Sales tax on SaaS, Amnesty, VDAs, Exemption Certificates, Audits & Taxability Questions Challenge SMBs & Middle Market Companies

I apologize for not writing more often. Life has been busy. Work has been busier. I went to a wedding, got a viral infection a week later. Then a week after that, got a superficial blood clot in my arm from the IV they put in my arm at the hospital. Uggh. We plan. We strategize. We take action. Then we get acted upon by external forces and we have to adapt, improvise and overcome. As they say, the best laid plans of mice and men.

In the tax profession, everything seems to be moving at supersonic speed. The acceleration of AI tools and the discussion about AI is around every corner, every click.

"Noise" is everywhere. Finding the "signal" is difficult. Finding the actual solution you need is not easy in a world where everyone says, "look at me."

In the state tax world, we have California and Colorado starting to impose sales tax on SaaS beginning January 1, 2027. Illinois has a tax amnesty program running from August 1 to October 31, 2026. Indiana has an amnesty program running from July 15 to September 9, 2026. Several states have passed legislation not conforming to OBBBA or conforming in part creating more income tax compliance complexity. Hawaii created a new 13% income tax bracket for people making more than $1 million. Washington's millionaire tax is going to the ballot in November to see if it will survive. Illinois created a new Targeted Advertising Services Tax and changed how they determine nexus of a combined unitary group from the "Joyce" method to the "Finnegan" method.

In addition to the above legislative changes, a major, common issue that clients are facing involves having sales tax exemption certificates on file. Many companies appear to assume transactions are exempt without actually obtaining certificates from their customers. Then when an audit arrives or when the company goes through due diligence for a transaction, there is a mad rush to obtain certificates. Then the question arises whether the certificates the company receives are valid and whether they will apply to historical transactions. These companies immediately instate a new prospective process, but the question remains as to how much historical liability is probable under audit.

Voluntary Disclosure Agreements (VDA) continue to be a main remedy for companies with historical liability. However, more and more companies are making judgement calls (cost/benefit analysis) of whether to do a VDA or simply start filing prospectively. Some state VDA programs are not so beneficial or are almost like not filing a VDA at all. Does the state want taxpayers to come forward or not? When a company wants to do a VDA but a state makes it difficult to do so, then what is a company to do? Just file prospectively?

Sales tax audits we are handling continue to have the same rhythm - hurry up and wait. Provide info. Wait. Reach resolution. Wait.

Whether a company's products and services are subject to sales tax across multiple states remains the hot item for companies and will continue to be so. Despite sales tax automation, tax engines, tools, etc., many SMBs and middle market companies are in industries that require a great deal of consulting to arrive at the correct answer and to eventually (if possible) set up a tax engine and compliance software to get it right.