No. Oregon does not tax software as a service (SaaS). In fact, the state of Oregon does not impose a general sales or use tax on any goods or services sold within the state, with limited exceptions such as a vehicle use tax for vehicles registered in Oregon but purchased elsewhere.
Businesses located in Oregon or companies selling products and services there will not need to worry about having to register with the state for sales tax, or about collecting and remitting sales tax on Oregon sales.
However, companies located in Oregon that have customers in other states will still need to pay attention to sales tax regulations wherever they do business.
Sales tax in Oregon
Oregon does not have a sales tax, in part, because the state generates enough revenue from other tax sources to fund state operations. The state has one of the highest income taxes in the nation, with top earners paying as much as 9.9%. There are also targeted taxes on certain kinds of products, including cigarettes, alcohol, and hotel stays.
Lawmakers have tried to institute a sales tax, with no success. In fact, residents of the state have rejected sales tax ballot initiatives more than 10 times, and opposition has been above 70% for all of these measures.
Although tax laws frequently change, it doesn’t seem likely that Oregon will institute a general sales tax any time soon.
Compliance for Oregon-based SaaS businesses
Businesses based in Oregon don’t have to worry about sales tax in their state, but they may have sales tax obligations in other states where they have customers, thanks to a 2018 Supreme Court case.
Before 2018, a U.S. business could have sales tax obligations only in states where it had physical nexus, in other words, a physical presence, such as an office, a storefront, or inventory in a warehouse. But selling items to customers in another location (for instance, via the Internet or by mail order) didn’t create those obligations.
In 2018, however, the Supreme Court ruled in a case called South Dakota v. Wayfair, Inc. that any state could impose sales tax requirements on a business that had economic nexus there, in other words, a sufficient economic connection. Economic nexus thresholds vary from state to state, and are based on total annual sales ($100,000 is common), number of separate transactions (200 is common), or both.
That ruling massively changed online commerce. Today, Oregon companies selling goods or services in other states could become obligated to register for sales tax there and then collect and remit tax amounts. This includes SaaS companies in states where SaaS is taxable.
Collecting sales tax in other states
Laws regarding the taxability of SaaS are in flux. In recent years, as tax laws have caught up to technological advances, more states have passed laws that made SaaS and other digital goods and services taxable.
If you’re a SaaS company with customers in multiple states, you will need to:
- Determine whether SaaS is taxable in every state where you have customers. You can check this state-by-state guide to where SaaS is taxable to find that out.
- Understand the rules for establishing nexus: If you're selling in a state where SaaS is subject to tax, you'll need to know its economic nexus threshold
- Track your sales to determine if you establish nexus: You need to keep track of taxable sales in each state so you can know when you’ve established economic nexus and become subject to tax obligations. Also, keep in mind that you may establish physical nexus in a state if you have employees, inventory, or another type of physical presence there.
- Register for sales tax once you’ve established nexus: If you have established nexus with any state, you must register with the state so you can remain in compliance with its tax rules and avoid the potential for audits and penalties.
- Collect and remit sales tax. Once registered, you'll need to charge the correct amount of tax to customers, file tax forms with the states where you have nexus, and remit payments on schedule. The frequency of filings and payments vary and depend on rules set by each state.
All of this can become complicated, especially since you may establish nexus in multiple states.
[blog-post-inline-cta]
Final thoughts
The good news is, you don't have to handle all of this on your own.
Numeral helps many SaaS companies to fulfill their tax obligations. It’s a sales tax compliance platform that takes care of everything for you, from determining where you've established nexus to taxing products at the correct rate and filing and remitting forms. Numeral stays up-to-date on changes to tax laws across the U.S., and can even handle sales-tax-related mail for you.
SaaS taxation is complicated. Don't let noncompliance with tax laws put your business at risk of fines, penalties, and other serious consequences.
