How Nexus Tax Software Helps You Stay Sales Tax Compliant

Nexus tax software tracks where your business owes sales tax in real time. It monitors your sales volume and employee locations across states. When you cross a threshold, it alerts you before penalties pile up.

Most growing companies cross sales tax thresholds without realizing it. A few big orders in California. A remote hire in Texas. Suddenly, you have obligations in states you've never thought about. 

This guide explains how nexus works, why old nexus tracking methods fail, and how modern nexus tax software keeps you compliant.

Where Sales Tax Risk Starts for SaaS Companies

Sales tax risk begins the moment your business crosses a state’s threshold. That may be due to sales volume or physical presence, such as a location or employee.

Sales Volume Creates Economic Nexus Faster Than Expected

Economic nexus means you’re required to charge sales tax in a state based on how much you sell there. Even if you don’t have an office or employees, you can trigger this obligation through sales alone.

Most states set their threshold at $100,000 in sales or 200 transactions per year. Some states, like California, only look at dollar amounts. Others, like Connecticut, count transactions too.

Those dollar amounts are what catch companies off guard. A business doing $5mm in annual revenue might hit the $100,000 mark in 10 or more states without even trying. Subscription models add complexity, because those sales add up fast.

High-volume states like California, Texas, New York, and Florida are where most companies trigger nexus first. But smaller states matter too. Once you're in one, you're likely close in others.

Hiring Remotely Creates Physical Nexus Automatically

Having a physical presence in a state also creates sales tax nexus. For digital businesses, this generally means having employees, contractors, or locations such as offices, stores or warehouses.

For SaaS companies, nexus can easily be created by hiring remote employees or contractors. Even if that person works from home, if they live in a state where you don’t already collect sales tax, that person triggers nexus for your company. 

How Sales Tax Nexus Is Actually Triggered

Nexus triggers your obligation to register, collect, file tax sales tax returns, and remit the tax. It’s vital to understand how nexus is triggered and what to do next.

Economic Nexus After Wayfair

Before 2018, states could only require businesses with a physical presence to collect sales tax. But then came the South Dakota v. Wayfair Supreme Court decision that changed everything.

The court ruled in favor of states, permitting them to require businesses that sell into the states to collect the tax. Now, instead of just physical presence, sales tax is also triggered by economic activity. 

Once your business triggers economic nexus, you’re required to register for a sales tax permit with that state’s taxing authority. From there, you must collect sales tax from buyers in that state and file and remit sales tax periodically. 

Physical Nexus Still Applies to Digital Businesses

Economic nexus gets most of the attention these days, but your business needs to understand physical presence nexus, too. 

The following factors can create sales tax nexus:

• Offices or home offices in a state
• Employees working remotely in a state
• Inventory stored in warehouses or fulfillment centers
• Contractors performing services for your business based in a state
• Attending tradeshows or other events in a state

Digital businesses might erroneously assume that because they don’t sell physical goods like an e-commerce store, they don’t need to worry about sales tax. It’s important to understand that digital businesses are on the hook for sales tax, too.

Nexus Exists Even if Your Product is Not Taxable

One thing that can trip companies up is thinking that if they have nexus in a state, then they’re required to collect sales tax on every transaction in that state.

In some cases, your product isn’t taxable. SaaS is only taxable, for now, in about half of the US states. In other states, it’s partially taxable or only taxable for certain uses. Digital products are also only taxable in some states.

But even if your product isn't taxable, you may still need to register and file returns. Many states require zero-dollar returns. Skipping registration entirely puts you at risk of penalties, even if you don’t owe any actual sales tax.

Some businesses decide to accept this risk. They figure the state won't notice, or the penalties won't be that bad. That's a gamble. States are getting better at identifying non-compliant sellers. Audit risk increases every year you operate without registering.

How Companies Have Traditionally Tracked Nexus

Before software, businesses typically tracked nexus via a spreadsheet or hiring expensive sales tax experts.

Advisor-Led Nexus Studies

A nexus study is a deep analysis of your sales data. Your advisor, usually state and local tax expert (SaLT), will pull your transaction history and product data and determine if you’re collecting sales tax correctly.

Nexus studies are helpful, but can be pricey, coming in at $6,000-$7,000 per study. And if you need to update your product catalog or nexus states, you’ll pay again.

Nexus studies also often rely on sampling rather than looking at every single transaction. Sampling, say, 25% of your transactions, might result in huge oversights when it comes to nexus. 

Finally, advisors can miss changes to tax law. Nexus rules shift constantly. Thresholds change. States add new requirements. Unless your advisor is monitoring every jurisdiction, errors slip through.

Manual Tracking Inside Finance Teams

Some companies skip advisors and try to track nexus themselves. This typically means pulling transaction data, categorizing it by state, and attempting to determine if your business has hit each state’s nexus threshold. 

This manual process is time-consuming and risky, especially as your business grows. A company doing 500 transactions a month may be able to keep up, but once you get to 5,000 mistakes will inevitably creep in.

