The "Invisible Debt" on Your Balance Sheet.
I audited a Series A startup last week. They were celebrating hitting $2M ARR. Then I looked at their billing. They had 200 customers in New York. 50 in Maryland. 100 in Texas. They had collected $0 in Sales Tax.
I had to tell the Founder the bad news: "You don't have $2M ARR. You have $1.8M ARR and a $200,000 tax liability that is accruing 10% interest."
In 2026, the days of "Internet Money is Tax-Free" are over. States are broke. They aren't raising income tax; they are expanding "Economic Nexus" to target out-of-state software companies. If you sell SaaS, eBooks, or even "Digital Consulting," you are walking through a minefield.
Here is why 2026 is the year of the "Remote Audit."
1. The "Maryland" Trap (The New Aggressor)
You used to only worry about New York and California. Meet Maryland. As of late 2025, Maryland expanded its sales tax to cover SaaS, Data Processing, and IT Support.
- The Trap: They removed the exemption for "Custom Software."
- The Threshold: If you sold $100,000 or had 200 transactions in the state, you owed them 6%.
- The Reality: If you have 200 users on a $10/month plan, you hit the "Transaction Count" nexus. You owe tax on all of it.
If you ignored this in 2025, their new "Automated Assessment" system (launched July 2025) will likely freeze your bank account this quarter.
2. The "Wayfair" Hangover (Economic Nexus)
You think: "But I don't have an office there!" It doesn't matter. The South Dakota v. Wayfair ruling established "Economic Nexus."
- Physical Presence: Irrelevant.
- Revenue Presence: If you extract value from the state, you owe the state.
The Calculation: You sold $150,000 of software to customers in Texas (8.25% tax). You didn't collect it. You now owe that $12,375 out of your own pocket. You cannot go back to the customer a year later and ask for it. (Well, you can, but they will churn). This eats directly into your Net Profit. For a bootstrapped founder, this is a death blow.
3. The "VC Due Diligence" Blocker
This is where it hurts the most. You want to sell your company or raise a Series B. The investors run a "Nexus Study." They find you have a $500k uncollected tax liability across 40 states. They deduct that $500k from your valuation. Or worse, they put the money in an "Indemnification Escrow" for 3 years. You sold your company, but you can't touch the money because you didn't install a tax plugin.
The Checklist: How to Fix It (Before the Audit)
Do not try to file this manually. You will fail.
- Run a "Exposure Report":
- Use a tool like Anrok (built for SaaS) or TaxJar.
- Import your Stripe data.
- It will show you a heat map: "You owe $12k in NY, $5k in WA."
- The "VDA" Strategy (Voluntary Disclosure):
- Do not just register.
- If you register after you owe money, they audit you.
- Use a Voluntary Disclosure Agreement (VDA). You tell the state: "I messed up. I will pay the back taxes if you waive the penalties."
- Most states agree. It saves you ~30% in fines.
- Switch to a Merchant of Record (The Nuclear Option):
- If this sounds like a nightmare, just use Paddle or Lemon Squeezy.
- As we discussed in the Stripe Jail article, they act as the reseller.
- They collect the tax. They file the remit. You sleep at night.
Frequently Asked Questions (That CPAs Charge For)
Do I really need to register in all 50 states?
No. Only where you hit the "Nexus Threshold." Usually $100k sales or 200 transactions. If you have 1 customer in Idaho, ignore it. Focus on the "Big 4" for SaaS: NY, TX, PA, MA.
Does "Consulting" count?
It's getting dangerous. Traditionally, services are exempt. But states like Washington now tax "IT Support" and "Web Development." If you package your consulting as a "Productized Service" (monthly subscription), you might be accidentally classifying yourself as taxable SaaS. (This is another reason to avoid the 1099 Classification Trap).
Can I just block customers from those states?
Technically, yes. But blocking New York and California means blocking 40% of the US economy. It's a bad growth strategy. Just use software to handle the tax.
Leon Staffing connects founders with "Sales Tax Architects" who specialize in VDA negotiations. Don't let a state auditor seize your payroll account. Get a tax review.