Sales tax is a real pain in the butt for most startups, regardless of whether you’re running an ecommerce store or a SaaS business. But it’s really important to get right from the start. If you don’t, you run the risk of incurring fines and penalties—plus, you can lose the trust of customers and investors.
Sales tax compliance involves collecting, filing, and remitting the right amount of sales tax at the right time. For startups, this can mean navigating a maze of different rules, rates, and requirements across different states (and even local jurisdictions).
Aside from obviously staying on the right side of the law, there are two main reasons proper compliance is an absolute must from the start:
There’s a reason you’re a startup founder or working at a startup, probably because you have a skill or a talent you’re good at—and there’s a good chance that skill or talent doesn’t have anything to do with tax compliance.
Outsourcing tax compliance from the get-go can be a strategic move, especially because the startup world moves fast and time and expertise are at a premium. Relieving yourself from tax compliance means you and your team can focus on what you’re good at.
Also, it’s worth noting that sales tax penalties can create a ripple effect—potential investors or future partners may see these as red flags, especially if you’re facing audits or legal battles due to non-compliance.
There are other pros to outsourcing sales tax compliance to a tool too:
Staying compliant with sales tax isn’t a one-time task (unfortunately). Instead, there are a series of moving parts you need to stay on top of and regularly monitor.
Nexus is the legal term that determines whether your business has enough of a “presence” in a state to warrant sales tax collection.
Basically, if your startup has an office, warehouse, or even a remote employee in a state, you might have nexus there.
Sometimes you don’t even need a physical presence to trigger nexus. Many states have economic nexus thresholds based on sales volumes or how many transactions take place each month.
Let’s look at two examples of physical nexus:
Note: the rise of remote work means startups often hire talent across multiple states, which can inadvertently create nexus earlier than anticipated.
The reason sales tax is so confusing is because there’s no one-size-fits-all number.
In fact, it varies not just by state but by city and even district in some cases. Rates can also vary depending on the type of product or service you’re selling. For example, software may be taxed differently than physical products, or even be exempt from sales tax altogether in certain states.
Once you’ve pinpointed where you have nexus, you need to register for a sales tax permit in each of those states. This can be time-consuming as each state has its own registration process. When you’ve registered, you can start legally collecting sales tax and filing returns.
Filing a sales tax return is a must-do in every state and jurisdiction you have nexus. The filing frequency depends on the state—some ask for monthly filings, while others are okay with quarterly or annual filings.
To stay compliant, you have to file your sales tax returns on time. There’s a reason we recommend outsourcing. Remembering every single deadline can be a massive headache, whereas a dedicated sales tax tool will automatically file your return as and when it’s needed.
After filing comes the payment. Some states actually offer incentives (like small discounts) if you pay on time, but all states impose penalties and interest charges for late payments. These charges can rack up quickly, especially if you have nexus in multiple states.
Let’s be real here, sales tax compliance probably isn’t your top priority in the early days, but it’s a smart move to get it sorted early.
The best moment to outsource is from the start. The second best moment is as soon as you start crossing multiple sales thresholds or expanding into multiple states.
If you’re seeing rapid growth or your team is stretched thin, compliance can quickly become a time-suck that takes away energy from your core business activities. For instance, hitting a threshold of $100,000 in sales in states with economic nexus laws often triggers sales tax obligations that can snowball as you scale.
Likewise, if you start hiring remote workers across state lines or open new locations, you’ll need to start tracking and managing those additional compliance requirements.
A sales tax compliance tool completely takes over the collecting and remitting process so you don’t have to worry about missing a deadline or filing the wrong amount in your return.
But as a startup, you need to choose a tool that meets your needs and can grow with you. Here are some things to look out for.
Integrations are what make your compliance tool work in tandem with the platforms you’re already using in your business, like sales, inventory, accounting, and CRM tools.
For example, a SaaS startup likely needs a Stripe integration, whereas an ecommerce startup might need integrations with Shopify or WooCommerce for sales tax.
Choose a tool that integrates with your existing tech stack so you don’t have to manually sync up your platforms or miss out on legal sales tax requirements.
Sales tax is notoriously tricky, so having reliable customer support on hand can be invaluable—especially if a filing deadline is looming or you’re working through an audit.
Look for tools that not only offer customer support, but that also stand behind their service with compliance guarantees. For example, at Numeral, we guarantee your sales tax is filed on time, or we’ll pay for your penalties and interest charges.
Knowing your compliance partner has your back (even financially if something goes wrong) offers an extra level of reassurance.
Depending on the tool, you might need a single solution to handle tax calculations and filing, or a combination of tools to cover your specific needs.
Some sales tax tools offer end-to-end solutions with a built-in tax engine and compliance services, while others might specialize in just one aspect, like filing.
There are two common types of sales tax compliance tools:
But some tools do both, like Numeral.
Decide what makes the most sense based on your transaction volume, business model, and which parts of the tax process you need the most help with.
The idea of adding another expense can feel daunting—every penny counts when you’re trying to scale. But investing in sales tax compliance early on can actually save you money in the long run.
Consider the potential penalties and fines that can pile up with even one small compliance misstep. Sales tax violations can lead to hefty fees that hit when you least expect it—and they aren’t always minor charges. In fact, they can seriously disrupt cash flow and drain your growth budget.
Using a compliance tool might set you back a couple of hundred dollars per month, but it gives you peace of mind. It’s a strategic investment that prevents any nasty surprises.
There are hidden cost benefits too.
Most sales tax compliance tools come with automated features that free up your team’s time and resources. This actually translates to cost savings over time.
Here’s a quick rundown of some top tools in the sales tax compliance space.
Obviously, we’re biased here, but we’ve designed a tool that automates all parts of the sales tax compliance process—from nexus tracking to filing. You can also easily integrate with popular platforms like Stripe and Shopify, so it’s very flexible regardless of the category your startup falls under.
Numeral offers a bold compliance guarantee to cover any penalties or interest fees if a filing is missed or late.
Avalara offers a ton of integrations and handles both sales tax collection and filing. It’s particularly popular with businesses that need a highly complex and customizable solution with support across multiple tax types, including VAT and excise tax. However, Avalara is expensive and you have to request a quote to even see how much you'd pay.
TaxJar is particularly common among ecommerce businesses because of its strong integrations with Shopify, Amazon, and WooCommerce. It also offers automatic filing options so you can rest easy knowing you’re staying compliant.
Sales tax compliance might feel like a giant hurdle, but it’s one worth clearing early on.
With the right approach, it doesn’t have to be overwhelming—especially if you choose to outsource. By handing over compliance to a specialized tool, you can free up valuable time, reduce the risk of costly errors, and position yourself for sustainable growth without any pesky penalties and setbacks.
As you continue building your startup, remember that sales tax compliance is more than a regulatory box to tick. From tracking nexus to filing and paying on time, a solid compliance strategy (with a dedicated tool) will keep you on the right side of the law.
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