What Nexus Tax Software Does Differently

Offers Real-Time Nexus Monitoring

Gold standard nexus tax software connects directly to your billing and HR systems and monitors your sales tax exposure in real time. Continuously. 

This matters because nexus isn’t a one time event. Your next sales in Colorado may cross the threshold to trigger nexus. Or a new contractor may create physical nexus.

Top-tier nexus software also monitors rule changes. When a state adjusts its threshold or how SaaS is taxed, nexus software takes that into account automatically. 

Helps from Trigger Date to Liability Visibility

Knowing you have nexus is only the start. You also need to know when nexus began. Nexus tax software identifies the exact date you crossed each state's threshold. This trigger date determines how far back your liability goes.

From there, the software estimates your accumulated liability. While it won’t be able to tell you penalties and interest from uncollected sales tax, it will give you a sense of scale before you register. 

This information can inform how you approach compliance. If you owe a great deal, you may want to make a voluntary disclosure agreement (VDA) with the state or backdate registration in order to avoid fines, penalties, interest and other tax trouble.

5 Nexus Tax Software Tools Finance Teams Use Today

1. Sphere

Sphere is built for digital businesses with multi-state and international tax exposure. Its nexus monitoring software tracks both economic and physical sales tax nexus through direct integrations with billing systems and HR platforms. 

Sphere identifies trigger dates and estimates your tax liability since that date. It also monitors rule changes,threshold updates, and lookback periods across jurisdictions. 

Best of all, nexus monitoring is included in Sphere at no cost. You only pay when you register in a state and begin collecting and filing. 

2. Avalara

Avalara is an enterprise-focused tax compliance solution with broad coverage. It handles sales tax calculation, filing, and exemption certificate management. 

The platform is strong on automation but requires heavier implementation. Pricing scales with usage, and customers complain about add-ons and hidden fees, meaning that compliance costs with this legacy solution can balloon fast.

3. TaxJar

TaxJar is popular with small and medium e-commerce businesses. It handles sales tax calculations and filings across US states, and integrates with common shopping carts and marketplaces. 

The platform tracks economic nexus through sales channels, but doesn’t handle tracking physical nexus such as through employees or contractors. 

4. Vertex

Vertex was designed for large and multi-national enterprises with complex tax requirements. It offers deep customization and ERP integrations for high-volume transaction processing. 

Vertex was built for massive corporations and has the pricing and complexity to match. It’s best for companies with dedicated tax teams who require granular control.

5. Stripe Tax

Stripe Tax is embedded inside Stripe's payment infrastructure. It provides basic sales tax monitoring for businesses already using Stripe for billing.

However, it doesn’t track other sales channels or physical nexus. Many companies use Stripe’s sales tax nexus monitoring as an early warning signal rather than a complete solution. 

How Sphere Handles Nexus Monitoring

Sphere approaches nexus differently than legacy tools. It's designed for modern tech stacks and global businesses.

Embedded Economic and Physical Nexus Tracking

Sphere monitors both nexus types automatically. You connect your billing system, and the platform starts tracking economic nexus immediately. Connect your HR system, and Sphere automatically tracks HR-based physical presence nexus, too.

As your sales grow and new employees are hired, Sphere continues to update you in real time. And coverage extends both across the US and globally, so you’ll always know where you have tax exposure.

Always Updated for Rule and Threshold Changes

Sales tax rules change constantly. States adjust thresholds or what products are taxable. Sales tax rates change.

Sphere monitors all of this automatically. When a rule changes, your dashboard updates to reflect it. There’s no need to track every state sales tax bulletin and make manual updates. 

​​This is especially important for companies with sales tax obligations in many states. Keeping up with changes manually across 30 or 40 jurisdictions isn't realistic for most finance teams.

Free Nexus Monitoring, Pay Only When You Register

Sphere doesn’t charge for nexus monitoring. You can sign up, connect your billing and HR systems, and get a real-time view of your tax exposure, all without paying anything.

Fees only apply when you decide to register in a state and use Sphere for sales tax collection, filing, and remittance. And pricing is simple and transparent: $100 per month per jurisdiction, with no overages or hidden fees.

This model lets companies get visibility into their nexus situation before committing to a compliance tool. You can see exactly where you stand, then decide how to move forward.

Ready to simplify SaaS sales tax compliance?

Schedule a demo with Sphere today.

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Nexus Tracking Should Not Be a Guessing Game

For growing companies, the need for sales tax compliance sneaks up. A big new customer may push you across a nexus threshold. Or a state rule might change, which means you now have to collect when before you did not. 

Nexus tax software gives your finance team a safety layer. It tracks exposure continuously, flags new obligations as soon as they appear, and estimates tax liability so you can make informed decisions. 

Relying on partial data leads to false confidence. A spreadsheet that's three months old might show you're safe in a state where you actually triggered nexus weeks ago. That's how surprise audits happen.

The right approach is real-time monitoring with automatic rule updates. That's what modern nexus tax software delivers.