Preparing for Cloud Taxation Navigating the Impact of Taxing the Cloud Knowing how to manage sales tax for a software-as- a-service (“SaaS”) company can be a challenge. Every day brings new changes, proposals and updates on legislation and current court cases. These disruptions bring an increase in compliance responsibilities and can also put pressure on enterprise resource planning (“ERP”) and other accounting and billing systems. How can your business keep up with everything and avoid risk? First Things First In order for a state to require an out-of-state company to pay income, franchise, sales, use and other types of taxes, the company must have a connection or “nexus” with the taxing jurisdiction.
Transcript
Preparing for Cloud Taxation
Navigating the Impact
of Taxing the Cloud
Knowing how to manage sales tax for a software-as-a-service (“SaaS”) company can be a challenge. Every day brings new changes, proposals and updates on legislation and current court cases. These disruptions bring an increase in compliance responsibilities and can also put pressure on enterprise resource planning (“ERP”) and other accounting and billing systems. How can your business keep up with everything and avoid risk?
First Things FirstIn order for a state to require an out-of-state company to pay income, franchise, sales, use and other types of taxes, the company must have a connection or “nexus” with the taxing jurisdiction.
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Catherine Shaw Stanton, CPA Partner, National Leader – State & Local Tax Services
Activities that may create nexus include, but are not limited to:
` Maintaining an office, warehouse, or other place of business in the state
` The use of property in the state
` Providing technical assistance, conducting training sessions or providing implementation services within the state via employees or subcontractors
` Having employees or agents enter the state for the purpose of soliciting sales, networking, making customer visits or conducting any other business activities within the state
` Attending trade shows in a state to promote your product
That’s Not AllStates believe they are losing significant tax dollars because of the growth of electronic commerce. As a result, they are increasingly seeking to impose nexus using an “economic nexus” theory. Economic nexus ignores the concept of physical presence and instead only requires that a company exploit a taxing jurisdiction’s economic market; for example, by making more than a certain amount of sales to in-state customers, or earning royalties on another company’s sales into the state.
Every state is different. However, companies should be aware that if the requisite nexus is established and a company does not comply with the state’s filing obligations, the state may assess the past due tax with penalties and interest with no statute of limitations on the number of prior years for which they can assess.
Action Steps
Make sure your processes and systems are up to the challenges of the future. Cherry Bekaert has the experience and expertise to assist you with the changes happening now.
Now is the time to plan and prepare for changes that will affect your business.
Educate
` Understand your current sales and marketing channels
` Understand your current sales footprint
` Understand what creates state tax nexus in your footprint
Monitor ` Watch developments concerning nexus expansion activities in tax jurisdictions where you have significant sales
Plan
` Understand the capabilities of your current accounting system
` Identify native functionality to charge and account for sales tax
` Strategically model what a tax collection system would look like at your company
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