Jan 31 2020 14 mins 1
Ben and Starr have an informal fireside chat about recent tax changes and how to navigate them when running a SaaS company with nationwide sales. Learn about some of the surprising rules some states have around business classifications and why you might have to pay sales tax in one state but not another. Uncle Sam is crashing the internet party, listen and make sure you're prepared!
Links:
Justin Jackson
Full Transcript:
Starr: Josh is not with us this week and I'm, I'm not actually sure, do we know what Josh is doing or is he just out?
Ben: He's just out gallivanting, I suppose.
Starr: That's all right. We, we respect people's privacy here at Honeybadger Industries LLC and yeah. So Ben and I are just going to do a little fireside chat episode. That's when there's only two of us around. We're only... we just sort of chat about whatever is going on and on our mind. And this week that is sales tax.
Ben: Super fun topic.
Starr: Yes. So is it okay if I set the stage a little bit?
Ben: Please.
Starr: Okay. So being an internet company and specifically being a software as a service company, Honeybadger Industries doesn't usually have to worry that much about sales tax. We are located in Washington state, which is actually one of the only places that sort of historically has had a sales tax on software as a service or services in general, I guess. And so it's really not been that big of a deal, but some things have changed, sort of... it, I don't know, I just feel like the party is, is coming to an end on the internet. We had all these great times and then now the government's coming in, the party's over and everything's owned by Google and now we're just having to sort of keep up a little bit. So. So what's been going on with the sales tax, Ben?
Ben: So you mentioned that we're in Washington and that they do charge sales tax. So we do pay a sales tax and our accountant handles that for us, figuring out what that number is. We don't actually charge sales tax to our customers though. We just decided early on that we would just eat that cost. And so we, we charge the same amount to all our customers everywhere.
Ben: But recently, the changes you've alluded to include a Supreme Court decision. So this is in 2018. Wayfair and South Dakota, and the state of South Dakota sued Wayfair because Wayfair wasn't paying sales taxes in South Dakota. And the Supreme Court overturned previous rulings, which said that basically if you were, if you didn't have nexus in a state, you didn't have to pay a sales tax in that state. So nexus being some sort of location, like a headquarters or an employee in that state. So, Wayfair is arguing, "Well, we don't have nexus in South Dakota, we don't have our offices there so we don't have to pay sales tax there." But, the Supreme Court decided that South Dakota had a point and that Wayfair should actually pay sales tax in South Dakota. And so that kind of changed everything for everyone who sells across state lines in the United States. That was kind of a big deal.
Starr: Yeah, I felt, I remember feeling sort of, it kind of felt like a sinking feeling in the pit of my stomach. I felt some, some tingles happening. Yeah. Just because it's just so... You know, we're a tiny company, we're five people and we... possibly soon to be six. But you didn't hear that here... possibly. And yeah, and we're developers and we don't really have people on staff whose job it is to worry about sales tax and stuff like that. So, so yeah. So for me, hearing that, okay, suddenly internet people are going to have to pay sales tax sort of injected this bit of uncertainty into my life where it's like, "I don't really know what we're supposed to do." And so I actually... I emailed our accountant, which is what you do when you get anxious about sales stuff or tech stuff.
Starr: I do this all the time, mostly with my personal accountant, but sometimes with the Honeybadger accountant and... so I was like, "Okay. What, what this? Please? I'm anxious. Please soothe me." This is the new law, right? Everyone's got pay sales tax, so it's law. So it has to be really... there's just an obvious way to do it. And she was like, "Oh... actually right now nobody really knows how to do that. All the regulations are kind of up in the air. Every state is doing it differently..." And all that. And this was a year, maybe ago, I don't know... six months to a year ago. And so I was just wondering, do you know if that's still the case?
Ben: Yeah. So yeah, like I said, this happened in the summer of 2018 and we basically ignored it for a while, like most small companies did, I'm sure.
Ben: And yeah, we started looking into it and there is some, some vagaries, some, some confusion. And when the new year rolled around... 2020 started, we started look at this again because our accountants like, "Oh, you should probably pay attention to this."
Ben: And so I did a little bit of digging. And to answer your question... yeah, there's still a lot of ambiguity about going... what's going on. But it has settled down a little bit and there are some, there's some rough guidelines you can use now to know whether you should really worry about this and have to give props to Avalara. They are a company that sells a software that helps to manage sales tax reporting and remittance. And they, I chatted with them to find out, "Hey, what do we need to do and do we need to be concerned about this?" And their people were very helpful in getting started. You know, they have all those software as a service companies out there that don't have pricing on their site and you're like, "Oh, that's so terrible." Right? You know, because it just... "Give me the price, man." And Avalara is one of those where they don't have pricing on those sites. Like, "Contact us." It's like, Ugh. All right, fine. You know?
Starr: Oh yeah, of course. Because what's your other option? Like, hire your own staff of lawyers or-
Ben: I don't know, yeah.
Starr: I didn't actually know it was a product. I assumed it was just a consulting company since you sort of got this information from them. So I assumed that they were consulting for it.
Ben: Well, I don't know. Maybe they do some consulting as well, but they definitely have some software in the mix. So maybe it's a hybrid. But, they were helpful. They were actually helpful and talking to them even though they d...
