A sector-specific guide for subscriptions and usage billing. It explains how economic nexus affects invoicing, tax engines, reseller and marketplace models, and the impact on ASC 606 and IFRS 15 revenue recognition. It speaks to US and UK finance leaders, including teams that work with offshore accounting partners. Use it to make clean, auditable decisions for Economic Nexus for SaaS & Marketplaces in 2025: Billing & RevRec Impacts.
Core definitions for controllers and revenue teams
Economic nexus (US)
A state can require you to register, collect, and remit sales or use tax when your activity in that state exceeds set economic thresholds. Many states count gross revenue, transaction count, or both. SaaS and digital services may be taxable, partially taxable, or exempt depending on the state and the nature of the service.
Marketplace facilitator rules (US)
If you run a marketplace, some states make the marketplace responsible for collecting tax on third-party sales. If you sell on marketplaces, the marketplace may collect on your behalf, but you remain responsible for registration, returns, and exempt sales tracking where required.
VAT and place of supply (UK)
For B2B services, VAT often follows the customer’s location and uses reverse charge when the customer is VAT-registered and the supply is within scope. For B2C digital services, VAT can be due where the customer is located. SaaS can be treated as a service or digital service depending on facts and HMRC guidance.
Practical note: Nexus and taxability vary by jurisdiction and product type. Keep a current matrix and update it on a set cadence.
Step 1: Map where you owe tax
- Footprint inventory
- Where do you bill customers
- Where do you have personnel or contractors
- Which states or countries exceed your internal revenue or transaction thresholds
- Product taxability matrix
- Classify each SKU: core SaaS, add-ons, professional services, training, hardware, data products
- Mark taxability by state (US) and by customer type (B2B vs B2C in UK/EU)
- Channel overlay
- Direct sales
- Resellers and distributors
- Marketplace operator or marketplace seller
- Documentation
- Exemption and resale certificates on file and valid
- VAT numbers, reverse charge statements, and evidence of customer location
Step 2: Billing model impacts
Subscriptions (term-based)
- Invoicing: Bill at start of term. Taxes calculated on invoice date and jurisdiction derived from sold-to or ship-to policy.
- Changes: Upgrades, downgrades, and early renewals create contract modifications that affect revenue schedules.
- Refunds and credits: Define policy for partial month credits and how taxes are adjusted.
Usage-based pricing
- Metering to invoice: Capture usage at period end. Taxes calculated when invoiced.
- Minimums and overages: Treat overages as variable consideration. Build guardrails for late usage feeds to avoid missed tax calculation.
Prepaid credits and wallets
- Breakage: Estimate breakage under ASC 606 when supported by history.
- Tax point: Determine whether tax applies on sale of credit or on redemption by SKU.
Reseller models
- Who collects tax: If the reseller buys and resells, the reseller usually collects. You must store the reseller’s exemption certificate and set the customer flags in the tax engine.
- Pricing and incentives: Consideration payable to a customer, MDF, and chargebacks may reduce transaction price.
Marketplaces
- Operator role: If you operate the marketplace, identify when you are principal or agent. This drives gross vs net presentation and tax collection responsibility.
- Seller role: If you sell through a marketplace, track where the marketplace collects and where you still file returns.
Step 3: Tax engine and invoice data you must capture
- Customer identifiers: Legal entity name, tax IDs (US resale certificates, UK VAT), customer type (B2B vs B2C)
- Location evidence: Sold-to, bill-to, ship-to, IP geo for digital services where applicable
- SKU taxonomy: Map each SKU to a tax code that reflects its nature in each jurisdiction
- Timing fields: Contract start, end, service period, invoice date, delivery date
- Channel flags: Direct, reseller, marketplace operator, marketplace seller
- Certificate management: Validity dates, images, and automated expiry reminders
Control: Block invoicing if the tax engine returns “unknown” or a missing certificate where tax is suspended.
