Pay Attention to “ship to” address for SaaS services

By June 4, 2015 Uncategorized

I was recently working with a company that was getting charged New York sales tax on 100% of the SaaS fees they were charged by their provider.  This would be correct if 100% of their SaaS usage was actually in New York, but it wasn’t.  In discussions with the provider, they said that New York tax was being charged because that was the “ship to” address set up in their billing system.  Everyone at the company agreed that some tax was due to New York because their were a few users in that state–but it was probably less than 10% of what was being charged.  When I inquired as to why New York was chosen as the “ship to” address, the response was pretty basic: “That’s where one of our developers lives!”

Given the challenges of managing the taxation of SaaS, I suggested that the “ship to” address be changed to a state like Georgia, that does not tax SaaS, and that a use tax accrual process be implemented to pay the tax due in New York and the other states where the company has nexus and which SaaS.  The vendor was happy to oblige and the company is saving about $20,000 a year in tax.

Pay attention to the details on all of these invoice issues and be in communication with your suppliers to understand why they are charging tax.  Tax planning does not need to be difficult or expensive to implement.

Ned Lenhart, CPA


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