Sales tax in the United States is a consumption tax charged at the point of purchase for certain goods and services. Sales tax requirements vary widely by industry, state, and even local regulations—not all states require sales tax, and rates differ across jurisdictions. Many cities and counties add their own tax on top of state rates.
While Collective can't process sales tax for members, our role is making sure you capture it as a business deduction. You're responsible for determining your sales tax obligations, paying for any sales tax tools you use, and remitting the actual tax through your business bank account to ensure it's captured as a deduction for your business.
Your Sales Tax Responsibilities
Here's what you need to manage:
Determine your tax obligations. Figure out if the sales you make are subject to sales tax in the jurisdictions where you're doing business. This depends on your industry, location, and the type of goods or services you provide.
Collect the appropriate amount. If your sales are taxable, collect the correct amount of sales tax from your customers. You're responsible for remitting sales tax whether or not this expense was explicitly passed on to the consumer at the point of sale.
File returns and remit tax. File the necessary sales tax returns with the appropriate states and pass the collected tax on to the relevant tax authorities.
Software and SaaS in California and Colorado
Starting January 1, 2027, California and Colorado will begin charging sales tax on software and SaaS (software as a service) that is downloaded or accessed online. Until now, both states have generally treated this type of software as exempt.
- California: Prewritten software will be taxable however it's delivered, including downloads, cloud subscriptions, and SaaS.
- Colorado: Downloaded and remotely accessed software, including subscriptions, cloud platforms, and mobile apps, will be taxable at the state rate, plus local taxes.
If you sell software, apps, or SaaS to customers in either state, you may need to register, collect, and remit sales tax on those sales starting in 2027. Software that's fully custom built for a single customer generally stays exempt.
If you buy software for your business in either state, you'll likely start seeing sales tax on subscriptions like design tools, scheduling apps, or cloud storage. Pay these through your business bank account so the full cost, including tax, is captured as a business expense.
Tools and Resources
Companies like TaxJar and Avalara can help you determine your sales tax obligations, calculate sales tax, and file returns. Since sales tax rules vary by industry and location, these tools can be valuable for ensuring compliance.
All expenses related to sales tax tools and the tax itself should be paid through your business bank account so they're properly captured as business deductions.
What Collective Will Do
Collective cannot verify the accuracy of your books with respect to sales tax—you should rely on your own records when calculating what you owe.
If you'd like your books to reflect your sales tax liability balance on a quarterly basis, send the quarterly ending balance to Collective by messaging us through the Dashboard message center. We'll update your books to reflect your sales tax liability.
If some of your sales are subject to sales tax and you choose not to provide this balance to Collective, keep in mind that some portion of the customer deposits reported on your profit and loss statement may be inclusive of sales tax.
Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as legal, financial, or tax advice. It is not intended to be a substitute for obtaining legal, accounting, or other financial advice from an appropriate and/or licensed adviser, or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.