested parts of the negotiation. Whether you decide to fight or settle, a sales tax audit is ultimately a test of preparation, and the companies that fare best are the ones that made the decision with full information rather than under the pressure of a looming deadline.

Received an assessment and weighing your next move?

If a sales tax audit has left you with a number you're not sure you should accept or contest, we'd welcome a conversation before your response deadline arrives. If your position is worth defending, we'll help you defend it; if it isn't, we'll tell you that too. Contact Miles Consulting Group at info@milesconsultinggroup.com or book a consultation through our website.

Frequently asked questions

Should I fight a sales tax audit assessment?

It depends on five factors: how defensible your position is, the dollar amount at stake, the precedent the outcome sets for future periods, the risk of triggering scrutiny in other states, and your ongoing relationship with the state. If the realistic savings exceed the cost and risk of the fight, contesting makes sense. If not, settlement usually preserves more value.

What is the difference between settlement and appeal in a sales tax audit?

An appeal asks the state, and eventually an independent reviewer, to rule on whether the assessment is correct, and each issue is generally won or lost outright. A settlement is a negotiated compromise, often expressed as cents on the dollar, that trades the chance of full victory for certainty and speed. In some states you can pursue both at the same time.

What should I do after receiving a sales tax assessment?

Note your response deadline first; appeal rights expire quickly, often within 30 days. Then assess the strength of your position and your documentation, compare the cost of each response against the realistic savings, and consider whether the findings point to exposure in other states that a voluntary disclosure agreement could resolve before another audit begins.

Can penalties be removed from a sales tax assessment?

Often, yes. Most states offer penalty relief where the taxpayer exercised reasonable diligence, and some consider a waiver automatically as part of the audit. Requests should be made early, in writing, and supported by evidence such as reliance on professional advice and a clean compliance history.

Can one state's sales tax audit trigger audits in other states?

It can. States share information through registration data and audit referrals, and an issue found in one state, such as the taxability of software or an unrecognized nexus footprint, usually exists wherever you sell. Quantifying that exposure promptly, while voluntary disclosure is still available, is the best way to get ahead of it.

by Monika Miles

Sales tax due diligence in M&A: a six-step framework for finance leaders

If a sale of your company is on the horizon, the strongest position is the one with no surprises: multi-state obligations mapped years ago, returns filed, and documentation ready for review. Sales tax due diligence, done properly and done early, is what makes that possible. If a deal is 12 months out and you suspect your sales tax position is not fully in order, you are not alone and there is still time to act.

At Miles Consulting Group, we have spent more than 22 years working on multi-state sales tax matters, and M&A transactions are a regular part of our work. The six steps below are the sequence we work through with clients preparing for a transaction. The single most important variable in every step is time: the earlier you start, the more options you have.

Key takeaways: getting ahead of sales tax exposure before a deal

Sales tax exposure surfaces in almost every M&A process involving a multi-state seller, and the side that quantifies it first shapes the negotiation.
A nexus study and a taxability review are two different analyses, and finance leaders need both before a defensible number exists.
Voluntary disclosure agreements can resolve historical liability before close, but they take time and are only available before a state makes contact.
Deal structure, indemnification language, and escrow sizing all flow from the exposure number, so the analysis has to come first.

Step 1: Commission a nexus study

A nexus study is the foundation document of sales tax due diligence: a state-by-state analysis of where your activities create an obligation to collect and remit. Since the Supreme Court's 2018 decision in South Dakota v. Wayfair, Inc., states may require remote sellers to collect sales tax based on economic activity in the state, even without physical presence. Every state with a sales tax now applies economic nexus rules, most commonly triggered by around $100,000 of in-state sales. A SaaS or tech company selling nationwide can cross that line in dozens of states without noticing.

Commission the study independently rather than doing it in-house; an independent analysis carries more weight in due diligence than a self-assessment. Cost and duration depend on how many states are involved and which ones, since some states are considerably more complex than others, so we evaluate each study individually. Done six to 12 months before going to market, a nexus study gives you time to act on what it finds. But when it’s done during due diligence, it documents a position you no longer have time to change.

