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Simple questions that are suddenly (more) important because we have just become cash flow positive and now have non-trivial revenues. 1) Do we need to charge s

by ajju 16y ago

Simple questions that are suddenly (more) important because we have just become cash flow positive and now have non-trivial revenues. 1) Do we need to charge sales tax on software as a service? Our customers are large organizations spread all over the country. Whatever research I did suggests that as a service, this should not entail sales tax. 2) Other than payroll taxes, income taxes and 1099s for contractors, are there any other taxes I should be aware of? 3) So far our accounting has been me noting expenses and revenues in a spreadsheet and making sure I have all the receipts. Do we need to start maintaining formal accounts per law? (Even if not, I have already retained a part time accountant to do this..) Thank you!

dangrossman 16y ago
Sales tax is collected by the state, so you need to ask an accountant familiar with the state(s) you have a nexus in. A lot of other taxes you may be subject to are specific to your state and even county and township. I pay 3 types of state taxes and 3 types of local taxes for my business. It'd be different in another state.
- camz 16y ago
  Yup, sales taxes are a state issue. Like i said, state taxes are complicated and i'll try to find the time to dig up that 50 state matrix which is a guide to all the states and how to treat software sales... that sounds very useful to this audience...
  - jpastika 16y ago
    I'm in FL and have been trying to figure out how sales tax applies for my startup as well (http://www.spokesystems.com http://www.spokesystems.com). We are building a web based, subscription paid, application similar in scope to Basecamp, but for construction project management. I would love to get an opinion on the sales tax implications for FL. Thank you in advance to the fantastic HN community.
    - camz 16y ago
      Honestly, I cant remember off the top of my head the SPECIFIC details related to florida but i can almost guaranty you that you're business is providing a taxable service. (1) Your business isnt provided a customized system so it isn't a professional service. (2) A web portal or a web 2.o application is more a service than software, but state tax laws have dealt with it similarly to software. (3) You could argue that your service is really a report generating service because your helping clients generate management reports on the status of their projects. Reporting services are almost always taxable sales. Hope this helps, i'll probably post that matrix whenever i find it haha.
      - jpastika 16y ago
        Darn. I was thinking along the same lines as your response, but hoping there was an easy answer. I'll definitely do more research into FL's tax laws, but I appreciate your willingness to lend your opinion. [Startup idea: state and federal laws translated into understandable language...a Wikipedia of laws. Probably not the best idea since I'm sure that would result in quite a few law suits do to someone following incorrect or incomplete information]
        camz 16y ago
        No problem, that idea actually has 4 major multibillion dollar companies competing right now. Lexis/Nexus, Westlaw, RIA Checkpoint and CCH basically TRY to do this but honestly there's no way to make these laws easy. I'm a professional that uses these legal research tools and I cant even rely on them. I have to basically do all the work because their conclusions are not reliable when ur client is audited. Tax, law and etc are just weird areas where you cant automate it on a level higher than turbotax. I think it'll always require a person on the other end to do it just cause its such a labor intensive field that is never the same result on a consistent basis.
camz 16y ago
Awesome question! Sales tax is a crazy world for software developers because there's a shitload of exceptions and rules. I'll tell you the general rule though. Software is taxable IF (1) it is a retail "off-the-shelf" program. A retail "off the shelf" program is anything that you created to be sold without further customization. So any standard program your selling copies of would be required to pay sales tax. But, if you customized the software then it could be exempt from sales tax. because then it would be considered exempt under the professional services exception. This is a very complicated area of sales tax because its new. I actually have a 50 state matrix somewhere that gives detailed instructions on every state that i prepared for a client. Its a fortune 500 company so i cant say its name but if youve ever done ANY financial or legal research, then you're using their name. I'll probably post it up later on as a separate HN post. 2. Well for payroll, its a complicated area because you have federal, state and city withhold taxes, plus FICA, Medicare, FUTA (Unemployment) and others so u want to make sure that this is done correctly. Trust taxes are payroll taxes and if u F-BOMB this up, then you are PERSONALLY liable. It is one of those taxes that if u screw up, the IRS is going to literally levy you bank account. Also, if your in NYC. We have a bunch of special taxes =D. For example, you get to pay taxes on your rent. the CRT or Commerical Rent Tax is a tax that people in manhattan have to pay if they pay more than 250k in rent LOLL. So, it really depends where you're located and how your business is being run. You should email me privately to discuss this further if you really care too. 3. Well, if u hired an accountant then they should know what they're doing. (Assuming they're qualified). But, YES u need to keep records of everything. I suggest you scan everything because it makes life easier. But, honestly it doesnt matter how you're keeping track as long as you ARE keeping track. Obviously, there are better ways to do it but thats for another discussion.
- ajju 16y ago
  Thank you for the detailed answer. We do customize it for each customer (almost a requirement of "enterprise" software), but we have hedged our bets by making it very easy to customize. We have our bank do our payroll and pay them for it, but I will have the new accountant take a special look at these. We are not in NYC! Love NYC but thank $deity, the rent is insane and it's SO COLD. Scanning the receipts makes a lot more sense, but it is (was) just easier to throw them in a shoe box :)

by ajju 16y ago

dangrossman 16y ago

Sales tax is collected by the state, so you need to ask an accountant familiar with the state(s) you have a nexus in. A lot of other taxes you may be subject to are specific to your state and even county and township. I pay 3 types of state taxes and 3 types of local taxes for my business. It'd be different in another state.

