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Ask HN: How to handle sales tax for SaaS side projects?

14 points by billconan 7y ago

I just realized how complex sales tax is. It seems to be a huge overhead for small projects. How can I handle it with ease?

jmhyer123 7y ago
We ran into the same problem with our SaaS. We haven't gotten to the point where we need to solve the problem yet but in my research I ran into TaxJar (https://www.taxjar.com/ https://www.taxjar.com/) and was confident they will be one of the easiest solutions to the problem when we get to that point. This of course assumes a US-based product/users.
- billconan 7y ago
  So I found a service https://paddle.com/ https://paddle.com/ Saying that they can handle all sales tax for me, because they are a reseller of my product. Is this true? Is anybody using it? Any other alternatives?
  - jerriep 7y ago
    I use Paddle and so far I am happy with them. The integration was simple enough and their support has been responsive. I cannot use Stripe in my country, so I had to look for alternatives. Paddle is more expensive, but they have many things built in that you would have to pay extra for on Stripe. One of those is the handling of sales tax. The other, which I will implement soon, is built-in handling of affiliates.
    - techsin101 7y ago
      I think stripe can calculate taxes
  - noah96 7y ago
    Hey :) I'm actually from Paddle yes this is true as Jerriep touched on as well as handling all sales tax we take care of all the other complexities that occur when billing :) But don't take my word for it! Boxy explained exactly why they used us better than I ever can: https://www.indiehackers.com/interview/how-we-grew-to-6k-mrr-while-maintaining-our-health-and-sanity-d2506857ab https://www.indiehackers.com/interview/how-we-grew-to-6k-mrr...
mikeyouse 7y ago
Most states have sales thresholds to hit before you have to worry about dealing with it in their jurisdictions. Here's a decent roundup of when you'll have to start to care: https://blog.taxjar.com/economic-nexus-laws/ https://blog.taxjar.com/economic-nexus-laws/ Essentially, take care of the tax in the jurisdiction you're in and wait until you're much further along before worrying about other states or territories.
billconan 7y ago
I asked this also on Reddit, and got this really nice answer: Pasting it here hoping it will help others too https://www.reddit.com/r/SaaS/comments/brvxgc/how_to_handle_sales_tax_for_saas_side_projects/?utm_source=share&utm_medium=ios_app https://www.reddit.com/r/SaaS/comments/brvxgc/how_to_handle_... I ran into the same issue with my startup. There are two options: Use a service like TaxJar / Avalara / Quaderno to automatically calculate taxes. Keep in mind that there are costs to getting a sales tax ID in certain countries / states and that you'll be losing valuable time by having to file returns (autofile isn't supported everywhere). Also, you'll need to consider that they may not support every country that has a sales tax implication either. Use a payment processor that acts as a reseller of your digital products (Paddle, 2Checkout, FastSpring) Because they will act as the merchant of record for a transaction, they will be responsible for calculating and remitting sales taxes. The disadvantage of this method is that there's much higher fees. For instance, Stripe charges 2.9% + 30 cents per transaction, while Paddle charges 5% + $0.50. Not having to worry about sales tax is well worth the added cost in my opinion.
- davidgh 7y ago
  Agree. When you have a digital product or service, intended or not, you have a global customer base. Sales tax, VAT is just one of the burdens a company will face to keep on the right side of the rules. Denied party screening, export controls, various data protection and privacy laws, to name a few. By selecting a provider that acts as the “merchant of record” (or reseller of your product), you offload many of those regulatory burdens to a party that has the proper economies of scale to provide the service for a lower cost than you can do it on your own. Modern platforms that provide you with the option to be the merchant of record usually provide a host of other features that making running an online SaaS business much easier. And to your customers, it won’t feel like your sending them off to some unrelated store to buy your product, you can generally customize your integration so that the transition during the purchase process is mostly seamless. Source: I’ve been in the business of providing a service that acts as merchant of record for more than 20 years. In the early days, people came to us mostly to for the online payment processing. These days, many of our customers express that it was the reduction in regulatory burden that they value the most.
johnwheeler 7y ago
I’m not sure I follow. Services are exempt from sales tax https://www.alvarezandmarsal.com/insights/sales-taxation-software-service-relatively-new-frontier https://www.alvarezandmarsal.com/insights/sales-taxation-sof... The law is murky at best. Doesn’t feel like something a startup should devote much energy to.
- HillRat 7y ago
  In Texas, if nowhere else, it’s established that SaaS is a “business service” and taxed appropriately either via sales or use tax. (Texas is unusual in taxing business services, however.)
- billconan 7y ago
  you can check this, https://blog.taxjar.com/saas-sales-tax/ https://blog.taxjar.com/saas-sales-tax/ some states do charge sales tax.
danieka 7y ago
If you are in the EU remember that sales to companies will have reversed tax, just make sure to get their VAT number and then you don’t have to apply VAT. But I think that the invoice/receipt has to say that reversed VAT should be applied. Sales to individuals should be declared in MOSS and the VAT of the country where the customer is located should be applied. But (at least in Sweden) there is an exception that if your revenue is under 10000€ per year you many declare all VAT in your country using your country’s VAT. Also, IANAL.
vebu 7y ago
I tried to do the sales tax management myself but ended up with incorrect calculation on some occasions. I would highly recommend getting a professional tax consultant for guidance. They'll know how to handle tax for your project. Once you start making revenue, the cost of consultant would become affordable.

