Sales Tax Nexus for SaaS & Digital Products: MoR or Stripe?
US seller of SaaS, ebooks or PDFs? Economic nexus by state, VAT and GST abroad (UK, EU, Canada, Australia), who tracks thresholds, and MoR vs Stripe.
You’re a US business selling digital products (PDFs, ebooks, templates, courses) or SaaS subscriptions to customers across the US, plus the UK, Canada, Australia and Europe. Two different systems apply. US sales tax has thresholds. VAT abroad usually starts from your first sale.
Here’s where you owe tax, who tracks the thresholds, and when a Merchant of Record (MoR) is worth it. We’ll take a typical case: $3.99 resources and $17.99 bundles, or a $12/month SaaS tool, sold to consumers.
TL;DR
- US customers: you collect in your home state from day one if it taxes what you sell. In other states, only after you pass their economic nexus threshold, usually $100,000 a year, or 200 transactions in 14 states, DC and Puerto Rico. About half the states tax digital downloads; fewer tax SaaS.
- EU customers: no threshold. EU VAT is due from your first sale, through one Non-Union OSS registration.
- UK customers: no threshold either. E-book-only sellers can apply for an exemption; SaaS registers from the first sale.
- Canada, Australia: thresholds of CAD 30,000 and AUD 75,000.
- Two ways to handle it: a payment processor (Stripe) plus tax compliance software like GoodVat to track nexus and file, or a Merchant of Record that does it all for a bigger cut of every sale.
| Where your customers are | Threshold for a US seller | What you do once you’re over it |
|---|---|---|
| Your home state | None, if it taxes what you sell | Register and collect from the first sale |
| Other US states | $100,000 in most states; 200 transactions in 14 states, DC and PR; $500,000 in CA, TX and NY | Register in that state, if it taxes what you sell |
| European Union | None: from your first sale | One Non-Union OSS registration for all 27 countries |
| United Kingdom | None (e-book-only sellers can apply for exemption) | Register with HMRC, file quarterly |
| Canada | CAD 30,000 in 12 months | Simplified GST/HST registration |
| Australia | AUD 75,000 a year | Simplified GST registration |
Selling to US customers: sales tax nexus
Nexus is the link with a state that makes you collect its sales tax. You always have it in your home state. You get economic nexus in other states once your sales there pass the state’s threshold:
- Most states: $100,000 a year.
- 14 states, DC and Puerto Rico also count transactions, usually 200 a year. At $3.99 a download, 200 orders is about $800. For a $12/month subscription, each renewal counts, so 17 subscribers make 204 transactions a year.
- Connecticut and New York need both tests. California, Texas and New York are at $500,000.
Crossing a threshold only matters if the state taxes what you sell:
- Digital products: about half the states tax digital downloads.
- SaaS: fewer states tax it, and some only partly (Texas taxes 80% of the price).
Each state is a separate registration, rate table and return.
Read next: Economic nexus thresholds by state · US sales tax compliance checklist · Check yours with the free US nexus calculator · Work out the tax on a sale with the US sales tax calculator
Selling to EU customers: VAT from your first sale
The EU has no threshold for US sellers. Your first sale of a digital product or SaaS subscription to an EU consumer means you owe VAT at the customer’s local rate, from about 17% to 27%.
You don’t register in 27 countries. One Non-Union One Stop Shop (OSS) registration in a single EU country covers all of them, with one return a quarter.
- Digital products: many EU countries tax e-books at a reduced rate.
- SaaS: always the standard rate. Sales to EU businesses with a valid VAT number are reverse-charged, with no VAT on your invoice. Check numbers with the free EU VAT number checker.
Read next: VAT guides for US sellers · German VAT for US SaaS · Non-Union OSS for digital services
Selling to UK customers: no threshold for overseas sellers
The UK’s £90,000 threshold is for UK businesses. A US seller is expected to register for UK VAT from the first sale to a UK consumer.
- Digital products: e-books and similar e-publications are zero-rated. If everything you sell to UK consumers qualifies, you can ask HMRC for an exemption from registration. Resources mostly meant to be filled in (worksheets, planners, templates) are usually standard-rated at 20%.
- SaaS: standard-rated at 20%, so you register from the first UK consumer sale. Sales to UK businesses with a VAT number are reverse-charged.
