A European SaaS company owes US sales tax in a state only when three conditions hold at once: it has crossed that state's nexus threshold, the state taxes SaaS, and the buyer is not exempt. There is no federal registration, no single filing, and no reverse charge. Each state is a separate obligation.
What VAT teaches you that is wrong here
Your EU VAT experience is useful in two ways. It tells you that consumption taxes on digital services are serious, and it tells you that thresholds and registrations are worth tracking. After that, the analogy breaks.
Four assumptions travel from Europe and land wrong.
One registration becomes up to 46. The US has no federal sales tax. Each state with a sales tax writes its own rules, sets its own rates, and runs its own registration system. There are 45 states with a general sales tax, plus Washington DC. You register in each one separately, file in each one separately, and pay on each one's schedule. A European company that has handled VAT through a single OSS registration discovers, at some point, that it needs to file in New York on a quarterly basis, in Texas on a monthly basis, and in Washington annually, all on different due dates and with different rate tables.
One filing becomes many. There is no equivalent of the One Stop Shop. You cannot elect a lead state and have returns cascade from it. Every jurisdiction where you have an obligation requires its own return. Most states allow quarterly and annual filing for smaller sellers, but as revenue grows those options narrow.
One threshold becomes dozens. EU VAT has a single cross-border threshold under OSS and a registration requirement per country above it. The US has 46 separate thresholds, at least 16 of which carry a transaction-count test alongside the dollar figure. Failing to track each state independently means you can breach several simultaneously without realising it.
Reverse charge does not apply. In the EU, a business-to-business sale into another member state is zero-rated once you hold the buyer's VAT number. In the US, there is no equivalent mechanism. If a buyer claims exemption, you need a signed exemption certificate on file before the transaction, not a registration number to verify. If the certificate is missing or invalid, you are liable for the uncollected tax regardless of what the buyer told you. The distinction matters more than it sounds, and the section below on buyer status covers it in full.
The three questions
Every US sales tax analysis starts with the same three questions, in the same order. Nexus: do you have sufficient connection to this state to trigger an obligation? Taxability: does this state tax what you are selling? Buyer status: is this particular buyer exempt?
All three must produce a yes before you collect and remit. One no, anywhere in the sequence, and the obligation does not exist for that state and that buyer. The questions are independent and sequential. There is no point asking whether a buyer is exempt until you know the state taxes your product, and no point asking either until you know you have nexus.
A worked example for each question follows in the sections below.
Question one: do you have nexus
Nexus is the connection between your business and a state that gives the state the right to require you to collect tax. Before 2018, nexus required physical presence: a warehouse, an office, an employee. The Supreme Court's decision in South Dakota v Wayfair (2018) ended that rule. Economic activity alone now suffices.
Economic nexus is triggered by sales volume into a state, regardless of where your company is incorporated or based. This applies to a company headquartered in Berlin or Amsterdam or Tallinn with no US entity, no US bank account, and no US employees. Cross the threshold, have nexus.
Forty-one states set their economic nexus threshold at $100,000 in annual sales into the state. California uses $500,000, confirmed by the California Department of Tax and Fee Administration under Assembly Bill 147 (2019). The remaining states fall at various points between those figures. Sixteen states retain a transaction-count test alongside the dollar threshold, meaning you can breach nexus by exceeding the dollar amount or by completing more than a specified number of transactions, whichever comes first. Colorado dropped its transaction test in 2026 and now uses dollar volume alone.
The measurement period varies by state. Most use the current or immediately preceding calendar year; some use a rolling twelve months. Your exposure in a state can therefore appear or shift across measurement periods. Tracking requires ongoing data, not a one-time assessment.
Physical nexus still exists in parallel with economic nexus. A single remote employee working from their home in Austin creates physical nexus in Texas immediately, without any revenue threshold. A contractor who regularly solicits customers on your behalf in a state can have the same effect. European founders who hire US-based employees without first considering the tax consequences sometimes create obligations in multiple states before crossing a single dollar threshold.
The threshold that matters is the one published by that state's tax authority. Every state agency website carries its current economic nexus rules. Check each state individually.
Question two: does the state tax SaaS
Assuming you have nexus, the next question is whether the state taxes what you are selling. As of August 2026, approximately 24 states tax software as a service in some form. The remainder either exempt SaaS explicitly, apply an older definition of taxable software that remote-access products do not meet, or have no general sales tax at all. The count changes as legislation moves: California and Colorado have both enacted laws taxing SaaS from 1 January 2027.