Step 2: Map your product taxability across every state where you have nexus

Nexus tells you where you have obligations. Taxability tells you what you actually owe, and for SaaS and tech companies these are two separate analyses. You can have nexus in 30 states and owe tax in only 18 of them, depending on how each state classifies your product. Some states treat SaaS as taxable tangible personal property, others as a taxable service, and others exempt it entirely. Implementation, training, data services, and AI features may each be treated differently within the same state.

Overstating taxability inflates your apparent exposure, while understating it leaves liability for the buyer's team to find. The output of this step is a taxability matrix: your products, mapped against the states from Step 1, with the open questions identified for further review.

Step 3: Quantify the exposure before the buyer does

With nexus and taxability mapped, you can calculate open liability by state: taxable sales, multiplied by the applicable rates, across the open lookback period, plus interest. Statutes of limitations typically run three to four years, but in many states the clock never starts if you never filed, so unregistered years can stay open indefinitely. That is why unaddressed sales tax exposure grows.

The exposure calculation factors directly into purchase price negotiation. A seller who presents a documented, specialist-reviewed figure sets the starting number; a seller without one responds to the buyer's estimate, which is built to protect the buyer. Handled early, exposure stops being a liability the buyer can leverage and becomes something you control. You set the number, you choose the remediation path, and you walk into negotiation with the stronger position.

Step 4: Remediate before close with voluntary disclosure agreements

A voluntary disclosure agreement (VDA) is the primary tool for resolving historical exposure ahead of a closing. In a VDA, you approach the state before it approaches you, typically anonymously at first through a representative, in exchange for a limited lookback period and a waiver of penalties. Texas, for example, limits its review to four years, waives penalties and interest, and requires the tax data and payment within 60 days of the signed agreement. Terms vary state by state, which is why the state mix drives the timeline.

Case study: reaching compliance in 27 states before closing

We manage multi-state VDAs on our clients' behalf, coordinating disclosures across every state where remediation makes sense, sequenced against the deal calendar.

One client, a family-owned manufacturer, was midway through due diligence when it emerged that the company had unknowingly built nexus in 27 states through nationwide shipments, and the finding threatened the sale. We prepared and filed VDAs and back returns across all 27 states and managed the resulting compliance through monthly sales tax filings until the transaction was finalized.

The sale closed successfully. The owner told us afterward that they could not have reached compliance on their own in the final weeks before the close. If you are considering a voluntary disclosure as part of your sale, contact us and we can discuss what it would involve for your states.

Step 5: Structure the deal to protect both sides

Even after remediation, some exposure usually remains, and deal structure determines who bears it. Asset purchases and stock purchases carry different successor liability profiles, a topic we cover in detail in our guide to what sales tax exposure costs at the closing table.

At the contract level, these three provisions matter most:

Indemnification clauses that name sales tax specifically rather than relying on general tax language
An escrow holdback sized from the Step 3 quantification rather than a round number
Tax clearance certificates where available

Clearance certificate procedures and reliability vary from state to state, and in some states no meaningful certificate exists, which is another reason the underlying analysis matters more than the paperwork. If the paperwork for steps one to three are unavailable, expect that uncertainty to be priced into the escrow.

Step 6: Run the 90-day post-close integration checklist

The sales tax work does not end at closing. The combined entity has a new nexus footprint, a new product mix, and often two compliance processes running in parallel.

We recommend completing four tasks within the first 90 days post-close:

Update or consolidate state registrations
Merge the sales tax filing calendars so nothing lapses in the handoff
Refresh exemption certificates under the surviving entity's name
Re-run the nexus analysis for the combined business, since thresholds each company stayed under separately may now be crossed

In our experience, audit risk is elevated in the first year or two after a deal closes; registration changes and final returns are visible events, and states pay attention to them. A clean integration reduces that risk. It is also the moment to put in place the ongoing process that, ideally, means the next transaction finds your sales tax position already in hand, years ahead of anyone asking.

Ready to start your sales tax due diligence?

Wherever you are in the process, whether a transaction is years away or already underway, the first step is the same: understand your actual footprint. Every engagement depends on how many states are involved and which ones, so we begin each one with a conversation about your specific situation. Contact Miles Consulting Group at info@milesconsultinggroup.com or book a consultation through our website to discuss your sales tax due diligence in preparation for M&A.

