Sales Tax | Taxability and Sourcing
Two decisions behind every line.
Is this item taxable in that state, and which state does the sale belong to. States disagree on the first, most sharply on software and services, and the second turns on where the customer receives what they bought. Both are decided when the invoice is raised, and the rule that was applied is recorded against the line.
What the system does
Capability, input, output.
| Capability | Input | Output |
|---|---|---|
| Taxability on the item | Item category and the destination state | A taxable or exempt position, carried onto the line with its reason |
| Sourcing | Ship-to, or where a service is received | The jurisdiction the sale is assigned to, including local levels |
| Bundled lines | Software sold with implementation or support | Components separated where the treatments differ, rather than taxed as one |
| Decision record | The rule applied at invoice time | Held on the line, so a later change shows which sales used the old position |
| Rate lookup | The sourced jurisdiction | Passed to your tax engine, with the result posted back against the invoice |
| Shipping and handling | Freight charged on a taxable sale | Treated per that state's rule rather than assumed non-taxable everywhere |
-
Taxability on the item
- Input
- Item category and the destination state
- Output
- A taxable or exempt position, carried onto the line with its reason
-
Sourcing
- Input
- Ship-to, or where a service is received
- Output
- The jurisdiction the sale is assigned to, including local levels
-
Bundled lines
- Input
- Software sold with implementation or support
- Output
- Components separated where the treatments differ, rather than taxed as one
-
Decision record
- Input
- The rule applied at invoice time
- Output
- Held on the line, so a later change shows which sales used the old position
-
Rate lookup
- Input
- The sourced jurisdiction
- Output
- Passed to your tax engine, with the result posted back against the invoice
-
Shipping and handling
- Input
- Freight charged on a taxable sale
- Output
- Treated per that state's rule rather than assumed non-taxable everywhere
Taxability FAQ
What buyers ask.
We sell SaaS. Which states tax it?
Enough of them that assuming otherwise is expensive, and not the same set as last year. We do not publish a state-by-state answer in our copy, because that is precisely the content that goes quietly stale and that a buyer checks in one search. Rate and taxability determination comes from your tax engine or your advisor; what we hold is which position was applied to which sale, and when.
Why does the decision need recording on the line?
Because these positions change, and when one does the first question is which invoices were raised under the old one. If the position lived only in a rules table, that question needs a reconstruction. On the line, it is a filter.
How is a bundle handled?
Components are separated where their treatments differ, which is common when software is sold alongside implementation, training or support. States that tax the software and not the service will assess the whole bundle if the invoice does not distinguish them, so the invoice does.
Our customer has offices in several states. Which one is it sourced to?
Generally where they receive what they bought, not where they are headquartered or where the invoice is sent. For services and for software this is a genuine judgement rather than a lookup, so the sourcing basis is configurable per customer and recorded on the sale.
Do you charge for a rate lookup?
The rate call goes to your tax engine, which is where it belongs and which most teams at this size already have. We are not building a second rate database, and we would not ask you to pay for one twice.
More in Sales Tax Compliance
Related features
See the taxability position on your last 100 invoices.
Connect your books, free. Each line carries the position applied and the state it was sourced to, so you can filter rather than reconstruct.