Our Methodology

Our nexus analysis tool is designed to help SaaS companies understand their sales tax obligations across all 50 states. This page explains how we determine nexus, SaaS taxability, and the sources we rely on.

How We Determine Nexus

Physical Presence Nexus

The traditional standard for sales tax nexus, established by the Supreme Court in Quill Corp. v. North Dakota (1992), required physical presence in a state to create nexus. Physical presence includes:

W-2 employees working in the state
Independent contractors performing sales activities on behalf of the company
Physical property, including office space, warehouses, and inventory (including third-party fulfillment centers like Amazon FBA)

Economic Nexus (Post-Wayfair)

In South Dakota v. Wayfair, Inc. (2018), the Supreme Court overturned the physical presence requirement. States can now require businesses to collect sales tax based on economic activity alone.

Most states have adopted economic nexus thresholds, typically:

$100,000 in sales to the state, OR
200 transactions with customers in the state

Some states (like Texas and California) use higher thresholds ($500,000), and some states (like New York) require BOTH thresholds to be met.

How We Determine SaaS Taxability

Having nexus in a state only matters if you sell something that's taxable there. SaaS taxability varies significantly by state:

State Approaches to SaaS

Taxable:TX, NY, PA, MA treat SaaS as taxable (as prewritten software or data processing services)
Exempt:CA, FL, GA treat SaaS as a non-taxable service (no transfer of tangible property)
Conditional:IL (state exempt, but Chicago taxes streaming), CO (state exempt, some home-rule cities tax), WA (no sales tax, but B&O tax applies)

The "True Object" Test

Many states apply the "true object" test: what is the customer really buying? If the true object is access to software functionality (rather than information content or professional services), the transaction may be treated as a software sale.

B2B Exemptions

Several states offer exemptions for business-to-business sales:

Automatic exemptions: Some states automatically exempt B2B sales
Certificate required: Many states require customers to provide resale or exemption certificates
Partial exemptions: Some exemptions only apply to specific industries (manufacturing, R&D)

Our Sources

We base our determinations on official sources, including:

State tax statutes and regulations
Published guidance from state tax authorities
Official ruling letters and advisory opinions
Administrative rules and bulletins

Every state analysis in our tool includes source citations so you can verify the rules yourself.

Our Limitations

This is not tax advice. Our tool provides general guidance based on common scenarios but cannot account for all facts and circumstances of your specific situation.
Rules change. Tax rules are constantly evolving. We verify our rules quarterly, but changes may occur between updates.
Complex situations require professionals. If your situation involves hybrid products, custom software, or unusual circumstances, consult a qualified tax professional.

Our Update Process

We maintain our rules through:

Quarterly verification: We review each state's rules against current official sources every quarter
Change monitoring: We track legislative changes and new guidance from state tax authorities
User feedback: We investigate and correct any errors reported by users

Last full verification: December 2025