Frequently asked questions

What should a sales tax due diligence checklist include?

At minimum: a current independent nexus study, a state-by-state taxability analysis of every product and service, a quantified exposure calculation with statutes of limitations applied, the status of any voluntary disclosure agreements or registrations in progress, exemption certificate documentation, and the deal-structure protections (indemnification, escrow, and clearance certificates) that allocate whatever exposure remains.

How does sales tax differ in an asset sale vs a stock sale?

In a stock sale, the buyer generally inherits the entity's historical liabilities, including unpaid sales tax. In an asset sale, liabilities are more separable, but most states have successor liability rules that can still attach sales tax obligations to the buyer of business assets. Structure reduces risk; it rarely eliminates it, which is why quantification and remediation come first.

How do you quantify sales tax exposure before a sale?

Start with the nexus study to establish where obligations exist, then apply each state's taxability rules to your revenue in that state across the open lookback period, adding interest. Because unregistered periods can remain open indefinitely in many states, the analysis has to be done state by state rather than with a single national assumption.

How long does a voluntary disclosure agreement take before a closing?

It depends on the states involved, since each state runs its own program with its own review and payment terms; Texas, for instance, requires payment within 60 days of the executed agreement. Multi-state disclosures need to be sequenced against the deal calendar, which is why VDAs work best when started months before a planned close rather than during final negotiations.

What happens to sales tax compliance after an acquisition closes?

The combined entity's obligations change immediately: registrations need updating, sales tax filing calendars need consolidating, exemption certificates need refreshing, and the nexus analysis needs re-running because combined revenue can cross thresholds neither company crossed alone. Treating this as a 90-day project keeps post-close audit risk as low as possible.

by Monika Miles

Marketplace facilitator sales tax: a platform's guide to collection, filing, and gaps

Every U.S. state with a sales tax now has a marketplace facilitator law, and the scope has stretched well beyond the original product-marketplace scenarios these laws were written for. Amazon and Etsy were the obvious early targets. Airbnb, Vrbo, and the wider set of lodging and short-term rental platforms are now named explicitly in many state statutes. Services platforms like TaskRabbit and Find My Builder aren't usually named directly, and whether they're in scope depends on each state's specific definition.

If you handle sales tax or finance at a marketplace facilitator company, you need to map the rules state by state, know where your gaps are, and trust your historical sales tax filings would hold up if a state asked. The South Carolina Supreme Court's March 2026 ruling against Amazon is a reminder that historical questions can come back into scope on transactions from before a state's marketplace facilitator law was in force.

This is a plain-language guide for marketplace facilitators on what states require, where the practical gaps still are, and how to keep both today's sales tax filings and yesterday's exposure defensible.

Key takeaways: what every marketplace facilitator should check

Every U.S. state with a sales tax has a marketplace facilitator law, but thresholds, definitions, and the breadth of taxable transactions differ widely. Mapping each state to your platform's actual transaction profile is where marketplace facilitator compliance starts.
Lodging and short-term rental marketplaces are increasingly named in state statutes, while services-only platforms sit nearer the definitional edge. If you run a non-traditional marketplace, your first compliance question is whether you're a marketplace facilitator under each state's specific definition.
Home rule cities and special districts often impose obligations on top of state-level rules. Chicago's Personal Property Lease Transaction Tax, Colorado home rule cities, Alabama local variations and Alaska’s borough and municipal sales taxes don't disappear because a state marketplace facilitator law exists.
Historical periods may come back into scope years later. The South Carolina Supreme Court's March 2026 ruling against Amazon shows that transactions from before the relevant marketplace facilitator law took effect can resurface if a state finds existing statutory language it can apply.

Defining a marketplace facilitator: state-by-state lines and edge cases

Across most state statutes, a marketplace facilitator is a business that lists third-party sellers' products or services on a platform, handles payment, and connects buyers with sellers. Three elements typically have to be present: the platform lists the offer, the platform handles the payment, and the platform sits between the buyer and the seller for at least part of the transaction.

Hosted store providers such as Shopify, WooCommerce, and Wix typically fall outside the definition, since they give sellers tools to run their own stores rather than brokering transactions. Payment processors and drop-shippers usually sit outside too, though edge cases do exist.

