Online Sales Tax & SaaS Companies: What You Need to Know in 2019
Although the Wayfair online sales tax ruling doesn’t relate specifically to SaaS, states are enacting laws that make it easier to create nexus, which means all companies - including SaaS - need to be more diligent in determining whether they’re subject to taxes in various states.
What exactly do SaaS companies need to know about Wayfair, the online sales tax debate, and how it may affect them?
How Online Sales Tax Legislation Affects SaaS Companies
Law360 does a good job of explaining why SaaS companies especially need to pay attention to the new online sales tax legislation states are enacting.
First, due to their solutions’ accessibility via the cloud, SaaS companies often have a wider array of sales by state; thus, an elevated risk of expansive nexus. Second, the SaaS pricing model generally breaks out the contract into monthly transactions. Consequently, the common 200 plus transaction portion of states’ economic nexus laws are far more attainable under the SaaS pricing model. Rather than needing to have 200 customers in a state, SaaS companies may trigger nexus in a state with only 17 customers and perhaps fewer in the event of other separately invoiced services.
Miles Consulting Welcomes Bill Loew
Miles Consulting Group is excited to announce the addition of Bill Loew to our state tax consulting team. Bill has been a friend and colleague of mine for many years. Having someone of his character and caliber join the firm at this crazy juncture in state tax consulting is a real privilege.
Bill has had a very impressive career, starting as an auditor at the California State Board of Equalization (now the CDTFA), to ultimately becoming a partner in two Big 4 public accounting firms, and most recently consulting with clients at a boutique firm. Over the years, we've worked on several client engagements together in various capacities and I'm so excited that we'll be doing that on a day-to-day basis now going forward.
FOCUS ON FLORIDA
Welcome to Florida!
Florida is the southeasternmost U.S. State, with the Atlantic Ocean on one side and the Gulf of Mexico on the other. It has hundreds of miles of beaches. The city of Miami is known for its Latin-American cultural influences and notable arts scene, as well as its nightlife, especially in upscale South Beach. Orlando is famed for its theme parks including Walt Disney World.
Florida is the flattest state in the United States. Lake Okeechobee is the largest freshwater lake in the state.
Central Florida is known as the lightning capital of the United States, as it experiences more lightning strikes than anywhere else in the country. Florida leads the United States in tornadoes per area (when including waterspouts), but they typically do not reach the intensity of those in the Midwest and Great Plains. Hail often accompanies the most severe thunderstorms. Hurricanes pose a severe threat each year during June 1 to November 30, hurricane season, particularly from August to October.
Business Climate
The state’s economy relies mainly on tourism, agriculture, and transportation, which developed in the late 19th century. Florida is also renowned for amusement parks, orange crops, winter vegetables, the Kennedy Space Center, and as a popular destination for retirees.
Tourism makes up one of the largest sectors of the state economy. Amusement parks, especially in the Greater Orlando area, make up a significant portion of tourism. The Walt Disney World Resort is the most visited vacation resort in the world. Many beach towns are popular tourist destinations, particularly during winter and spring break.
Agriculture is the second largest industry in the state. Citrus fruit, especially oranges, are a major part of the economy, and Florida produces the majority of citrus fruit grown in the United States. Other products include sugarcane, tomatoes, and celery. The state is the largest producer of sweet corn and green beans in the U.S. Florida is the largest producer of watermelons in the country. It also produces the most tomatoes, strawberries and sugar.
Phosphate mining, concentrated in the Bone Valley located in central Florida, is the state’s third-largest industry. Florida currently contains the largest known deposits of phosphates in the U.S. The state produces about 75% of the phosphate required by farmers in the U.S. and 25% of the world supply, with about 95% used for agriculture and 5% used for other products.
Tax Climate
Florida does not have an individual income tax.
The state imposes a corporate income/franchise tax on all corporations for the privelage of conducting business with the state of Florida. The top corporate income tax rate is 5.5%. In general, corporations engaged in multistate business activities are required to apportion income to Florida. The apportionment fraction is based on the total of the property factor (25%), the payroll factor (25%) and a double weighted sales factor (50%).
