In this episode of Beyond the Ledger, host Shardae Layfield sits down with Adrien Echols, Director in Bennett Thrasher’s State and Local Tax practice, to uncover common sales tax pitfalls facing growing software companies. Adrien breaks down how different states tax software, why product classification and customer data matter, and how businesses can proactively address past exposure while building a stronger compliance strategy for future growth.

Scaling a SaaS or software business brings exciting opportunities, but it can also trigger unexpected sales tax obligations. From economic nexus and product taxability to historical exposure and automation, staying compliant across multiple states can quickly become complicated.

Takeaways

• Rapid growth can create unexpected tax obligations. Expanding into new markets can trigger economic nexus, even without a physical presence in a state.
• Not all software is taxed equally. SaaS, downloaded software, and on-premise solutions may receive different tax treatment depending on state laws, delivery methods, and customer circumstances.
• Never assume software sales are non-taxable. Understanding product classification, exemptions, and customer types is essential to determining the correct tax treatment.
• Historical exposure requires a strategic approach. Voluntary Disclosure Agreements (VDAs) and other resolution options may help businesses address past liabilities while potentially reducing penalties.
• Automation is only as effective as the data behind it. Accurate product classifications, customer information, and tax configurations are critical to reliable compliance.
• Proactive planning supports sustainable growth. Regularly evaluating nexus, taxability, and compliance processes can help software businesses minimize risk as they expand across states.

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