The marketplace facilitator definition matters because state collection obligations only attach to entities that meet it. State definitions vary on three things: what transactions count (tangible goods, digital products, services, lodging), the nature of the platform's involvement in the sale, and any specific exceptions a state has written into its law.

For example, Kansas treats Airbnb and Vrbo as marketplace facilitators for short-term rentals while excluding hotel-room platforms. California and Nevada don't impose a sales tax on short-term accommodations at all. Arkansas explicitly includes specified digital products in its marketplace facilitator definition; other states still don't address them.

If your platform sits near the definitional edge, particularly in services or across multiple transaction categories, a state-by-state self-assessment serves better than a single overall determination. Each state's Department of Revenue publishes its own marketplace facilitator guidance, and we covered the foundational definitional questions in our marketplace facilitator overview.

State requirements: what marketplace facilitators must collect, remit, and report

Once a marketplace facilitator hits a state's collection threshold, commonly $100,000 in sales or 200 transactions (though several states have moved away from the transaction count), the platform is responsible for collecting, remitting, and reporting sales tax on transactions it facilitates into that state. Thresholds, registration timing, and the specific taxes captured all vary.

Several practical realities make this more complex than it sounds. Some states allow marketplace facilitators and sellers to contractually reallocate collection responsibility based on seller size, while others such as Iowa, prohibit it. Some lodging marketplaces operate under voluntary collection agreements that predate the relevant marketplace facilitator law and may go beyond what it strictly requires. Some states layer on alternative obligations like North Carolina's tire disposal tax and white goods disposal tax, while others impose customer notification or reporting requirements as alternatives.

Home rule and special districts add another layer entirely. Marketplaces collect state-administered sales tax, but city- and district-level taxes often don't follow automatically. Chicago's Personal Property Lease Transaction Tax is the most prominent example for software and digital marketplaces, while Colorado has dozens of home rule cities with varied rules, Alabama’s local sales tax setup creates its own patchwork, and Alaska has no statewide sales tax but individual boroughs and municipalities impose their own rates.

If your platform routes transactions into those jurisdictions, the obligation usually stays with you. We've worked through the operational questions marketplace facilitators face most often in our article on the questions every marketplace facilitator should consider.

Compliance gaps: the four areas every marketplace facilitator should watch

The headline rules look clear on paper, but as the Tax Foundation has noted, the state-by-state patchwork creates real complexity for any platform operating across more than a handful of states. Here are the four areas that come up most often in our work with marketplace facilitator clients.

Non-traditional marketplaces. Services platforms, B2B marketplaces, and niche e-learning platforms often weren't on legislators' minds when the original marketplace facilitator laws were drafted, and whether your platform is captured can hinge on the breadth of a given state's definition and on whether the underlying service is taxable there. A state-by-state review usually serves better than a single overall determination.

Digital products and taxable services. Some marketplace facilitator laws explicitly cover digital goods, SaaS, and taxable services; others were drafted for tangible personal property and haven't been updated. Marketplace facilitators in these categories can't assume the state law definitively settles whether their transactions are in scope .

Your own marketplace nexus footprint. Economic nexus is calculated across the transactions you facilitate plus any direct sales you make, and as transaction volume grows, marketplace nexus thresholds may be crossed in states you haven't registered in yet. Threshold monitoring needs to happen on a regular basis across every state where you do business.

Historical liability. Historical periods can come back into scope years later when a state finds existing statutory language it can apply. On March 18, 2026, the South Carolina Supreme Court ruled 3-2 that Amazon owed $12.5 million in uncollected sales taxes for the first quarter of 2016, predating South Carolina's 2019 marketplace facilitator law. The court found Amazon's control over third-party transactions made it engaged in the business of selling under the existing 2011 statute.

Mapping these areas across your platform's footprint is the kind of focused review we run for marketplace facilitator clients. Get in touch and we'll work through your specific gaps.

Operational discipline: keeping marketplace facilitator compliance current

For most marketplace facilitators, the work falls into four streams that benefit from running on a steady cadence rather than as one-off projects.

