Sales Tax for Startups: A Practical Checklist from an 18-Year Sales Tax Expert

When you’re building a startup, sales tax is rarely top of mind… until it becomes a problem. I’ve spent the last 18 years helping founders and fast-growing businesses untangle sales tax issues, and if there’s one thing I’ve learned, it’s this:

Sales tax isn’t hard because it’s complicated. It’s hard because it’s easy to ignore.

So let’s fix that. If you’re a startup founder wondering what you actually need to pay attention to when it comes to sales tax, this is where to start.

Step 1: Start with Nexus (Always)

Before you ever worry about charging sales tax, you need to answer one simple question:

Am I responsible for collecting sales tax in this state?

That responsibility is determined by nexus; and yes, this applies whether you’re selling in your home state, another U.S. state, or even into Canada.

The two most common ways startups establish nexus:

• Physical nexus
  This can be triggered by:
  
  • Having an office, warehouse, or inventory in a state
    
  • Employees or contractors working there
    
  • Attending trade shows or installing products
    
• Economic nexus
  This is based on sales activity, typically revenue thresholds, transaction counts, or both. These thresholds vary by state and change often.

For example, some states (Illinois is a recent one) have eliminated transaction thresholds entirely. That’s why startups should always reference up-to-date economic nexus charts and not rely on old blog posts or assumptions.

👉 Key startup advice:
Just because you made your first sale doesn’t mean you need to collect sales tax. In many states, you don’t have a responsibility until you cross a specific sales threshold.

Go make revenue first. Then assess nexus.

Step 2: Understand Taxability (What You Sell and Who You Sell To)

Once you’ve established nexus, the next question is:

Is what I’m selling taxable, and is my customer taxable?

This is an element that can catch a lot of startups.

Taxability depends on:

• Your product or service (SaaS, digital goods, services, physical products)
  
• How it’s sold (direct, bundled, subscription, marketplace facilitator)
  
• Who you’re selling to
  

Your customer might be a government agency,a school or nonprofit, or a reseller providing a resale certificate

All of those scenarios can change whether or not tax should be charged. If taxability is determined incorrectly, it could lead to you either collecting too much or too little. Both of which can cause problems down the road.

Step 3: Don’t Ignore the Purchase Side (Especially for Startups)

Sales tax isn’t just about what you sell. It’s also about what you buy.

This is especially important for:

• Contractors
  
• SaaS companies
  
• Product-based startups bundling third-party tools
  

I recently worked with a SaaS company that had to purchase other “canned” software to deliver their service. In many cases, those purchases can qualify for resale exemptions, but only if they’re structured correctly.

Too often, startups either pay sales tax on purchases they didn’t need to, or miss exemptions they didn’t know existed. That’s real money left on the table!

Step 4: Make Sales Tax a Business Decision (Materiality Matters)

Once you understand nexus and taxability, the real question becomes:

Is this material to my business right now?

Here’s a simple way to think about it.

Let’s say:

• You sold $200,000 into a state
  
• The average sales tax rate is ~6.5%
  

That’s about $13,000 in potential tax liability.

For some startups, that’s immaterial. For others, that’s meaningful.

Now imagine you wait… and suddenly you’ve sold $2 million.

That same math becomes $130,000, and now it’s coming out of your pocket if you weren’t collecting tax.

This is where risk tolerance comes in.

Some founders choose to either delay registration if exposure is low and then address compliance once revenue accelerates.

That’s not “wrong” per say, it’s a business decision. But it should be an informed one.

Step 5: Maintenance: How Often Should Startups Check In?

Sales tax isn’t “set it and forget it,” but it doesn’t need to be overwhelming either.

A practical cadence:

• Slow, steady growth: Check in once or twice a year
  
• Fast, hockey-stick growth: Review monthly or quarterly
  

Ask simple questions:

• Did our sales spike in new states?
  
• Did our product offering change?
  
• Did a marketplace facilitator take over collection?
  
• Are we approaching nexus thresholds faster than expected?
  

If growth accelerates, sales tax becomes material faster than most founders expect.

A Note for Utah Startups

Utah is a major startup hub, and it comes with its own nuances:

• SaaS taxability
  
• Local rate complexity
  
• Rapid growth triggering multi-state nexus quickly
  

If you’re headquartered in Utah, odds are your footprint will expand faster than you think, especially if you’re selling online.

That’s why starting with nexus and revisiting it often is so critical.

Final Thought: Education First, Compliance Second

At The Sales Tax People, we don’t believe in fear-based compliance.

We believe in:

• Education
  
• Collaboration
  
• Helping founders make confident decisions
  

My job isn’t to force you into compliance on day one. It’s to help you understand what you’re responsible for, what your exposure looks like, and when it actually matters. Because once you understand the landscape, you can make smart decisions for your business.

And that’s how collaboration builds confidence!

Ready to Understand What’s Next?

If you’re a startup founder and wondering where you stand with sales tax, let’s talk.
A simple conversation can give you clarity and peace of mind.

Simplify your sales taxes.
Start with nexus.
Partner with The Sales Tax People.