tax implications of running SAAS

If I am running a SAAS businss and my users are paying me e.g. 10$ per month is there a sales tax liability on it? Who pays that tax and what are the different things to consider.

Does it matter where company is incorporated? For this discussion lets assume company is C-Corp Delware and has foreign entity in Washington.

Sales taxes are determined by the individual state, county or city. You are required to file & pay sales taxes in any state where you have a nexus, or physical presence. In most cases this would be an office or retail type location. If you and the customer both reside in a state where you have a nexus, then you would be expected to pay the sales tax for that state. If the customer resides in a state where you do not have a nexus, then you would not be required to pay any sales tax. In most cases you should plan on paying sales tax in at least 1 state. All that being said, different states have different sales tax rules and many do not tax services. State governments have recently been getting more aggressive in defining a nexus to include server locations, sales personnel permanently assigned to a specific state, and even affiliates located in a specific state.

You may have some additional tax liablity based on state income taxes. In california, even with a deleware corp, you are taxed on your income as long as you either operate here, spend considerable amount of time here, or live here.

If sales taxes are going to be an issue in the future, (selling physical goods), consider setting up your business in Las Vegas. Aside from low property and cost of living costs (means your employees will be happier with less salary), you will find the city to be very internet startup friendly.