There is no logic a European reader can derive from first principles. States reached their current positions through decades of old tangible-goods statutes, administrative rulings, and court decisions. Whether your product is taxable depends on how each state defines 'tangible personal property,' 'prewritten software,' 'data processing services,' and several other terms with different answers in each state.
Four states illustrate the range.
New York taxes SaaS because it treats prewritten software sold by remote access as taxable tangible personal property, regardless of delivery method. Tax Bulletin ST-128, published by the New York Department of Taxation and Finance, states that prewritten computer software is taxable whether sold on physical media, by electronic transmission, or by remote access. A 2026 appellate decision confirmed this for a labour-management SaaS platform: because the underlying code was not custom-written for the individual client, it was taxable prewritten software. Infrastructure as a service is not taxable in New York. Advisory opinion TSB-A-15(2)S (2015) established that cloud computing infrastructure, where the customer runs their own applications on a third-party platform, constitutes a non-taxable service. The line between SaaS and IaaS therefore matters in New York.
Texas taxes SaaS as a data processing service. Under Rule 3.330 of the Texas Administrative Code, as amended in March 2025, 80 per cent of the sales price of a SaaS subscription is subject to tax. The remaining 20 per cent is treated as non-taxable service. A $1,000 annual subscription is taxed on $800. Customers using SaaS across multiple states may also allocate usage between Texas and non-Texas locations, which can reduce the Texas-taxable portion further.
Connecticut taxes SaaS but splits the rate by buyer type. Business customers pay one per cent, the state's rate for computer and data processing services, confirmed by Connecticut Department of Revenue Services Special Notice SN 2019(8) (effective October 2019). Consumer customers pay the standard 6.35 per cent rate. Your compliance obligation in Connecticut therefore depends on classifying each customer correctly at the point of sale.
Iowa taxes SaaS sold to individual consumers and exempts SaaS sold to commercial enterprises for use exclusively by the business. Iowa Administrative Code rule 701-211.53 sets this out directly. The same subscription, to two different buyers, is taxable or exempt depending on who is buying.
California requires separate treatment. California has exempted most electronically delivered software and SaaS since the mid-2000s, under the administrative position that remote-access software does not constitute tangible personal property. Governor Newsom signed Senate Bill 122 on 29 June 2026. Under SB 122, prewritten software delivered electronically or accessed remotely, including software as a service, is taxable from 1 January 2027. Infrastructure as a service remains exempt: the legislation specifically excludes services that allow a user to create, deploy, scale, or run their own software on a third-party platform.
California's economic nexus threshold remains at $500,000. SB 122 does not create a new nexus test. It makes SaaS subscriptions count toward the existing one, which means companies whose California revenue was previously below the threshold because their SaaS sales were non-taxable may cross it once those sales count. If you have California customers and have not registered with the CDTFA because SaaS was not taxable there, a nexus review is necessary before 1 January 2027.
Question three: is this buyer exempt
European founders commonly assume that selling to a US business is tax-free, by analogy with the reverse charge. It is not, as a default.
US sales tax does not have a reverse charge. An exemption exists, but it works differently. A buyer who qualifies for exemption, because they are a reseller, a manufacturer, a qualifying non-profit, or because the specific use falls under a statutory exemption, must provide a signed exemption certificate before the transaction. You collect the certificate, verify that it is complete and plausible for the buyer's type of business, and store it.
If the buyer does not provide a certificate, you charge tax. If the buyer later claims they should have been exempt, that is a matter between the buyer and the state. The seller's obligation runs from the point of sale: no certificate, charge tax.
If the buyer provides a certificate that later proves invalid or fraudulent, you are generally protected from liability if you accepted it in good faith and it appeared reasonable for the buyer's stated business. Most states provide this good-faith defence for sellers who collected and stored certificates properly.
The certificate is state-specific. Some states accept multi-jurisdiction certificates, known as the MTC Uniform Sales and Use Tax Exemption Certificate, which a buyer completes once and submits to multiple sellers. Not every state accepts it, and some require their own form. Managing certificates across states where you have nexus is an administrative task that grows quickly with customer volume.
