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Sales tax compliance for the growing company As your software company grows, sales tax becomes more complex. The Ultramind Solution Ebook Software more. On average, software companies trigger nine new sales tax obligations every year. New hires, expanding product lines and markets, and cloud distribution are just a few activities that can trigger sales tax nexus — potentially affecting your growth strategy. The Software Executive’s Guide to Sales Tax is a three-part series that explores how software companies can reduce risk, scale operations, and prepare for growth while implementing and operationalizing a smart sales tax strategy. Get started with Part 1 of the guide — Sales Tax Compliance for the Growing Company — to understand how sales tax compliance fits into your five-year growth plan. Read Part 1 of the guide to learn about.

A Utah-based online company that sold software licenses to customers in Texas was audited by the Texas State Comptroller. The Comptroller determined that the company should have collected sales tax on the licenses for the nine years they did business in the state. Even though the company argued that it had no physical presence in Texas, it was.

According to the Texas ruling, because the agreement between the seller and its customers stated that the seller would maintain ownership of the software even as customers downloaded it, that set up nexus for the seller. Texas define software as tangible property, and when the software entered the state via purchasers' computers, it created a physical presence -- and therefore nexus -- for the seller. Texas isn’t the only state to require sellers to collect sales tax on software licenses.

Diamond Rush Java Game. Also considers the licensing of software to an in-state user to be taxable because it considers a license to use the software as tangible personal property. And since the sellers “own” the personal property on computers in New Mexico, the state assigns them nexus. The State of New York has also decided to make software licensing subject to sales tax, but makes the tax location-specific.

For example, if you sell a software license to a purchaser in New York, you will have to determine where the purchaser will direct or use the software and charge the sales tax rate for that jurisdiction. If your customer has employees in New York and in other states, the asks you to “collect tax based on the portion of the receipt attributable to the users located in New York.”.