SaaS and sales tax compliance

For SaaS businesses, sales tax compliance is more complex than ever. Unlike traditional e-commerce, where sales tax is often tied to physical goods, SaaS companies must conform to digital tax laws that vary greatly by state and country.

Between economic nexus laws, multi-state taxability rules, and international VAT/GST obligations, keeping up with all regulatory requirements can become overwhelming — especially when done through manual processes.

That’s where sales tax automation software comes into play.

These tools integrate with billing and e-commerce systems to help brands calculate sales tax automatically, streamline the filing process, and ensure compliance.

Choosing the right sales tax app for your business can be critical for long term business growth. In this article, we’ll talk about what to look for in a sales tax software and which platform might make the most sense for your company.

Let’s jump in.

What to look for in a sales tax software for SaaS

Every sales tax platform is a little different, and most SaaS businesses have unique tax compliance needs when compared to traditional e-commerce.

Choosing the right tax solution will depend on where you sell, how you bill customers, and what level of automation you need in order to stay compliant.

Here’s a closer look at what every SaaS-focused sales tax app should offer.

Automated sales tax calculations

SaaS taxability varies wildly depending on the state or country where a customer is located. Some state governments fully tax SaaS businesses while others classify the business model as a non-taxable digital service.

There are thousands of tax jurisdictions in the U.S. alone. Tracking these rules manually is an impossible challenge, which makes automated sales tax calculations a must-have in a tax app.

A good tax solution should be able to determine if a transaction is taxable and apply the correct tax rate at checkout or on a recurring subscription charge. This is critical for SaaS organizations that rely on usage-based and metered billing models, where charges can fluctuate on a monthly basis or customer activity has an impact on total cost.

Strong platforms eliminate this guesswork while helping to ensure compliance as tax laws evolve.

Economic nexus tracking

Since the South Dakota v. Wayfair ruling in 2018, most U.S. taxes have enacted some form of economic nexus law.

This requires businesses to remit sales tax once they exceed a set revenue or transaction threshold in a given state — even if they don’t have a physical presence in that state. This threshold varies by state. Some states set the bar at a revenue threshold (around $100,000), while others set a transaction limit (roughly 200 per year).

SaaS companies selling nationally need to watch out for this, as it’s possible to owe taxes in multiple states without even realizing it. Organizations processing a high volume of small transactions can be subject to tax requirements, even if total revenue remains low.

Most sales tax software can track economic nexus qualifications in real time and will send an alert when you pass a state’s threshold, but you should double-check for this feature and have an alternative solution in place if your platform doesn’t offer that functionality.

Automated filing and remittance

Collecting sales tax is just one part of the equation. Businesses are also responsible for filing tax returns and remitting collected taxes to the appropriate states.

Unfortunately, the filing process is overcomplicated by varying deadlines and processes. Some states require monthly filing while others accept quarterly or annual submissions. Forms and filing processes can also vary between jurisdictions.

Tracking all of these requirements manually is a recipe for disaster. It’s time-consuming, prone to error, and comes with steep penalties when details are missed.

Most sales tax platforms offer some form of automated filing (for an additional fee) to make sure that tax is reported accurately and submitted on time. Systems can generate the correct tax reports, complete the necessary filings, and submit payments directly to the state’s tax agency without requiring continuous oversight from the business.

However, it’s possible that your tax solution only automates a portion of this process, such as report preparation. In those cases, teams will need to manually submit reports and transfer funds. When shopping around, make sure that the automation process is clear so that your team knows what they need to do in order to stay compliant.

Seamless integrations

Tax platforms aren’t designed to stand apart from other digital systems. In order to work, they need to integrate with point-of-sale, ERP, and payment processing systems. It has to be seamless, or the process won’t automate correctly.

With SaaS, tax platforms need to connect directly with subscription management and billing systems (Stripe, Chargebee, Recurly, etc.) to ensure that every invoice, renewal, and one-time charge accurately reflects the correct tax rate. At the same time, integrations with accounting systems (like QuickBooks or Xero) help companies synchronize tax data with accounting systems for more accurate financial reporting.

Integration options are usually included as part of your subscription, but the number of integrations available can vary. Make sure that the platform you choose will integrate with your tech stack and that those integrations (or API connectors) are available.

Multi-state and international support

While U.S. sales tax compliance is complicated, it’s a small part of a larger whole when selling internationally.

SaaS brands seeking an international market will also need to consider VAT and GST compliance in other countries. Similar to economic nexus regulations in the U.S., countries within the EU, as well as the UK, Canada, and Australia all require foreign SaaS providers to register, collect tax, and file returns even without a local presence.