California has a buyer-side self-assessment regime under Revenue and Taxation Code section 6225, sometimes called the qualified purchaser programme. Under rules effective from 1 January 2024, a buyer who makes more than $10,000 per calendar year in purchases subject to use tax and has not paid that tax to a registered seller must report and pay the use tax directly to the California Department of Tax and Fee Administration. This shifts some administrative burden to certain buyers, but it does not eliminate your obligation as a registered seller to collect on taxable transactions. Do not interpret the qualified purchaser programme as a reason to skip collection.
For a detailed contrast with EU mechanisms, see our guide to the EU VAT reverse charge.
What local jurisdictions do to the answer
Even after determining that a state taxes your product, you are not finished. Most states allow counties and cities to add their own sales tax on top of the state rate. In states where the state administers local taxes centrally, this is relatively straightforward: one combined rate, one agency.
Colorado illustrates what happens when the state does not administer local taxes centrally. Colorado has a 2.9 per cent state rate, but the state constitution allows cities that have adopted a home-rule charter to administer their own local sales taxes independently. More than 70 Colorado municipalities operate as self-collecting jurisdictions, each with its own registration requirement, its own rate, its own definition of taxable goods and services, and its own filing calendar. Denver is among them. A seller registered in Colorado for state sales tax is not automatically registered in Denver. Denver can tax services the Colorado state government does not, and it administers its own return on its own schedule. After Colorado's HB 26-1223 extends state-level taxability of SaaS from 1 January 2027, each home-rule city will still determine independently whether and how it taxes SaaS under its own ordinance.
Illinois illustrates a different version of the same problem. The combined sales tax rate in Chicago, as of 2026, is 10.5 per cent: Illinois at 6.25 per cent, Cook County at 1.75 per cent, the City of Chicago at 1.25 per cent, and the Regional Transportation Authority at 1.25 per cent. Each component has its own rules about taxability. Getting the Chicago rate right requires identifying the customer's address at the district level and applying the correct stack.
Sourcing determines which rate applies. For remote sellers of SaaS, the standard rule is destination sourcing: the rate is determined by where the buyer uses or receives the service, which in practice means the billing address. If your billing data is incomplete or inaccurate, you may apply the wrong rate, which is its own compliance failure. Most tax automation tools handle district-level rate look-ups automatically; this is one of the clearest cases where automation earns its cost.
Sales tax and use tax, and who carries the liability
'Sales tax' and 'use tax' refer to the same economic event, taxed at the same rate, but from opposite sides of the transaction. Sales tax is the seller's obligation: you collect it at the point of sale and remit it to the state. Use tax is the buyer's obligation: when the seller does not collect, the buyer owes it directly.
For a registered seller, the practical obligation is sales tax. You collect and remit. If you fail to collect, the tax debt does not disappear. The state can assess you for the uncollected amount, plus interest and penalties.
The assessment window matters. For sellers who file returns, most states look back three years. California's Revenue and Taxation Code section 6487 sets the standard window at three years from the due date or filing date of the relevant return. For a seller who never registered and never filed, the same statute extends the window to eight years from the end of the quarter in which the tax was owed.
Eight years of uncollected sales tax, at rates between 4 and 10 per cent, across multiple states, with interest accruing, is a material liability. Buyers in acquisition due diligence will find unregistered nexus and will price it. The answer to 'should I register' is therefore rarely 'wait and see.' Registering and beginning to collect limits future exposure to the period from registration onward; leaving it unaddressed leaves the entire historical period open.
California's Revenue and Taxation Code section 6487.05 provides a reduced three-year assessment window for unregistered out-of-state retailers who voluntarily register before being contacted by the CDTFA. The conditions are specific and require that the seller has not previously been approached by the agency. If the CDTFA contacts you first, the three-year protection is not available and the eight-year window applies.
Voluntary disclosure agreements are available in most states. Under a VDA, a company comes forward, agrees to file returns for a limited lookback period (typically three to four years), pays the tax and interest owed for that period, and receives a waiver of penalties. The Multistate Tax Commission operates a national nexus programme that can coordinate VDAs across multiple states simultaneously. For companies with historical exposure, a VDA is generally worth exploring before a state makes first contact.
What to do at each stage
The right response depends on where your US revenue is now and where it is heading.