Map your collection coverage state by state. Confirm registration in every state where you've crossed economic nexus thresholds, and revisit threshold tracking quarterly. The home rule and special-district overlay needs to be built separately, because state-administered sales tax registration doesn't capture it.

Document your marketplace facilitator self-assessment. Particularly if your platform crosses categories or operates in services or bookings, set out the basis for treating yourself as a marketplace facilitator (or not) in each relevant state. The reasoning matters in audit, where "we assumed" rarely holds.

Set out your sourcing and classification logic. Determine how each transaction is sourced and how each product or service is classified, then write the rules down. Inconsistent sourcing and classification are common issues we see in marketplace facilitator audits.

Keep an audit-ready record for historical periods. As the South Carolina case shows, documenting collection treatment for each historical period across each state, including periods that predate the relevant marketplace facilitator law, is much easier as ongoing maintenance than as reconstruction during an audit. For deeper context on how marketplace facilitator and seller responsibilities split out at the state level, see our overview of states' online sales tax and marketplace facilitator rules.

Marketplace facilitator laws were supposed to simplify state sales tax administration, and broadly they have. The complexity has shifted from sellers to platforms, and the day-to-day work now sits on the platform side. This includes defining yourself correctly across 50 jurisdictions, monitoring thresholds, layering home rule rules, classifying digital and service offerings, and keeping a paper trail that holds up if a state asks about a transaction from five years ago.

Ready to map your obligations under marketplace facilitator laws?

If you're responsible for sales tax or finance at a marketplace facilitator company and want to understand your specific exposure under marketplace facilitator laws, particularly across the four areas above, we'd welcome a conversation. Contact Miles Consulting Group at info@milesconsultinggroup.com or book a consultation through our website.

Frequently asked questions

What makes a business a marketplace facilitator under state law?

A marketplace facilitator is generally a business that lists third-party sellers' products or services on a platform, processes payment, and connects buyers with sellers. Definitions vary by state, with some explicitly covering services, lodging, and digital goods, while others were drafted only for tangible personal property. Whether a non-traditional platform (a services-only marketplace, e-learning platform, or B2B marketplace) qualifies as a marketplace facilitator usually depends on the specific state's marketplace facilitator definition and on whether the underlying transactions are taxable there.

Do marketplace facilitators need to collect city-level taxes like Chicago's PPLTT?

Often, yes, depending on the city and the platform's transactions there. State marketplace facilitator laws cover state-administered sales tax. Home rule jurisdictions like Chicago, many Colorado cities, and certain Alabama localities can impose their own collection obligations on marketplace facilitators that the state-level law doesn't capture. Marketplace facilitators with transactions into those jurisdictions need to identify and register for those local obligations separately.

How are short-term rental and services platforms treated under marketplace facilitator laws?

Treatment varies sharply by state. Most states with sales tax now require short-term rental marketplaces (Airbnb, Vrbo, and similar) to collect state and local lodging taxes on bookings, though a few states, including California and Nevada, don't tax short-term accommodations as a sales tax matter at all. Services platforms typically face a more uneven landscape: whether the platform is captured depends on the state's definition and on whether the underlying services are taxable in that state. Marketplace facilitators in either category should review state-by-state rather than relying on national assumptions.

Can marketplace facilitators reallocate sales tax responsibility to their sellers?

Some states permit contractual reallocation between marketplace facilitators and large sellers, often with thresholds tied to seller size. Others, including Iowa, explicitly prohibit it. Where reallocation is permitted, it usually requires a written agreement and continued documentation. Marketplace facilitators relying on reallocation should confirm the specific rules in each relevant state each year, since several states have tightened their positions since the original marketplace facilitator laws were drafted.

What does the South Carolina ruling on Amazon mean for marketplace facilitators?

The March 2026 South Carolina Supreme Court ruling held Amazon liable for $12.5 million in uncollected sales taxes for the first quarter of 2016, predating South Carolina's 2019 marketplace facilitator law. The court found that Amazon's level of control over third-party transactions made it engaged in the business of selling under existing 2011 statutory language. For marketplace facilitators more broadly, the practical takeaway is that historical periods can come back into scope years later when a state sees uncollected revenue and statutory language it can apply, even where no marketplace facilitator-specific law was on the books at the time.

by Monika Miles