Step 4: Revenue recognition touchpoints (ASC 606 / IFRS 15)
Determine principal vs agent
- Principal (gross): You control the promised service before transfer. You set price, assume inventory or platform risk, and are primarily responsible for fulfillment.
- Agent (net): You arrange for the service to be provided by another party. Recognize net commission. Marketplace operators often fall here for third-party sales.
Identify performance obligations
- Core SaaS, premium support, professional services, and training may be distinct obligations.
- Bundle analysis: If items are highly integrated, treat as a single obligation.
Transaction price
- Exclude taxes collected on behalf of tax authorities from revenue.
- Account for discounts, credits, and consideration payable to customers.
- Variable consideration: usage charges, overages, tiered pricing, and rebates require constraints and true-up logic.
Contract modifications
- Mid-term upgrades and plan changes can be prospective or retrospective depending on your policy and contract terms. Keep system logic aligned with your 606 memo.
Timing
- SaaS: Recognize ratably over the service period.
- Usage: Recognize as usage occurs or when the right to invoice applies.
- Setup fees: Defer if they do not transfer a distinct service.
Step 5: Checklists you can run each close
Nexus and taxability checklist
- Update nexus matrix for new states or countries entered this month
- Review product taxability changes flagged by the tax engine
- Validate top 50 invoices for address accuracy and tax codes
- Confirm marketplace-collected sales are excluded from your returns and stored in a separate ledger
Billing and systems checklist
- All SKUs mapped to tax codes; no “miscellaneous” lines on live invoices
- Reseller and exemption certificates are current and linked to the customer record
- Usage feeds reconciled to metering source before invoice run
- Credit notes reflect tax adjustments and reference original invoice
RevRec checklist
- Contract modifications reviewed for proper 606 treatment
- Variable consideration constraints reviewed against actual usage
- Principal vs agent conclusions unchanged or re-assessed for new products and marketplace flows
- Taxes excluded from transaction price across all revenue lines
Step 6: Mini scenarios to pressure-test your design
- US subscription with UK customer (B2B)
- Billing in USD. UK VAT number on file. Reverse charge may apply. Invoice shows “VAT reverse charge” note. Revenue recognized ratably over term.
- Usage charges across multiple states
- Customer users in several states. Your policy uses sold-to for tax determination. Validate that policy and disclose it. True-up if you adopt a ship-to logic later.
- Marketplace operator with third-party apps
- You process payments and take a 20 percent fee. You do not control the third-party service. Record net commission revenue. Ensure tax engine flags facilitator collection where applicable.
- Reseller in US with annual prepay
- Reseller provides resale certificate. No sales tax on your invoice to reseller. End customer upgrades mid-term. Treat as a contract modification with revised allocation.
Step 7: Controls and documentation for audit readiness
- Maintain a written nexus policy, product taxability memo, and 606 principal vs agent memo with examples.
- Store tax engine logs, certificate images, and invoice PDFs with immutable links.
- Keep a monthly checklist sign-off by Billing, RevRec, and Tax.
- Train offshore teams on exception queues and certificate expiry workflows.
- Revisit policies after product launches, new markets, or marketplace expansions.
Decision guide for finance leaders
- Choose a direct model when you control delivery and want consistent RevRec across regions.
- Use resellers when you need local reach and reduced compliance footprint.
- Operate a marketplace only with clear principal vs agent conclusions and a facilitator compliance plan.
- Align tax engine, billing, and RevRec systems before go-live. Do not ship until SKUs, tax codes, and revenue rules are mapped and tested end-to-end.
Bottom line
Treat nexus, billing, and RevRec as one design. A clean SKU taxonomy, a current nexus matrix, and documented 606 positions prevent mis-taxed invoices and revenue restatements. If you want a review of your subscription, usage, reseller, or marketplace setup, Madras Accountancy can map your flows, configure tax logic, and align RevRec rules. Book a 30-minute design review to de-risk your 2025 rollout.
