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Build Your SaaS

Super Fun SaaS Sales Tax (Part Deux)

46 min episode · 2 min read

Episode

46 min

Read time

2 min

Topics

Relationships, Startups, Sales & Revenue

AI-Generated Summary

Key Takeaways

  • Migration risk assessment: Switching payment processors with thousands of active subscriptions risks significant churn when customers must re-enter credit cards, potentially killing the business despite compliance benefits. No verified success stories exist for similar-scale migrations from Stripe to merchant of record services.
  • Stripe Tax implementation strategy: Start compliance in home markets first using Stripe Tax and TaxJar for the 12 North American regions where thresholds are exceeded, rather than attempting global compliance immediately. This creates manageable scope while maintaining existing Stripe infrastructure and customer data history.
  • Merchant of record cost analysis: Current merchant of record solutions would cost $63,000 annually at present scale, scaling higher with growth due to per-invoice fees and percentage-based charges. Enterprise tax compliance contracts lock businesses into year-long commitments even when service delivery fails expectations.
  • Government partnership framework: Sales tax collection represents an externality imposed on businesses for customer taxes, not business taxes. Governments must become partners by simplifying compliance portals and processes, as businesses cannot feasibly comply with potentially 100,000 future tax jurisdictions including countries, states, provinces, and cities.

What It Covers

Justin and John navigate the complexity of global sales tax compliance for their SaaS business Transistor, evaluating merchant of record solutions versus Stripe Tax while managing thousands of existing subscriptions and customer relationships.

Key Questions Answered

  • Migration risk assessment: Switching payment processors with thousands of active subscriptions risks significant churn when customers must re-enter credit cards, potentially killing the business despite compliance benefits. No verified success stories exist for similar-scale migrations from Stripe to merchant of record services.
  • Stripe Tax implementation strategy: Start compliance in home markets first using Stripe Tax and TaxJar for the 12 North American regions where thresholds are exceeded, rather than attempting global compliance immediately. This creates manageable scope while maintaining existing Stripe infrastructure and customer data history.
  • Merchant of record cost analysis: Current merchant of record solutions would cost $63,000 annually at present scale, scaling higher with growth due to per-invoice fees and percentage-based charges. Enterprise tax compliance contracts lock businesses into year-long commitments even when service delivery fails expectations.
  • Government partnership framework: Sales tax collection represents an externality imposed on businesses for customer taxes, not business taxes. Governments must become partners by simplifying compliance portals and processes, as businesses cannot feasibly comply with potentially 100,000 future tax jurisdictions including countries, states, provinces, and cities.

Notable Moment

The hosts discover their enterprise tax compliance vendor demands payment for the remaining nine months of their annual contract despite providing no actual service, highlighting how compliance companies trap SaaS businesses in unfavorable agreements when founders feel desperate for solutions.

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Episode Transcript

This podcast is hosted by transistor dot f m. Hey, everyone. Welcome to Build Your SaaS. This is the behind the scenes story of building a web app in 2023. I'm John Buda, a software engineer. And I'm Justin Jackson. I do sales tax compliance for SaaS companies. Follow along as we figure this shit out. Did you get a promotion? That's a I don't know if that's a promotion. Although, judging from the number of unsolicited DMs and emails from sales tax compliance professionals since our last episode Yeah. That I've received, it seems lucrative. Are you gonna are you gonna switch to becoming a sales tax lobbyist? I mean, I may I may do that. I may just become a a lobbyist. I don't can you become an international lobbyist? That sounds exhausting. I don't think so. That would almost be worse than sales tax compliance. I would have to register as a lobbyist in every jurisdiction in the world. And you would. Well, folks, that last episode hit a nerve. We talked about sales tax compliance, and we got a lot of responses from all sorts of folks. And, there's a few different camps I think we've noticed. Broadly, I would say folks in North America who are using Stripe and already have customers and subscriptions and for whom, digital sales tax compliance is new are like, agree with us. This is difficult. This is ridiculous. This is why why is it built why is it this way? I didn't even realize we needed to do this. And then a lot of folks in the EU were, not as empathetic. They're just saying, well, this is just a normal part of business. And, that was, I think that's pretty indicative of the response we got. What do you think, John? I think that I mean, I yeah. It is a normal part of running a business, but I think in The US, it's people are just less aware of it. I mean, it's maybe harder to do as well, but it's just like, I don't know, people are unaware or think it's something they just need to do later. I'm I'm actually having a discussion right at the same point with Adam Wavin. Let's just let's just let's just talk about some of the responses we got here. Yep. So, one anonymous European whom I won't credit said, once again, I noticed that the indie hacking community has a somewhat naive approach to what running a business actually entails. As a European, not having a plan for sales tax is mind boggling. To which, Cooper replied, who is also from the EU, I think it might be a European perspective as we have been dealing with that from day one. So it's just one of the perks parts of running a business from the start. It can't really be neglected in the EU. Although, I just wanna take a quick aside here and say, you know, I …

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Books, tools, and gear mentioned in this episode

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Tools

  • Start compliance in home markets first using Stripe Tax and TaxJar for the 12 North American regions where thresholds are exceeded
  • by Stripe

    Start compliance in home markets first using Stripe Tax and TaxJar for the 12 North American regions where thresholds are exceeded

company

  • Justin and John navigate the complexity of global sales tax compliance for their SaaS business Transistor, evaluating merchant of record solutions versus Stripe Tax

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