Cloudbeds Billing Portal - United States Sales Tax

Mariia Korostashevych

Updated December 24, 2024 10:08

In tax legislation, you'll often find pre-written and non-prewritten (aka custom) software broken down into one of three broad categories. However, only ONE category is relevant to Cloudbeds: the Software accessed via cloud. This article explains all the details about it.

Software accessed via cloud - Background

This is software that is accessed remotely (via cloud)
Customers typically access cloud software by connecting to the internet, using a web browser to navigate to a secure customer portal, and entering unique login credentials
States define cloud-based software within their respective codes differently.
- Some states define it as: data processing, data organization, or as tangible personal property
Currently, sales tax is assessed on SaaS* products in 21 states, all of which have varying tax legislation over SaaS
Action Item (for Finance and Accounting only): Of the states we have Nexus, determine which assess sales tax on SaaS products (Please check further information about nexus below)

*SaaS = software-as-a-service

What is Nexus?

Sales tax nexus is the connection between a seller and a state that requires the seller to register, then collect and remit sales tax in the state.

Certain business activities trigger sales tax nexus, including:

Reaching a specific sales or transaction threshold (economic nexus)*
Having a physical presence
Remote activity, establishing quasi-physical presence
Click-through nexus

Nexus is the obligation to register, collect, and remit sales tax in a jurisdiction where it has been triggered.

Action Item (Accounting and Finance only): Determine where we have nexus, regardless of whether that state assesses sales tax on SaaS products.

Trailing Nexus: Nexus may continue even after you cease doing business or having a presence in a state for a period that can last through the end of the calendar year or even longer.

*Under economic nexus, a taxable connection is established when a company reaches a certain level of economic activity in the state, even if it has no physical presence there.

Activities That Trigger Nexus

Four activities could trigger nexus for Cloudbeds within a state:

1. Economic activity

Economic nexus laws are now enforced in 43 states
Economic nexus laws vary from state to state
Economic nexus can be a sales threshold, a transaction threshold, or both
Depending on the state, economic nexus considers varying periods when measuring the sales or transactional thresholds, including:
- Previous year
- Current year
- Trailing 12 months
State-by-State Economic Nexus Laws

2. Physical presence

Physical presence is defined differently by state, and can include:

Brick-and-mortar location (including renting property)
Employee activities
Payroll
Property
Performance of service
In certain states, trade show attendance
State-by-state physical presence nexus laws

3. Remote Activity

Each state defines physical presence differently
Physical presence in a state can be established in unexpected ways, including remote activity:
- Remote workers:
  - Nexus is likely to be triggered where there is a remote employee
  - However, specific states only consider employees whose job is to exploit that state’s marketplace, initiating this particular trigger.
  - Other states, like Colorado, have stated that nexus can be established when a remote seller has employees in the state, “even if the activities of the employee are completely unrelated to the sales transactions at issue.”
- Independent contractors:
  - Several states consider a business to have nexus if it has any representative, agent, salesperson, or independent contractor providing services.
State-by-state physical presence nexus laws

4. Click-through Nexus and Advertising

Under click-through nexus laws, an out-of-state business establishes nexus through agreements to reward persons in the state for directly or indirectly referring potential purchasers through links on a website (hence the name)
More than 20 states have click-through nexus laws.
- Most have a sales threshold, meaning the referrals must generate a certain amount of sales to trigger nexus.
- In most states, referrals must generate over $10,000 in the preceding 12 months or four quarters.
State-by-state Guide to Click-through Nexus Laws
More than 20 states have laws that expand nexus trigger events to include advertising, including online advertising, in a state.

State-by-State Guide to Sales Tax on SaaS

SaaS is taxed differently in each state and is currently taxed in only 21 states.
Cloudbeds only has nexus in 10 states that assess sales tax on SaaS products.

Check below the states and their respective guides and sources:

State	Guide	Source
Arizona	Guide Link	Source
Hawaii	Guide Link	Source
Massachussets	Guide Link	Source
New York	Guide Link	Source
Ohio	Guide Link	Source
South Carolina	Guide Link	Source
Texas	Guide Link	Source
Utah	Guide Link	Source
Washington	Guide Link	Source
West Virginia	Guide Link	Source