As more companies undergo digital transformations that create profitable new sales channels, their leaders should recognize that new offerings, especially those delivered via subscription models, may transform their tax compliance requirements.

Subscription models that generate recurring revenue are booming across a surprising assortment of business-to-consumer and business-to-business industries and companies. So much so that the publication Multichannel Merchant deemed 2020 “The Year of Subscription Service Growth.” As consumers, most of us are highly familiar with the convenience of subscribing to video streaming services, music services, food-delivery services and other offerings from digitally born companies.

However, business leaders tend be far less familiar with the sales tax compliance requirements on new services sold through the subscription model. This is especially the case when companies that have traditionally sold tangible goods—elevators or mechanical equipment, for example—begin selling intangible services, such as online monitoring and maintenance services.

This unfamiliarity makes it imperative for tax teams to educate business colleagues on:

The sales tax compliance risks associated with the subscription model.

The dizzying number of state and local sales tax rules and rates that come into play depending on the characteristics of the product or service being sold, the location of the sale, and any applicable tax holiday and sales tax exemption stipulations.

The fact that U.S. sales and use tax rules and rates change constantly (similar volatility also defines VAT/GST rules and rates throughout Europe and other global regions).