You Crossed 200 Sales in Texas. Now You Owe Tax You Never Charged.

A SaaS founder discovers they have 200 paying customers in Texas. No office there. No employees. No warehouse. They assume no tax obligations apply.

They are wrong. Since 2018, physical presence is no longer required for sales tax. Economic nexus rules apply. And in Texas, SaaS is taxable.

What changed: South Dakota v. Wayfair

In 2018, the Supreme Court ruled in South Dakota v. Wayfair that states can require businesses to collect sales tax based on economic activity alone. No physical presence needed.

Since then, nearly every state with a sales tax has adopted economic nexus rules. The thresholds vary, but the principle is the same: sell enough into a state and you owe sales tax there.

Common nexus thresholds

Most states trigger nexus at one of two thresholds:

• $100,000 in gross sales into the state in the current or prior calendar year
• 200 transactions into the state in the current or prior calendar year

Some states use only the dollar threshold. Some use both. A few have higher or lower thresholds. The rules are state-specific.

SaaS is not automatically exempt

This is the mistake we see most often. Founders assume software is not subject to sales tax. In many states, that is correct. In others, it is not.

Texas taxes SaaS as "data processing services" at 80% of the sales price. That means 6.25% state sales tax applies to 80% of each invoice.

New York taxes SaaS as tangible personal property.

California does not tax SaaS.

The taxability of SaaS varies by state. There is no universal rule. Each state must be evaluated individually.

The cost of ignoring nexus

Back taxes. States can assess sales tax for all prior periods where nexus existed. If you crossed the threshold two years ago and never registered, you owe two years of uncollected tax.

Interest and penalties. Late registration triggers penalty assessments. Interest accrues on the unpaid balance.

Audit exposure. States are increasingly auditing SaaS companies for nexus compliance. The audit window is typically 3 to 4 years.

Compounding liability. Every quarter you delay registration, the liability grows. The longer you wait, the more expensive the cleanup.

What to do

1. Identify where you have nexus. Review your sales by state. Flag every state where you cross the threshold.
2. Determine taxability. For each nexus state, confirm whether your product is taxable. SaaS taxability varies.
3. Register to collect. File for a sales tax permit in each state where you have nexus and your product is taxable.
4. Start collecting. Update your billing system to charge sales tax in the relevant states.
5. Consider voluntary disclosure. If you have prior-period exposure, many states offer voluntary disclosure agreements that reduce penalties.

Where this catches European founders

Sales tax nexus is one of several state-level obligations that appear once revenue starts landing in the US, and it is easy to miss when the company is run from Europe. It sits next to payroll registration, foreign qualification, and the rest of the US operations questions European founders hit first. The same pattern shows up when you hire your first US employee: a single person in a new state can create registration obligations that have nothing to do with where you incorporated.

The bottom line

Sales tax nexus is not a problem you can ignore into compliance. The liability grows every quarter. The fix is registration, collection, and filing.

We help founders identify nexus exposure and get compliant before it becomes a diligence issue, and we work on the contracts and commercial terms that sit on top of it. If you are selling into multiple US states and have not evaluated nexus, get in touch.