Below $100,000 in revenue across all states: monitor. Track your annual revenue by US billing state. Most billing platforms can produce this report. You do not have nexus in most states at this level, and registering before you have nexus creates obligations you do not otherwise have. California's $500,000 threshold means you can scale considerably in that state before the economic nexus trigger applies, though physical nexus from a US-based employee can arise much earlier regardless of revenue.
Approaching the threshold in one state: register in that state before you cross it. Registration is the point from which your obligation to collect begins. Registering after crossing means transactions during the gap have been processed without collection, creating a liability for that period. Most states offer online registration and process applications within a few days.
Nexus in multiple states: manual tracking will fail at some point. The combination of rate changes, threshold movements, new nexus triggers from employees or contractors, and filing deadlines across ten or more states is too complex to manage reliably with spreadsheets. This is the point at which automation becomes necessary rather than optional.
Three routes are available, each with different trade-offs.
The first is handling compliance yourself: registering in each state, calculating rates through your payment processor, filing returns. This is viable at low volume in a small number of states with stable rules. It is not viable at scale.
The second is tax automation software. Tools such as Anrok, TaxCloud, Avalara, and Stripe Tax integrate with billing systems, determine whether each transaction is taxable, calculate the correct rate including local jurisdictions, and in most cases handle the filing process. They vary in how they treat SaaS product classification, how they price, and whether return filing is included or billed separately. Anrok is built specifically for SaaS and handles the product-classification questions that general tools sometimes flatten. Avalara and Stripe Tax are broader platforms with more integration options and larger customer bases. The right choice depends on your billing stack and the states where you have or expect nexus.
The third is a merchant of record. An MoR such as tiun, Paddle, or Lemon Squeezy sits between you and your customers as the seller of record. The MoR handles all sales tax registration, calculation, collection, and remittance on transactions it processes. For a European SaaS company with US customers, this eliminates the sales tax compliance obligation on those transactions entirely, because the obligation transfers to the MoR.
An MoR does not cover everything. It does not address your corporate income tax obligations, which exist separately and depend on whether you have income-tax nexus, a different legal standard in most states. It does not cover your home-jurisdiction tax filings. And it does not cover any sales made outside the MoR platform, including enterprise contracts negotiated and invoiced directly. If you use an MoR for self-serve and invoice directly for enterprise deals, the enterprise sales remain your responsibility.
For a full comparison of MoR options for independent SaaS founders, see our guide to the best merchant of record in 2026. If your question is the reverse, you are a US company navigating EU VAT, the mirror-image guide is EU VAT compliance for US sellers.
Frequently asked questions
Do I owe US sales tax if my company has no US entity?
Yes, potentially. South Dakota v Wayfair (2018) established that economic nexus, based on sales volume alone, gives states the right to require out-of-state sellers to collect tax. A company incorporated in the EU with no US offices, employees, or bank accounts can have nexus in a state solely because its annual sales into that state exceed the state's published threshold. There is no US-entity requirement.
What happens if I have been selling into the US without registering?
Your liability depends on whether the states where you have nexus actually tax SaaS and how long the unregistered period runs. For states where both conditions are met, the uncollected tax is owed, plus interest. Penalties apply in most states but are waivable through a voluntary disclosure agreement. The historical period available to states is generally three to four years under a VDA, and up to eight years in California for a seller who has never filed. Being found first, rather than coming forward, removes the option of penalty waiver.
Do I charge sales tax to a US business customer?
Only if they have not provided a valid exemption certificate. A business customer is not automatically exempt. Exemptions exist for resellers, certain manufacturers, and qualifying non-profits, but they require a signed certificate on file before the transaction. If the certificate is absent, you charge tax. The reverse-charge mechanism that zero-rates business-to-business transactions in the EU does not exist in the US.
Does registering in one state create obligations in others?
No. Each state is independent. Registering in New York creates a New York obligation and nothing else. You may have nexus in multiple states simultaneously without having triggered it identically in each. The obligations exist independently and must be assessed independently.
Should I register before I cross a threshold?
Not as a general rule. Registering before you have nexus creates an obligation to file returns, including zero returns in some states, and starts administrative requirements with no corresponding revenue benefit. The exception is physical nexus: hiring a US-based employee or engaging a contractor who solicits on your behalf can create physical nexus immediately, before any dollar threshold is reached. Check the state where that person is based before making the hire.