14 points by billconan 7y ago

I just realized how complex sales tax is. It seems to be a huge overhead for small projects. How can I handle it with ease?

jmhyer123 7y ago

We ran into the same problem with our SaaS. We haven't gotten to the point where we need to solve the problem yet but in my research I ran into TaxJar (https://www.taxjar.com/ https://www.taxjar.com/) and was confident they will be one of the easiest solutions to the problem when we get to that point. This of course assumes a US-based product/users.

billconan 7y ago
So I found a service https://paddle.com/ https://paddle.com/ Saying that they can handle all sales tax for me, because they are a reseller of my product. Is this true? Is anybody using it? Any other alternatives?
- jerriep 7y ago
  I use Paddle and so far I am happy with them. The integration was simple enough and their support has been responsive. I cannot use Stripe in my country, so I had to look for alternatives. Paddle is more expensive, but they have many things built in that you would have to pay extra for on Stripe. One of those is the handling of sales tax. The other, which I will implement soon, is built-in handling of affiliates.
  - techsin101 7y ago
    I think stripe can calculate taxes
- noah96 7y ago
  Hey :) I'm actually from Paddle yes this is true as Jerriep touched on as well as handling all sales tax we take care of all the other complexities that occur when billing :) But don't take my word for it! Boxy explained exactly why they used us better than I ever can: https://www.indiehackers.com/interview/how-we-grew-to-6k-mrr-while-maintaining-our-health-and-sanity-d2506857ab https://www.indiehackers.com/interview/how-we-grew-to-6k-mrr...

mikeyouse 7y ago

Most states have sales thresholds to hit before you have to worry about dealing with it in their jurisdictions. Here's a decent roundup of when you'll have to start to care: https://blog.taxjar.com/economic-nexus-laws/ https://blog.taxjar.com/economic-nexus-laws/ Essentially, take care of the tax in the jurisdiction you're in and wait until you're much further along before worrying about other states or territories.

billconan 7y ago

I asked this also on Reddit, and got this really nice answer: Pasting it here hoping it will help others too https://www.reddit.com/r/SaaS/comments/brvxgc/how_to_handle_sales_tax_for_saas_side_projects/?utm_source=share&utm_medium=ios_app https://www.reddit.com/r/SaaS/comments/brvxgc/how_to_handle_... I ran into the same issue with my startup. There are two options: Use a service like TaxJar / Avalara / Quaderno to automatically calculate taxes. Keep in mind that there are costs to getting a sales tax ID in certain countries / states and that you'll be losing valuable time by having to file returns (autofile isn't supported everywhere). Also, you'll need to consider that they may not support every country that has a sales tax implication either. Use a payment processor that acts as a reseller of your digital products (Paddle, 2Checkout, FastSpring) Because they will act as the merchant of record for a transaction, they will be responsible for calculating and remitting sales taxes. The disadvantage of this method is that there's much higher fees. For instance, Stripe charges 2.9% + 30 cents per transaction, while Paddle charges 5% + $0.50. Not having to worry about sales tax is well worth the added cost in my opinion.

davidgh 7y ago
Agree. When you have a digital product or service, intended or not, you have a global customer base. Sales tax, VAT is just one of the burdens a company will face to keep on the right side of the rules. Denied party screening, export controls, various data protection and privacy laws, to name a few. By selecting a provider that acts as the “merchant of record” (or reseller of your product), you offload many of those regulatory burdens to a party that has the proper economies of scale to provide the service for a lower cost than you can do it on your own. Modern platforms that provide you with the option to be the merchant of record usually provide a host of other features that making running an online SaaS business much easier. And to your customers, it won’t feel like your sending them off to some unrelated store to buy your product, you can generally customize your integration so that the transition during the purchase process is mostly seamless. Source: I’ve been in the business of providing a service that acts as merchant of record for more than 20 years. In the early days, people came to us mostly to for the online payment processing. These days, many of our customers express that it was the reduction in regulatory burden that they value the most.

johnwheeler 7y ago

I’m not sure I follow. Services are exempt from sales tax https://www.alvarezandmarsal.com/insights/sales-taxation-software-service-relatively-new-frontier https://www.alvarezandmarsal.com/insights/sales-taxation-sof... The law is murky at best. Doesn’t feel like something a startup should devote much energy to.

HillRat 7y ago
In Texas, if nowhere else, it’s established that SaaS is a “business service” and taxed appropriately either via sales or use tax. (Texas is unusual in taxing business services, however.)
billconan 7y ago
you can check this, https://blog.taxjar.com/saas-sales-tax/ https://blog.taxjar.com/saas-sales-tax/ some states do charge sales tax.

danieka 7y ago

If you are in the EU remember that sales to companies will have reversed tax, just make sure to get their VAT number and then you don’t have to apply VAT. But I think that the invoice/receipt has to say that reversed VAT should be applied. Sales to individuals should be declared in MOSS and the VAT of the country where the customer is located should be applied. But (at least in Sweden) there is an exception that if your revenue is under 10000€ per year you many declare all VAT in your country using your country’s VAT. Also, IANAL.

vebu 7y ago

I tried to do the sales tax management myself but ended up with incorrect calculation on some occasions. I would highly recommend getting a professional tax consultant for guidance. They'll know how to handle tax for your project. Once you start making revenue, the cost of consultant would become affordable.