As that happens, a growing number of such transactions will become taxable. For sellers, this means nexus in an increasing number of states. For buyers, it means self accruing use tax when vendors fail to collect it. Additionally, the very services software companies use as selling points often create a taxable presence. Any sale, electronic or otherwise, can give rise to nexus if it requires the provider to send employees to a customer site.
Most states consider sales visits a nexus-creating activity.
In some states, a warranty or service contract obligates the seller to collect tax. Add to that the time vendors spend installing programs and providing training at customer sites, and nexus becomes difficult to deny. Even if they already have a taxable presence in a state, software companies can sometimes avoid sales tax collection requirements by delivering electronically, suggests Diane Yetter , president of Yetter's Consulting Services Inc., Chicago. However, downloading software by modem can take hours and prove impractical, Yetter notes. Missouri and California label software intangible property even if the vendor goes on-site to install the product, as long as no physical medium remains with the customer.