SaaS Sales Tax: Part IV – Compliance

Contributing author Steve Claflin, Manager SALT (State and Local Tax)

Back to Introduction

The issues presented in this series are intended to simply raise questions about your company’s sales tax compliance. Whether sales tax is something you never considered, or perhaps you did a thorough review with your CPA 3 years ago, now would be a good time to revisit. Unlike income tax, sales tax is a pass-through tax intended to be on your buyers. However, when a seller doesn’t collect sales tax on a taxable transaction, the seller and buyer are jointly and severally liable for the tax. In other words, if you as the seller are audited and didn’t collect the proper tax, that now becomes your liability.  

Outside of the audit context, these issues regularly present themselves and lead to significant complications when trying to sell a company. A buyer’s tax due diligence can readily identify when a seller isn’t properly collecting sales tax in all of the states it should be. This can cause a wide variety of outcomes, such as:

1. Buyer demanding a 3-4 year escrow sufficient to cover all sales tax that wasn’t properly collected by the seller.
2. Buyer requiring the seller to enter into Voluntary Disclosure Agreements with all states where a material amount of exposure exists.
3. Buyer offering a reduced price in light of potential liability.
4. Buyer delaying the purchase of the company to further review the potential liability.
5. Buyer walking away from the deal all together.

When it comes to sales tax compliance, being proactive often pays for itself by ensuring sales tax is being properly collected from the buyers. While there is always a business decision to be made when it comes to compliance, simply disregarding the potential sales tax collection obligations your company can truly prove costly. 

Back to Introduction