Posted by: RightMethod on 02/11/2016

Nexus Tax Issues

Software companies are regularly involved in sales tax nexus creating activities without realizing it.

What is a nexus tax issue?

Nexus is the term for a business having activities in a state that requires it to collect and pay sales tax for sales in that state. This happens regularly to software companies who sell maintenance and support contracts or subscriptions to users in states across the country.Those software company owners are required to collect sales tax from customers in other states and to pay the state what it collects.

Once it is determined that there is a nexus, the next step is to understand how much sales tax needs to be collected. The best approach at this point is to determine if a state is an origin-based tax state or a destination-based tax state. In an origin-based state, sales tax is based on the state where the product or service originated. In a destination-based state sales tax is based on where the end user is. 

This issue can get complicated when there are hundreds or thousands of customers in multiple states. The best approach is to work with a good accountant to ensure you are staying on top of nexus tax issues.

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