Did anyone else binge Selling the City on Netflix this weekend? Besides Steve Gold's estate in Greenwich, the only thing I could think about the entire time was New York's sales tax on SaaS. New York considers SaaS to be tangible personal property, and it is subject to sales tax at a current rate of 4% at the state level. Including local taxes, SaaS is taxed at an average combined rate of 8.53%. This tax applies if your business has nexus in New York (a physical presence in the state or meeting certain sales thresholds there). A lot of startup founders I know are completely ignoring sales tax in New York, despite having physical nexus (an office, remote employees) and many having economic nexus (+$500k in sales).
A company I used to work for ignored these taxes when they first came out. The IRS and NYS came after us and many more that year. I wouldn’t ignore this. Also it applies to any state with SaaS sales tax not just NYC. Also it applies mostly to database style products that are considered “publishing.” I believe it does not apply to platforms considered apps but I could be wrong.
While the discussion on SaaS taxation in real estate is interesting, the focus should be on the more impactful issue of the SALT (State and Local Tax) cap and its significant impact on homeownership. The $10K cap on SALT deductions disproportionately affects homebuyers, particularly in high-tax states, where property and income taxes far exceed this limit. This cap constrains market activity by making homeownership less financially viable, even when mortgage interest deductions are available. Removing the SALT cap would provide greater relief and purchasing power for middle and upper-middle-class homebuyers, encouraging a healthier real estate market overall. Shifting focus toward advocating for SALT cap removal would have a more substantial positive effect on affordability and market stability than focusing on SaaS taxation issues.
SaaS but not IaaS (one of only a few states which differentiates), but good luck with the grey areas.
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6moDo you have some insights on other states treatment?