camz 16y ago
Yup, sales taxes are a state issue. Like i said, state taxes are complicated and i'll try to find the time to dig up that 50 state matrix which is a guide to all the states and how to treat software sales... that sounds very useful to this audience...
- jpastika 16y ago
  I'm in FL and have been trying to figure out how sales tax applies for my startup as well (http://www.spokesystems.com http://www.spokesystems.com). We are building a web based, subscription paid, application similar in scope to Basecamp, but for construction project management. I would love to get an opinion on the sales tax implications for FL. Thank you in advance to the fantastic HN community.
  - camz 16y ago
    Honestly, I cant remember off the top of my head the SPECIFIC details related to florida but i can almost guaranty you that you're business is providing a taxable service. (1) Your business isnt provided a customized system so it isn't a professional service. (2) A web portal or a web 2.o application is more a service than software, but state tax laws have dealt with it similarly to software. (3) You could argue that your service is really a report generating service because your helping clients generate management reports on the status of their projects. Reporting services are almost always taxable sales. Hope this helps, i'll probably post that matrix whenever i find it haha.
    - jpastika 16y ago
      Darn. I was thinking along the same lines as your response, but hoping there was an easy answer. I'll definitely do more research into FL's tax laws, but I appreciate your willingness to lend your opinion. [Startup idea: state and federal laws translated into understandable language...a Wikipedia of laws. Probably not the best idea since I'm sure that would result in quite a few law suits do to someone following incorrect or incomplete information]
      - camz 16y ago
        No problem, that idea actually has 4 major multibillion dollar companies competing right now. Lexis/Nexus, Westlaw, RIA Checkpoint and CCH basically TRY to do this but honestly there's no way to make these laws easy. I'm a professional that uses these legal research tools and I cant even rely on them. I have to basically do all the work because their conclusions are not reliable when ur client is audited. Tax, law and etc are just weird areas where you cant automate it on a level higher than turbotax. I think it'll always require a person on the other end to do it just cause its such a labor intensive field that is never the same result on a consistent basis.

camz 16y ago

Awesome question! Sales tax is a crazy world for software developers because there's a shitload of exceptions and rules. I'll tell you the general rule though. Software is taxable IF (1) it is a retail "off-the-shelf" program. A retail "off the shelf" program is anything that you created to be sold without further customization. So any standard program your selling copies of would be required to pay sales tax. But, if you customized the software then it could be exempt from sales tax. because then it would be considered exempt under the professional services exception. This is a very complicated area of sales tax because its new. I actually have a 50 state matrix somewhere that gives detailed instructions on every state that i prepared for a client. Its a fortune 500 company so i cant say its name but if youve ever done ANY financial or legal research, then you're using their name. I'll probably post it up later on as a separate HN post. 2. Well for payroll, its a complicated area because you have federal, state and city withhold taxes, plus FICA, Medicare, FUTA (Unemployment) and others so u want to make sure that this is done correctly. Trust taxes are payroll taxes and if u F-BOMB this up, then you are PERSONALLY liable. It is one of those taxes that if u screw up, the IRS is going to literally levy you bank account. Also, if your in NYC. We have a bunch of special taxes =D. For example, you get to pay taxes on your rent. the CRT or Commerical Rent Tax is a tax that people in manhattan have to pay if they pay more than 250k in rent LOLL. So, it really depends where you're located and how your business is being run. You should email me privately to discuss this further if you really care too. 3. Well, if u hired an accountant then they should know what they're doing. (Assuming they're qualified). But, YES u need to keep records of everything. I suggest you scan everything because it makes life easier. But, honestly it doesnt matter how you're keeping track as long as you ARE keeping track. Obviously, there are better ways to do it but thats for another discussion.

ajju 16y ago
Thank you for the detailed answer. We do customize it for each customer (almost a requirement of "enterprise" software), but we have hedged our bets by making it very easy to customize. We have our bank do our payroll and pay them for it, but I will have the new accountant take a special look at these. We are not in NYC! Love NYC but thank $deity, the rent is insane and it's SO COLD. Scanning the receipts makes a lot more sense, but it is (was) just easier to throw them in a shoe box :)