Merchant of Record for SaaS Sales Tax: Who Collects and Files

Can we sit back once a merchant of record handles our SaaS sales?

Not by the label alone. "Merchant of record" is a commercial label, usually used by a platform that presents itself as the seller of your product and takes the customer's payment. None of the state pages cited here uses the term. They ask what the platform does for each sale. Washington, for example, asks whether it contracts with sellers, passes the offer or acceptance between buyer and seller, and does a listed activity such as branding sales as its own, setting prices, taking orders or processing payment (Washington DOR). How states define a facilitator is in marketplace facilitator rules.

In general, you can leave a sale to the platform only when three things line up. States word each differently:

1. It fits the state's marketplace definition for that sale.
2. The state's rule reaches software, not only physical goods.
3. It has given you the proof the state asks for, such as a certificate, a notice or an agreement that says it collects.

If one fails, collecting can stay with you. The platform's duty never reaches sales that do not go through it.

What makes a case not simple:

• You invoice some customers directly, such as annual or enterprise contracts, or sell through another channel.
• The platform collects in some states and not others, or not on every plan.
• Your total sales in a state, platform sales included, can still put you over a registration line. Some states count them.
• The contract may have the platform buy and resell your software instead of selling it for you. Washington says a business can be a retailer on some transactions and a facilitator on others, but only one of the two on each (Washington DOR). If the platform is the retailer, your sale to it may be a sale for resale, documented by a resale certificate (Texas Comptroller; exemption certificates from customers) instead of the marketplace proof below. Which one your contract creates is a legal question this page does not settle.
• Texas says both the platform and the seller are subject to audit (Texas Comptroller).

Gather your sales by customer state, month and channel; the platform agreement and any statement that it collects; the platform's reports of your sales by state; and your permits, returns and notices.

Which route fits: a platform, a calculation tool, a filing service or registering ourselves?

The four routes cover different work, and they combine: a platform for the sales it facilitates, and a tool, a filing service or your own returns for everything else.

A payment processor or billing tool is not automatically a platform that sells for you: the state tests also ask whether it runs the place where your product is offered. A tool that only adds a tax line to an invoice is a calculation tool. Where that line falls: marketplace facilitator rules.

What points toward each route:

• Platform: most sales are self-serve through it, in states whose rule reaches software, with proof for each state.
• Calculation tool or filing service: you invoice customers yourself, sell in many states, or the platform covers only part. You still decide where to register and collect.
• Your own returns: you sell in few states, or a state counts your sales over its line and no platform covers them.

The routes mix, so keep one list of states with the route for each.

Some calculation tools and filing services are certified under the Streamlined Sales and Use Tax Agreement. Its relief applies only to certified ones and only in member states; ask what an uncertified one files and where. Of the states here, Washington and Wisconsin are members; Texas, New York, California and Pennsylvania are not (Streamlined). Pennsylvania has its own approved-provider arrangement (Pennsylvania). The relief does not cover a product put in the wrong tax category, the point to get right for SaaS (Streamlined FAQs). Free help and who answers for errors: outsourcing sales tax filing.

Do marketplace rules reach SaaS, or only physical goods?

It depends on the state, and several state pages do not say. The platform's duty covers only what the state's rule covers.

Pennsylvania and Wisconsin cover the goods and services a facilitator lists and takes payment for (in Wisconsin, the taxable ones) but do not mention software. Ask each department.

Whether your SaaS is taxable at all is a separate question: sales tax on SaaS and software, and for Texas Texas SaaS sales tax. For other states, the Streamlined chart links each state's marketplace guidance. Use it to find the state's page, then read that page.

If the platform collects, do we still need a permit or a return?

It depends on the state, on whether you are located there, and on whether platform sales count toward your own line. Some states still require registration or returns even when a platform collects every sale.

A physical presence needs no threshold. Washington counts an employee in the state and inventory in the state, even inventory a facilitator holds (Washington DOR). Each state's own test is in how to tell where you must collect.

What proof should we keep that the platform collects?

Keep a written statement from the platform for each state, plus the records that show the tax was in fact collected. What counts as proof differs by state.