Florida adheres to the cost of performance sourcing rules for sales of services.
Sales Tax Structure
The state sales tax rate is 6%, and ranks 16th in the nation.
Despite recent activity in many states regarding economic nexus in light of South Dakota v. Wayfair, Florida has not enacted economic legislation as yet.
Florida is favorable to taxpayers in its approach to taxation of technology products for sales tax purposes. All digital products are exempt. Prewritten and custom computer software that is electronically downloaded is exempt. Only software sold in tangible form is taxable. Lastly, all cloud services are exempt. How products are produced, sold and delivered is critical to determining their tax status.
Last year, Florida had two sales tax holidays. Residents could buy disaster preparedness items free of sales tax in the beginning part of June. For more information on last year’s sales tax holidays, click here. Residents could also buy clothing and school supplies in early August tax free. For more information on last year’s Disaster preparedness holiday, click here. This year, legislation authorizing sales tax holidays has not yet been approved.
Random Facts
- Florida’s $1.0 trillion economy is the fourth largest in the United States. If it were a country, Florida would be the 16th largest in the world, and the 58th most populous.
- PortMiami is the world’s largest cruise ship port.
- I-10, which spans 362 miles in Florida, traverses the panhandle, connecting Pensacola, Tallahassee, Lake City, and Jacksonville, with interchanges with I-75 in Lake City and I-95 in Jacksonville. It is the southernmost interstate in the United States terminating in Santa Monica with a total length of 2,460 miles.
- Florida is home to Gatorland, the Alligator capital of the World.
- The Florida Everglades is the only place on the planet where crocodiles and alligators live together.
- The highest point in Florida is Britton Hill on the Florida Panhandle and is only 345 feet above sea level.
- Saint Augustine is the oldest European settlement in North America.
- Key Largo is known as the Dive Capital of the World.
- Fort Lauderdale is known as the Venice of America because the city has 185 miles of local waterways.
Our team at Miles Consulting Group is always available to discuss the specifics of your state tax situation, whether in Florida or other states, we can help you navigate the complex tax structures arising from your multistate operations. Call us to help you achieve the best tax efficiencies.
Online Sales Tax and SaaS: A Recap of What You Need to Know
Last year was a big one in the online sales tax debate; everything changed following the Wayfair v. South Dakota Supreme Court decision. Once the ruling was announced in June, states began creating and implementing online sales tax provisions for internet retailers selling to state residents. In addition to adding uncertainty for small business trying to sort out tax code for dozens of states across the country, the ruling complicated another already-confusing situation: the taxability of SaaS (software as a service).
Online Sales Tax & SaaS in States Across the Country
How does the taxability of SaaS tie in with the Wayfair ruling? The Wayfair ruling doesn’t relate specifically to SaaS – it’s about nexus – but because states are enacting laws which now make it easier to create nexus (for instance, the South Dakota standards that started this all – sales of over $100,000 in a year OR 200 transactions), companies now need to be more diligent in determining whether their products and services are subject to tax in various states. That’s where the analysis of the SaaS revenue stream fits in. Many of our clients that were, perhaps, based in one state and may have had physical presence nexus in one or two other states didn’t have that much to worry about. But now, we need to know where their revenue streams (SaaS and others) are taxable because they are often reaching the minimum thresholds for registration, collection and filing of sales tax.
SLEEPING GIANTS AWAKEN: CA, TX & WAYFAIR
In the United States, the sales tax landscape has changed drastically due to the recent U.S. Supreme Court Case of South Dakota v. Wayfair (June 2018). Following this landmark decision which made it easier for companies to create nexus in states, many states have enacted legislation which establishes guidelines/thresholds for economic nexus. In a previous blog, we talked about this epic decision.
What is Economic
Nexus?
