Question

Do you sell or use any saas products that charge tax?

I am looking to understand more about sales tax on saas products, specifically communication services tax. Are these being charged? Are they visible to the consumer, or hidden in the price? Eager to learn more.

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maguay's avatar
11d

Interesting question!

I just checked telecommunications services I've paid for personally. Twilio says "Twilio charges monthly taxes for applicable sales and usage in jurisdictions where local regulations require us to collect them" in their documentation on taxes, so they may vary based on your billing zip code, and are added on top of the per-minute/message/number fees that Twilio charges. Then I'd noticed that Skype doesn't add sales tax on what you pay for a Skype number or phone minutes—but their signup page says "Prices are tax inclusive" so the $6.50/mo you pay for a US number on Skype includes some unspecified taxes.

With other SaaS, it depends. Typically you'll be charged sales tax from the largest SaaS vendors (Adobe Creative Cloud, for example, adds sales tax to your subscription price), and with smaller vendors based in the US, you may not be charged sales tax if your billing address is in a different state than that company. Some go with tax-inclusive billing, which fits an international audience better where it's common in countries with VAT to have prices include VAT (then often break the price down after the fact on receipts). But in checking some recent invoices, seems not charging sales tax (or breaking it out, at any rate) is if anything more common than charging.

2 points
psb's avatar
@psb (replying to @maguay )
10d

To follow up on the VAT point, prices for B2B products are generally quoted without VAT and VAT is added at checkout (and subsequently removed again if you quote a VAT number), whereas B2C products are always priced including VAT.

That all breaks down with Google G Suite/Workspace, who confusingly quote pricing ex. VAT, bill without VAT and then have the cheek to tell you to pay your own VAT, that they should be collecting in the first place.

2 points
maguay's avatar
@maguay (replying to @psb )
10d

That was an early feature of eCommerce in the US as well, where Amazon for example for years didn't charge sales tax, so officially you were supposed to manually send sales tax for items you purchased to your state (which seems highly unlikely most consumers would do).

1 point
ashleynader's avatar
@ashleynader (replying to @maguay )
10d

@maguary & @pbs Thank you both for the insights here. Sounds like there's not a straight forward, or industry standard approach here.

My questions to you both is: From a consumer stand point (or business owner buying software), would you rather see this cost listed separately or included in the price?

1 point
maguay's avatar
@maguay (replying to @ashleynader )
10d

@ashleynader From a consumer perspective I would prefer to know exactly what something will cost when purchasing it. That preference may be influenced by having lived outside the US and being used to paying exactly the listed sticker price. Then, ideally the invoice or receipt should break down the price, showing the actual sales tax and other fees paid, split out from the full purchase price, for accounting/reporting purposes. That said, depending on where the majority of your users reside their expectations may be different. Either way, I at a minimum like to see it mentioned if the price will be that plus tax (similar to a restaurant that lists a service charge percentage on the bottom of the menu—one still might not like it, but at least it’s not a surprise when paying the bill).

The frustrating thing in much of software is that there’s little or no indication of if sales tax will be charged.

1 point
dmorg12345's avatar

Here is a nice blog post on SaaS taxability by state. https://blog.taxjar.com/saas-sales-tax/

Sales tax compliance has become a massive chore in the US.

2 points
maguay's avatar
@maguay (replying to @dmorg12345 )
7d

That's a great resource, thanks for sharing! I didn't realize the rules around sales tax on SaaS specifically were different from those for other products.

Looks like Taxjar is a service to help manage tax issues. Do you know of any other tax-compliance-as-a-service tools you'd recommend?

1 point
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