Sales tax and VAT for a small SaaS: what to check before collecting

Write down what the customer buys in plain English. Is it access to hosted software, a download, consulting, or a bundle of all three? Then record where the customer is and whether they buy as a business or as a consumer. Those details are more useful to a tax advisor than saying, 'We are a SaaS company.'

Rules differ by jurisdiction, and a product can receive different treatment in different places. New York, for example, treats some remote access to prewritten software as taxable. That does not establish the answer for every state or every service. Keep a written product description and a list of the markets you sell into so your taxability review has a concrete starting point.

• New York: advisory opinion on remotely accessed software

A useful setup answers four questions: where must we register, what should we charge, when must we file, and who sends the money to the authority? A tool may handle one of those jobs without handling the others. Read the service scope before treating the tax line on an invoice as proof that compliance is complete.

Stripe's documentation separates monitoring obligations, registration, calculation, and filing. Use that as a checklist when evaluating any provider. If a service says it automates tax, ask which registrations it supports, who files each return, and what happens when the transaction data is incomplete. Put a person in charge of resolving exceptions.

• Stripe Tax: how the workflow works

A U.S. company selling digital services to consumers in the EU can encounter VAT obligations. The EU's One Stop Shop includes a non-Union scheme for qualifying services supplied by businesses not established in the EU. Eligibility and the customer's status matter. Do not assume a domestic small-business threshold applies to your cross-border sales.

A hypothetical example makes the problem clearer: two customers buy the same subscription, but one is a consumer and the other is a business supplying a valid tax ID. Their treatment may differ. Collect the evidence your advisor says you need, validate it where required, and preserve the decision. A text field saying 'business customer' is not a complete tax policy.

• European Commission: One Stop Shop schemes

A payment processor and a merchant of record can leave you with different responsibilities. With a merchant of record, examine who legally sells to the customer and which taxes that provider contractually handles. Also check excluded products, refunds, customer invoices, and your own remaining income-tax obligations. The phrase 'tax handled' is too vague to budget around.

My practical preference is a short responsibility sheet: each market, the current conclusion, its source, the person who checked it, the filing owner, and the next review trigger. Review it when you add a market, hire in a new place, change the product, or approach a relevant threshold. That is easier to maintain than a folder of contradictory forum replies.

• Describe the product and customer types.
• Review taxability and registration obligations in the markets you serve.
• Configure collection only after confirming the right treatment and registration steps.
• Reconcile collected tax, refunds, filings, and remittances.
• Keep evidence and assign someone to monitor changes.