For internationally focused brands, the right solution will need to support both multi-state U.S. tax compliance and international VAT / GST rules.

However, brands within the United States will only need this when planning to sell platform services in an international market. If you intend to sell your product domestically, you can get by without international features until your business model evolves.

Exemption certificate management

Some SaaS customers, including nonprofits and government agencies, are exempt from sales tax. While businesses don’t need to collect tax from these entities, they are required to collect and store exemption certificates, in the event of an audit, to prove why the tax wasn’t charged.

Tax platforms with exemption management tools make it easy for customers to upload the appropriate certificates, which can be automatically validated and stored for future reference.

Especially for brands working with exempted customers, this functionality may be essential for business operations. If your platform specifically targets these individuals, or you plan to grow heavily in those markets, make sure that you have a way to handle tax exempt customers.

Audit-ready reports

Audits can happen; it’s just a reality for modern businesses.

Because SaaS is a digital solution, scaling quickly and taking on customers in multiple locations can leave small teams overwhelmed by tax implications. This exposes brands to potential audits at various levels of government as economic nexus thresholds are exceeded and regulatory requirements begin to take hold.

Automated tax solutions can help with this by providing detailed transaction records showing collected sales tax, documentation for nexus triggers and filings, and easy-to-export reports for tax professionals and regulators.

Having this functionality at hand can ease the audit process and help companies prove that proper totals were appropriately disclosed.

Affordable pricing

SaaS businesses can grow quickly, but tax compliance costs shouldn’t skyrocket alongside profits.

Some tax platforms charge high base fees in addition to transaction-based pricing, which can become expensive as sales volume increases. Others use custom enterprise pricing that makes it difficult for smaller organizations to predict total costs.

Good tax platforms offer affordable, transparent pricing that can scale with your business while avoiding unnecessary overhead. TaxCloud and a few other brands do this by tying costs to a set number of processed orders and the required number of filings. Using this approach, it’s easy to avoid hidden fees and estimate total costs more clearly.

7 best sales tax software for SaaS businesses

1. TaxCloud

Pricing: Free plan ($0); Starter ($199/year); Premium ($799/year). Final price determined by required number of processed orders and return filings.

Built for: SaaS companies needing affordable, U.S. sales tax compliance with best-in-class support.

TaxCloud is a cost-effective and highly automated sales tax solution designed for small- to mid-sized businesses. That makes it a great fit for SaaS companies who need to ensure compliance across a wide area but don’t have the bandwidth or expertise to manage themselves.

As a platform, TaxCloud is industry agnostic, meaning that it can provide accurate tax calculations across any industry. Users will need to apply a product tax code to all sellable products using Taxability Information Codes (TICs), and the TaxCloud API will handle the rest.

TaxCloud stands out for its transparent pricing model, which allows businesses to start for free and scale affordably. Integrations are available for popular billing, ERP, and e-commerce platforms, making it an easy plug-and-play solution for most brands. Because TaxCloud provides full automation for state filing and remittance, teams can more easily manage tax obligations across multiple jurisdictions.

Lastly, TaxCloud provides timely, human-powered support across multiple channels (in addition to a robust knowledge base). With TaxCloud, you’ll always have support from team members who are ready to help — whether you’re brand new to the platform or a long-time customer looking for additional support as your business grows.

Key features

• Specialized to U.S. sales tax.
• Native integrations for leading e-commerce solutions.
• Automated filing and remittance for multi-state compliance.
• Nexus tracking to prevent non-compliance risks.
• Audit support options.

2. Avalara

Pricing: Not disclosed. Avalara uses volume-based pricing based on the products and services purchased, monthly transaction volume, and other factors.

Best for: Enterprise SaaS businesses with international tax needs.

Avalara is a comprehensive tax compliance platform, offering global tax management, ERP integrations, and advanced automation options. It’s well-suited for large SaaS enterprises with international customers, as it supports sales tax, VAT, and GST compliance worldwide.

The platform is particularly beneficial for companies that require deep integrations with ERP systems like NetSuite, SAP, or Microsoft Dynamics. Avalara offers dedicated connectors to seamlessly integrate tax compliance into enterprise processes.

While Avalara doesn’t disclose its pricing directly, it’s often on the higher end of the spectrum, making the platform better suited for enterprise-level companies rather than smaller SaaS businesses.

Key features

• Advanced nexus tracking with real-time alerts.
• Global VAT/GST support for international sales.
• ERP system compatibility (NetSuite, SAP, Microsoft Dynamics).

3. TaxJar (by Stripe)

Pricing: Starter ($205/year); Professional ($1069/year). Final price determined by required number of processed orders and return filings.

Best for: Startups and small SaaS businesses using Stripe for payments.

