Taxation of SAAS: What I Learned!

I was presenting at the OpenView (Boston Venture Capital firm) CFO Forum in Boston to their expansion stage portfolio companies, and I actually learned a lot from some Grant Thornton tax presenters about collecting sales tax on software-as-a-service transactions. They also have a brief article on the web about it. I thought it was worth sharing, as this article is short, to the point and on point; should be useful to any company seeking a venture capital investment.

My takeaways (aka my 2 cents) are:

1) Current State: Most states have not specifically addressed taxing software-as-a-service, and so you have to shoehorn it into their existing rules (i.e. it is messy and a grey area). 

2) Form of Agreement Matters: The form of agreement you use matters (is it a license agreement, subscription agreement or professional services agreement), but of course so does the substance of the services you are providing. 

3) New Federal Proposed Legislation: There is no answer yet, but there is a bill going through Congress which could help define these rules and provide specific guidance. Here is the latest on the bill (at least on one website). 

Take a read of this short Grant Thornton article, as I think they nailed the current state of confusion, and it is a must read for any SAAS company seeking growth capital (or at least by your finance leader).