In the past, companies needed to have physical presence, or “boots on the ground,” in a state in order to have nexus (or taxable presence) in a state. This meant that a company needed to have offices, inventory, employees, or contractors in a state for a certain amount of time. Companies now don’t necessarily need to have physical presence in a state for them to create nexus; they now can have nexus in a state by virtue of economic nexus. Economic nexus essentially means that companies with sales of a certain dollar amount or a certain number of transactions with a state are required to register, collect and remit sales tax. Some states require both criterion. Additionally, note that some states base their economic threshold on taxable sales, while other states mention gross sales.
3 Fascinating Examples of State Tax Law Intersecting Technology
As we welcome the New Year, I thought it would be fun to look at a few areas where state tax laws and technology are coming together. Keep reading for three different updates that share ways modern tech is affecting states’ revenue.
1. Ohio Accepts Cryptocurrency for State Tax Payments
Cryptocurrency like Bitcoin has been around for a while now, yet Ohio is setting an interesting state tax precedent by allowing businesses to pay their fees with the digital currency.
This is especially interesting as these types of currency are known for volatility. However, the state’s taken this into consideration. OhioCrypto explains:
What You Need to Know About San Francisco’s New Economic Nexus & Tax Measures
Lately we’ve been sharing a lot about new economic nexus standards and measures passed in the recent election. But states aren’t the only entities with new taxes and fees; San Francisco recently passed legislation requiring companies engaging in business in the city to pay a variety of fees and taxes. Filings are due February 28, 2019, so it’s important to understand how your company might be affected.
Initiatives passed in November’s election, including Proposition C’s homeless tax and Proposition D’s tax on the cannabis industry, implement payroll expenses, gross receipts taxes and a new economic nexus standard for entities doing business within the city. Here’s an overview of the details.
Focus on Texas
Texas is the second largest state in the country by both area and population. Due to its size and geographic features, the state contains diverse landscapes common to both the U.S. Southern and Southwestern regions. Although Texas is popularly associated with the U.S. southwestern deserts, less than 10% of Texas’ land area is desert. Most of the population centers are in areas of former parries, grasslands, forests, and the coastline. Traveling from east to west, one can observe terrain that ranges from coastal swamps and piney woods to rolling plains and rugged hills, and finally the desert and mountains of the Big Bend.
Texas is nicknamed “The Lone Star State” to signify its former status as an independent republic, and as a reminder of the state’s struggle for independence from Mexico. The “Lone Star” can be found on theTexas state flag and on the Texan state seal. The origin of Texas’ name is from the word taysha, which means “friends” in the Caddo language.
Business Climate
Texas’ large population, abundance of natural resources, thriving cities and leading centers of higher education have contributed to a large and diverse economy. Ever since the discovery of oil at Spindletop, energy has been a dominant force politically and economically within the state.If Texas were its own country it would be the sixth largest producer of oil in the world.
Holiday Shopping & Online Sales Tax: An Overview of What You Need to Know
Now that we’re in the midst of the holiday shopping season, businesses and states are starting to see the effects of the Wayfair online sales tax decision. Looking back specifically at Cyber Monday, there are a lot of fascinating results regarding how states and businesses fared. Are states projecting an accurate amount of revenue?
It’s also worth noting how the new online sales tax laws will affect small internet retailers as they struggle to comply with various states’ laws during this busy holiday shopping time. How will they fare given the new regulations?
Cyber Monday & Online Sales Tax
While about two dozen new states are now collecting taxes from internet purchases as a result of recent economic nexus (Wayfair-like) legislation, there are major states (e.g. California, Texas and New York) that have not passed online sales tax legislation. Still, some retailers are choosing to collect taxes anyway, just to be safe.Read more
A Helpful Overview of the 2019 State Sales Tax Ranking
Over the past few years we’ve seen how companies have determined where to base operations based on considerations like sales tax, credits and incentives, and overall business climate. When it comes to running a business, which states are friendliest and which are most unfavorable?
The Tax Foundation’s 2019 State Business Tax Climate Index compiles various state details to offer a fascinating comparison for corporate leaders. Keep reading for an overview of how the various states stack up next to each other, especially in regards to sales tax.
2019 State Sales Tax Ranking
The Tax Foundation’s review of this year’s sales tax ranking includes a map with a helpful visual of each state’s placement on the list.Read more