A popular sales tax platform, TaxJar is known for its ease of use and seamless integration with Stripe. It provides automated sales tax calculations, economic nexus tracking, and automatic filing services, making it a good fit for early-state SaaS startups that use Stripe for billing.

However, TaxJar misses a few key elements that platforms like TaxCloud and Avalara can provide. For example, TaxJar users can’t upload exemption certificates if they aren’t using the TaxJar API. TaxJar also requires manual registration in specific states before enrolling in its AutoFile program. This is different from TaxCloud, which uses the Streamline Sales and Use Tax Agreement to simplify filing across 24 states.

While straightforward and simple, TaxJar’s pricing can become expensive as a business scales. The brand is also known for only providing limited support, often at a significant delay, which is far different from the customer-focused options available through TaxCloud.

It’s a great entry-level option that may not be an ideal, long-term solution for SaaS businesses expanding into multiple states.

Key features

• Automated filing and nexus tracking.
• Native Stripe integration for subscription-based tax calculations.
• Streamlined dashboard for tracking tax obligations.

4. Anrok

Pricing: Starter ($499/month, plus 0.40% per taxable transaction); Core ($999/month, plus 0.30% per taxable transaction). Custom solutions also available.

Best for: SaaS companies using recurring billing models (Stripe, Chargebee, etc.).

A newer tax compliance solution in the market, Anrok is designed specifically for SaaS companies that operate on subscription-based and usage-based billing models. Similar to TaxCloud and others, it provides real-time economic nexus tracking and integrates deeply with modern billing platforms like Stripe, Chargebee, and QuickBooks.

The biggest advantage that Anrok has over other platforms is its focus on automating tax compliance for metered billing and usage-based pricing. Many platforms just don’t support that level of granularity, and it allows SaaS companies to offer more than just flat-rate subscription options.

The drawback is that Anrok combines a heavy, upfront cost with revenue-based pricing, meaning that costs increase as your business scales. This makes the overall cost less predictable than other tax solutions in the long run.

Key features

• Built specifically for SaaS tax compliance.
• Automated use-based and subscription tax compliance.
• Deep integration with modern billing platforms.

5. Vertex

Pricing: $5,000+ / year. Pricing based on usage, revenue tier, rate file downloads, and more.

Best for: Enterprise SaaS in need of advanced ERP tax compliance.

Vertex is an enterprise-grade tax platform that specializes in global tax compliance and ERP integrations. Similar to Avalara, it’s best suited for large companies that operate in multiple countries and require in-depth, highly customizable tax solutions.

This platform is known for its multi-jurisdiction compliance capabilities and can be tailored to solve tax problems in a specific industry. It also integrates with ERP systems and offers advantaged tax logic customization, which is useful for multi-national operations and complex pricing models.

While those features are ideal for large businesses, Vertex is expensive (starting at $5,000+ per year), making it difficult to justify for small-to-medium SaaS businesses that don’t need enterprise-level tax features.

Key features

• Automated compliance for multinational businesses.
• Enterprise-level tax automation for global sales.
• Offers multiple compliance solutions for broader coverage.

6. Sovos

Pricing: Not disclosed. Pricing sales with usage and is built around the filing process.

Best for: SaaS companies in highly regulated industries (FinTech, healthcare, etc.) who need strong audit protection and compliance automation.

Sovos is designed as a high-compliance tax solution for SaaS companies in highly regulated markets. Unlike other competitors in the space, this platform focuses heavily on audit defense and regulatory reporting tools, with a multi-faceted product line centered around tax compliance. It’s a great fit for SaaS businesses that face strict compliance requirements or frequent audits from state and federal tax agencies.

As a global entity, Sovos is also able to work hand-in-hand with international brands to offer tax reporting for complex financial operations and multi-entity tax structures. Just like Avalara, this platform integrates with ERP systems and supports everything from 1099 processing and VAT compliance to industry-specific tax requirements.

However, as you might have guessed, Sovos isn’t designed for startups or smaller SaaS businesses. While the pricing isn’t disclosed, the platform is typically custom-built for larger enterprises. For brands who need something like standardized U.S. sales tax compliance without complex regulatory oversight, a streamlined solution like TaxCloud is a much better fit.

Key features

• Multiple tax solutions for global enterprises.
• Deep integration with SAP and ERP systems.
• Offers regulatory reporting tools beyond transactional taxes.

7. Quaderno

Pricing: Startup ($49/month); Business ($99/month); Growth ($149/month). Enterprise solutions available. Final cost determined by total transactions and number of registered jurisdictions.

Best for: SaaS companies selling internationally (EU, UK, Canada, Australia).