Read next: UK VAT guide
Selling to Canada and Australia: GST thresholds
- Canada: once your sales to Canadian consumers pass CAD 30,000 over any 12 months, you register under the simplified GST/HST system and charge 5% to 15% depending on the province.
- Australia: once your sales to Australian consumers reach AUD 75,000 a year, you register for simplified GST and charge 10%.
These rules cover both downloads and SaaS. Sales to businesses that give you a tax number don’t count in either country.
Two ways to handle it: a payment processor or a Merchant of Record
Option 1: payment processor + tax compliance software
Stripe, PayPal and other payment processors move the money; you are the seller. They don’t tell you when you cross a threshold. Stripe Tax monitors your Stripe sales only, and charges extra to register and file. If you also sell on Etsy or Gumroad, Stripe Tax doesn’t see those sales, but most states count them towards your threshold.
So you need tax compliance software such as GoodVat. It tracks your nexus in every state and your VAT and GST thresholds abroad, across all your sales channels, and warns you before you cross one. It also registers you, calculates the right tax at checkout and files your returns.
Read next: Stripe Tax for SaaS and digital goods: what it covers
Option 2: Merchant of Record
A Merchant of Record such as Paddle, Lemon Squeezy or Stripe Managed Payments becomes the legal seller. It charges your customers, handles the tax everywhere and pays you what’s left. You don’t track nexus or register anywhere.
You pay for that on every sale. Paddle lists 5% + 50¢ and quotes custom pricing for products under $10. Lemon Squeezy charges 5% + 50¢. Stripe Managed Payments adds 3.5% on top of normal Stripe fees.
| Payment processor + GoodVat | Merchant of Record | |
|---|---|---|
| Who’s the seller | You | The MoR |
| Threshold tracking | GoodVat, across every sales channel | Not needed |
| Registrations and returns | GoodVat registers you and files | The MoR |
| Cost | Card processing + a flat monthly plan | 6–8% of revenue, more on cheap products |
| Best for | Products under $5, or anyone past about $100,000 a year | Starting out, or never wanting a tax registration |
Which one to pick
- Low-cost digital products: an MoR’s fixed fee can take 10% or more of a $3.99 sale. If most of your customers are in the US and you’re under every state threshold, Option 1 means your home state plus, if you sell there, the EU OSS.
- SaaS: if you sell to the UK and EU from day one, an MoR saves you two foreign registrations while you’re small. Past about $100,000 a year, its percentage costs more than handling them yourself. See the numbers in MoR vs Stripe + GoodVat, and compare tools in best sales tax software for SaaS and for digital products.
FAQ
Do I need to charge sales tax on digital products and SaaS?
It depends on the state. About half of US states tax digital downloads, and fewer tax SaaS. You collect in your home state from the first sale if it taxes what you sell, and in other states only once you pass their economic nexus threshold, usually $100,000 a year in sales into that state.
What is economic nexus for sales tax?
Economic nexus means a state can make you collect its sales tax because of how much you sell there, even with no office or staff in the state. Most states set it at $100,000 a year in sales. 14 states, DC and Puerto Rico also count transactions, so 200 sales create nexus even below $100,000. Connecticut and New York require both tests, and California, Texas and New York use higher dollar amounts. See every state in our economic nexus thresholds table.
Do US sellers have to charge VAT to UK and EU customers?
Yes, on digital products and SaaS sold to consumers, and from the first sale: neither the UK nor the EU has a threshold for US sellers. The EU is covered by one Non-Union OSS registration. In the UK, e-books are zero-rated, so a seller of qualifying e-books only can ask HMRC for an exemption from registering. SaaS sellers register from the first UK consumer sale.
Should I use a Merchant of Record or Stripe?
There are two ways to handle it. Use a payment processor such as Stripe together with tax compliance software like GoodVat, which tracks your state nexus and foreign thresholds, registers you and files your returns. Or use a Merchant of Record such as Paddle, Lemon Squeezy or Stripe Managed Payments, which becomes the seller and handles the tax for a higher fee on every sale.
Does Stripe track sales tax nexus for me?
Plain Stripe doesn’t. Stripe Tax shows where your Stripe sales are near a state’s threshold and calculates tax once you’re registered, but it doesn’t see sales on other channels such as Etsy or Gumroad, and registering and filing cost extra. Tax compliance software like GoodVat tracks nexus across all your sales channels.