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$472 billion. That’s what U.S. buyers are projected to pour into software alone this year, before counting DLCs, in-app gems, or cloud subscriptions. You want a slice of that pie, but each state’s tax rules can feel like a brain teaser. Use this guide to learn how to stay tax compliant - then let 1D3 DIGITECH handle the heavy lifting while you keep building great products.
We will handle tax compliance, allowing you to concentrate on product innovation.
GET IN TOUCH WITH 1D3U.S. Sales-tax Basics to stay tax compliant
- 45 states charge sales tax; none at the federal level.
- Each state defines "taxable" its own way:
- New York treats SaaS as tangible personal property fully taxable whether downloaded or accessed in the cloud.
- California generally exempts software delivered purely by remote access (no download, no media).
- Texas calls SaaS a taxable data-processing service at the standard 6.25 % state rate.
Recent changes
| State | Change | Effective |
|---|---|---|
| Colorado | Remote sellers now register only if >$100 k revenue (200-transaction rule dropped) | July 1 2024 |
| Minnesota | Proposal to tax more digital services (incl. microtransactions) under review | 2025 |
Establishing Nexus: When You Must Collect
Nexus is the legal link that lets a state claim tax from you. It can be:
Physical: office, employee, server.
Economic: crossing a revenue/transaction threshold (often $100 k or 200 tx/yr).
After South Dakota v. Wayfair (2018), all 45 sales-tax states now enforce economic nexus.
Example:
You push $500 k in SaaS subscriptions to Texan gamers. That breaches the $500 k safe-harbor, so you must register and start collecting Texas tax by the first day of the fourth month after crossing the line.
What Exactly Gets Taxed? Stay tax compliant selling Digital Products by Category
| Category | Typical Tax Treatment | Notable Twists |
|---|---|---|
| Digital Downloads (full-game installs, ebooks) | Taxed in most states if a physical version would be taxed. | New York taxes; California often exempts. |
| Subscription Access (SaaS, season passes) | SaaS taxable in TX & NY; exempt or partially exempt in CA. | Illinois shifted perpetual remote access into “taxable” bucket for 2025. |
| Streaming / Cloud Gaming | Tax status tracks SaaS in many states. | Washington taxes all digital products, streamed or not |
| Microtransactions & DLC | Usually follow base game’s rule, but states are tightening. | Minnesota bill would tax in-app purchases at full rate from 2025. |
| NFT-linked Assets | Treated as digital goods in several states. | Utah now taxes NFTs tied to in-game items. |
Register, Report, Repeat (Without the Pain)
Once you trigger nexus you must:
- Register for a permit in that state.
- Collect the right local rate at checkout.
- File & remit on the state’s schedule (monthly, quarterly, or annually).
Miss a filing and it stings. Florida slaps a 10 % late-payment penalty plus interest on overdue sales tax.
Real cases:
- A Canadian indie studio cleared $120 k in Florida SaaS sales, never registered, and got a $6 k assessment + penalties.
- A Czech dev selling Unity templates hit 400 NY transactions, unknowingly crossing nexus, and faced back-tax plus audit.
Skip the Grind: Use a Merchant of Record and stay tax compliant!
A Merchant of Record (MoR) becomes the legal seller to your customers. It:
- Calculates and collects the correct tax.
- Files and remits in every relevant state.
- Carries audit liability.
DIY vs MoR
| DIY | Merchant of Record |
|---|---|
| Strengths: Full control, no MoR fees | Strengths: One contract, automatic filings, audit shield |
| Challenges: 50+ registrations, rate updates, risk of penalties | Challenges: Service fee, MoR name on receipts |
If you’re selling in 10+ states or lack in-house tax staff, the MoR route saves time, money, and sanity.
Key Takeaways & Next Steps to stay tax compliant
- No federal VAT - each state is its own arena.
- Economic nexus triggers at ~$100 k sales or 200 transactions.
- Digital goods rules diverge: what’s tax-free in CA may be fully taxable in TX.
- Penalties rack up fast; late filings can cost 10 %+ interest.
- Merchant of Record slashes 90 % of compliance workload.
