If your SaaS company sells to Texas customers , even without a physical presence in the state , you may be required to register, collect, and remit sales tax. Why? Because Texas enforces a $500,000 economic nexus threshold on remote sellers, including digital and cloud-based platforms.
What is Economic Nexus?
Economic nexus means a business must collect sales tax based on revenue sourced to a state, even if it has no physical presence there.
Texas adopted economic nexus rules effective October 1, 2019, under Texas Tax Code §151.107, following the Wayfair Supreme Court ruling (2018).
$500,000 Threshold Explained
If your total sales to Texas customers exceed $500,000 in a calendar year, you:
- Must register with the Texas Comptroller
- Must collect and remit sales tax on all taxable sales (e.g., SaaS)
- Cannot claim exemption just because you are out-of-state
Who Is Affected?
- SaaS platforms
- Digital product sellers
- Subscription-based apps
- AI tool providers
- E-learning platforms with cloud access
Taxable Products That Trigger Nexus
| Product Type | Taxable in Texas? |
|---|---|
| SaaS | Yes |
| Digital downloads | Yes |
| E-books & guides | Yes |
| Cloud-based tools | Yes |
| Custom offline software | No |
Even free trials that convert into paid subscriptions count toward your $500K threshold.
Example: California SaaS Firm with Texas Customers
Company: SmartCRM, Inc.
Location: San Francisco
Product: CRM tool via subscription
2024 Texas Sales: $650,000
Physical presence in Texas: None
Result:
- Economic nexus triggered
- Must register with Texas
- Must collect 6.25% state tax + local tax on all Texas transactions
- File returns (Form 01-117) quarterly or monthly
Step-by-Step: Economic Nexus Compliance in Texas
- Track total Texas sales (by billing address or IP location)
- If over $500K, register online with the Texas Comptroller using Form AP-201
- Start collecting tax from Texas customers
- File Form 01-117 regularly (monthly or quarterly)
- Maintain detailed records for audit protection
Conclusion
Many SaaS businesses mistakenly believe they are exempt from Texas sales tax if they are out-of-state. But with the $500,000 economic nexus threshold, digital sellers with no local office can still be legally required to register and collect tax. Monitoring and planning are essential to avoid audits and penalties.
Call to Action
Schedule a compliance consultation with Anshul Goyal, CPA, EA, FCA to ensure your SaaS or cloud business is meeting Texas economic nexus rules and properly filing sales tax returns.
Disclaimer:
This blog is for general guidance only. Texas economic nexus applies to remote sellers and digital service providers crossing the $500K threshold. Always consult a tax professional to evaluate your business’ sales tax obligations.
Top 5 High-Searched FAQs
1. What is the economic nexus threshold in Texas?
$500,000 in gross revenue to Texas customers in the previous 12 months.
2. Do SaaS companies have to register in Texas?
Yes, if they exceed the threshold or have physical presence.
3. What is the Texas sales tax rate for SaaS?
6.25% state + up to 2% local = up to 8.25% total.
4. How do I register for Texas sales tax?
File Form AP-201 with the Texas Comptroller.
5. What happens if I don’t comply with nexus rules?
You may owe back taxes, penalties, and interest , and risk an audit.
About Our CPA
Anshul Goyal, CPA, EA, FCA is a U.S.-licensed CPA and cross-border tax advisor who helps SaaS companies, remote sellers, and cloud platforms stay compliant across state sales tax laws. He regularly advises businesses on Wayfair compliance, economic nexus rules, and audit risk mitigation.