A specialized tax solution for SaaS companies, Quaderno is focused on brands that sell internationally and need automated VAT and GST compliance. This platform is built for brands that operate in multiple countries, with a particular emphasis on the EU, UK, Canada, and Australia — all of which require foreign SaaS providers to register, collect, and remit VAT/GST on digital services.

Quaderno’s major strength is its automated VAT/GST calculations and invoicing. Similar to U.S. states, tax rates abroad vary by country and region. Using Quaderno, businesses can apply the correct VAT/GST rate based on the customer’s location and apply that tax at the point of sale via its onboard integrations.

At the same time, Quaderno isn’t focused on U.S. sales tax compliance, making it a less suitable choice for SaaS businesses selling primarily within the United States. Companies searching for multi-state U.S. sales tax compliance will find that TaxCloud is a far better solution.

Key features

• Automated VAT and GST compliance.
• Per-country invoicing.
• Unlimited users and integrations.

SaaS taxability by state

Keep in mind that sales tax compliance isn’t just about tracking revenue; it’s also about understanding how each state classifies SaaS products. SaaS taxability varies greatly by state, making compliance particularly challenging for businesses selling nationwide.

Here are a few points to consider:

• 26 states currently tax SaaS outright. (See taxability map here.)

• 7 additional states tax SaaS if a download or installation is required.
• Hawaii and a few other states classify SaaS as a service, making it taxable if services are taxable within that state.
• Washington state treats SaaS as a tangible software product, making it taxable under software laws.
• Other states tax SaaS at different rates based on usage (personal vs business) and require companies to track and classify their sales accordingly.

These changing rules and inconsistent regulations make manual sales tax management practically impossible for SaaS companies selling across multiple states.

Without automation, businesses risk misapplying tax, failing to collect required taxes, or paying out to states where SaaS isn’t taxable.

Get started with TaxCloud today

Choosing the right sales tax solution for your SaaS business will depend on several factors, including where you sell, how complex your tax needs are, and what level of automation you require.

Every platform we’ve covered offers some form of automation and compliance assistance, but each varies in scope and scale. Some are better for smaller businesses, while others are best suited for global enterprises.

If you’re searching for a solution that focuses on affordability, automation, and U.S.-based compliance, TaxCloud is a great fit.

We offer real-time nexus monitoring, automated compliance for all 50 states, and easy integration with major e-commerce platforms. Plus, we offer transparent pricing without unpredictable fees, so you’ll always know what you’re paying.

Want to learn more? Talk to our sales team for a live demo and a plan consultation.

FAQ

Do SaaS businesses need to collect sales tax?

It depends on the state or country. Where your customers are located will play a big role in determining taxability, as you’ll need to adhere to any economic nexus thresholds or similar legal requirements.

In the U.S. alone, SaaS taxability varies broadly by state, with some jurisdictions taxing SaaS as a digital good or service while others consider it non-taxable.

Across international markets, SaaS companies need to collect VAT or GST. The precise amount will depend on laws and regulations specific to a given country or region.

How do I know if my SaaS company has an economic nexus in a state?

State regulations can disclose specifically whether or not you need to adhere to a specific nexus requirement.

Keep in mind that most states impose their own nexus threshold, but most follow one of these rules:

• $100,000 in annual revenue
• 200 transactions per year

Keep in mind that state nexus thresholds only apply at the state level. For example, if your company earned $5 million in annual revenue but only $90,000 of those earnings came from Iowa, where the threshold is $100,000 in sales, you wouldn’t need to remit sales tax on Iowa-based transactions.

Check out this article for a state-by-state list of nexus thresholds.

What happens if I don’t collect sales tax when I should?

Failing to collect and remit sales tax can lead to penalties, interest, and back taxes owed. States actively enforce sales tax laws, and non-compliant businesses may face audits.

An automated tax solution like TaxCloud is the best way to avoid stiff penalties and similar enforcement measures. These platforms track nexus thresholds in real time and automate tax collection processes on a per-transaction basis.

What integrations should I look for when selecting a sales tax platform?

The ideal platform will integrate seamlessly with your existing billing, e-commerce, and accounting tools.

SaaS brands tend to work with a variety of transaction types based around recurring or subscription billing, so it’s recommended to work with a platform that can integrate specifically with those billing platforms.

Do I need to file sales tax returns separately for each state?

Yes. If your business has nexus in multiple states, you must file sales tax returns separately in each one.

Unfortunately, this becomes complicated due to filing deadlines. Some states require monthly filing, while others allow for quarterly or annual submissions.

Automated filing and remittance services like those provided by TaxCloud and similar platforms can help you ensure that businesses file and pay sales tax on time while reducing manual effort.