• Texas: the platform must certify that it collects. No special form or wording is required, and the terms of use can carry it. Keep your marketplace sales records for at least four years (Texas Comptroller).
• New York: a completed Form ST-150, sent within 90 days of the sales it covers, or a public agreement that says the platform is registered and will collect. Both speak only of tangible personal property, so check they reach your plans. Keep the certificate with your records. A seller's relief from liability also requires that you and the platform are not affiliated through ownership (New York; Form ST-150).
• Washington: documentation that the facilitator collects and reports. Without it you may be liable for uncollected tax. The facilitator must give you a monthly report of your Washington gross sales by the 15th day of the following month (Washington DOR).
• California: the agreement, or other proof the facilitator is registered, and the facilitator's permit or account number, which you can verify with CDTFA. CDTFA will not hold you liable if it can verify the facilitator collected the correct tax and paid it (CDTFA).
• Wisconsin: the provider's notice that it collects. Without it you cannot take the deduction on your return, so keep a copy (Wisconsin).

In every state, also keep the agreement with its effective dates, the platform's sales-by-state reports, and what you gave the platform about your product and customers. Texas, New York and Wisconsin relieve the platform only to the extent an error came from the seller's incorrect or insufficient information, so a wrong taxability answer from you can come back to you (Texas Tax Code 151.0242; New York; Wisconsin). In Texas, an affiliated platform and seller are jointly liable for a deficiency on the seller's marketplace sales.

What if the platform does not collect, or only in some states?

Then you collect on those sales yourself, once you have a duty in that state. Texas tells sellers to collect until the provider certifies (Texas Comptroller). Washington says a seller without the documentation may be held liable (Washington DOR).

Besides software gaps (see the table above) and direct sales (next section), a platform may not collect when:

• It is below the state's line. A remote marketplace provider in Texas need not start collecting until all sales through its marketplace pass $500,000, or it is otherwise engaged in business there (Texas Comptroller). Washington, New York and Wisconsin also set their own registration tests for a platform with no physical presence there (Washington DOR; New York; Wisconsin).
• It holds a waiver. In Wisconsin the seller then collects the tax itself (Wisconsin).

Build a list of states in three groups: proof in hand, no proof, and the platform says it does not collect. Treat the last two as sales you may have to collect on yourself, wherever you have a duty in that state. The state rules apply to sales the platform facilitates, so a sale made before the platform's role began was not one of them. Tax missed in earlier months is a separate question: catching up on uncollected sales tax.

Which of our sales stay ours?

Every sale the platform did not facilitate. Texas says you collect, report and remit on sales made outside the marketplace (Texas Comptroller). New York and California say the same (New York; CDTFA). For a SaaS company that usually means:

• Invoices and contracts you sign directly, including annual, multi-year and enterprise deals.
• Sales through another marketplace that does not collect, or through your own checkout.
• Renewals, upgrades and add-ons the platform does not handle.
• Customers who move from the platform to a direct contract.
• Direct sales to customers who claim an exemption, with the certificate on file: exemption certificates from customers.

How do platform-collected sales show on our returns and in our books?

On a registered seller's return, platform sales are usually reported in full and then taken out of the taxable amount. The method differs by state; more in filing sales tax returns.

In the books:

• Keep a sales ledger by customer state with a column for channel, platform or direct.
• Reconcile each platform report to the facilitated line on your return and to the payouts you received: reconciling sales and payouts. Setting up the state split: tracking sales by state.
• Where the platform is the collector under the state's rule, the tax it collects is its to remit. Tax you collect on direct invoices is yours, held in trust for the state, so keep the two apart. People who run the business can owe unpaid collected tax personally: in Texas, an individual who controls collection or payment and willfully fails to pay it over (Tax Code 111.016); in Washington, if the company is dissolved or insolvent, its current or former chief executive or chief financial officer, whether or not at fault, generally for tax accrued in that role (RCW 82.32.145).
• Whether your revenue is the full price the customer paid or the net payout depends on who is the seller in the contract: gross or net revenue for a marketplace.

Do we have to register in every state before launch?

No. Registration follows a connection to a state, not a launch date: usually a physical presence, or sales over the state's line. Physical presence in a state usually creates a duty to register there, with no sales threshold, if what you sell is taxable there (Streamlined). You may also register early in a state where you know you will sell. Before launch, start a record of sales by customer state so you can see each line coming.

When do we register ourselves instead of relying on a platform?

Register yourself when any of these is true:

• You have a physical presence in a state, such as an employee or inventory.
• Your direct sales, plus the platform sales that state counts, pass the state's line. Most states use $100,000, but the figure, the measuring period and the counting rule differ: every state's threshold.
• The platform's coverage does not reach the sale: it does not collect in the state, its statement does not cover your product, or the sale came before its coverage began.

Many states count taxable and non-taxable sales toward the line (Streamlined), so the count can pass the line even where your product turns out not to be taxable. A SaaS seller generally has to collect only in states that tax its product and where it has a duty to collect: sales tax on SaaS and software. Income and franchise tax have their own tests: sales tax nexus versus income tax nexus.

What should the agreement say before we sign?

These are the tax questions an agreement usually has to answer, state by state. The legal terms are for a lawyer.

• Who sells: whether the platform sells as the retailer or relays your sale, by product, plan and customer type.
• Where and what: the states and products it collects for, with start dates, and what it does in a state where the rule is silent on software.
• Proof of collection: the certificate, notice or statement each state accepts (see the proof list above), updated when its registration or coverage changes.
• Reports: sales by state and period, on a schedule that lets you reconcile your returns and payouts.
• Exclusions and your inputs: direct invoices, other channels, add-on products and customers it cannot classify, and the product, customer-location and exemption information you must give.

Also check who holds exemption certificates, who answers a state notice, and what reports and notice you get when the agreement ends.

Example

These examples are illustrative. Amounts are in US dollars.

Platform sales plus direct invoices

A solo founder sells US$120,000 a year of subscriptions through a platform and invoices US$40,000 directly to teams. What the platform collects depends on its agreement and each state's rule, so she gets its written statement for each state. The US$40,000 stays hers to tax and file wherever required.

Say the platform is a marketplace facilitator under Washington's rule, with proof on file, and Washington customers account for US$90,000 of the platform sales and US$15,000 of the direct invoices. Washington counts both: US$105,000 is over its line, so she registers and reports all of it on her Washington excise tax return. If the subscription is taxable, she deducts the US$90,000 as collected by the facilitator and collects on the direct invoices; if she was under the line the year before, collection starts on the first day of the month starting at least 30 days after crossing. If the platform instead bought and resold her software, the US$90,000 would be its retail sales, not hers, and the count would change. If the same customers were in Pennsylvania, where she has no physical presence, and the platform collects there, only the US$15,000 of direct invoices would count toward its line.

Signing after unfiled sales

A startup signs with a platform in January. Before that it made US$300,000 of its own sales in 15 states and collected no tax. The new contract covers the sales the platform facilitates from then on. The earlier US$300,000 is a separate question. The startup lists its sales by state and month, compares each state's line, and then deals with every state it had already passed.

Washington monthly report

A seller registered in Washington sells through a facilitator. The facilitator's monthly report, due by the 15th, shows US$20,000 of Washington gross sales. The facilitator kept US$3,000 in fees and paid out US$17,000. The seller reports US$20,000 as gross income, claims the deduction for sales collected by the facilitator, and does not subtract the US$3,000 of fees.

Different for you?

• You sell in many states, a platform handles part of your sales and you invoice larger customers directly: which sales the platform's collection covers, which stay yours, where you must still register, and how the contract, returns and books line up is state-by-state work. Bring the platform agreement, its sales-by-state reports and your direct invoices to startup bookkeeping and tax help.
• You sold before the platform or never collected: see catching up on uncollected sales tax, and bring the sales history by state and month to startup tax help.
• An investor found a sales tax gap: see sales tax exposure found in due diligence.
• You run a marketplace where others sell: see marketplace facilitator rules.
• You are unsure whether your product is taxable, or how nexus is set: see sales tax on SaaS and software and when you must collect sales tax.
• You file returns yourself or are weighing a hand-off: see filing sales tax returns and outsourcing sales tax filing.
• Your books and platform payouts do not match, or you cannot split platform and direct sales by state: see reconciling sales and payouts, and bring the payout reports and invoices to bookkeeping help.
• Your business is based outside the US: a state can apply the same tests to a foreign seller; see foreign sellers and sales tax.
• You have Canadian customers: see non-resident and digital sellers.