Here at Paddle we speak with over 200 SaaS founders and executives each month, who are looking for a tax compliance solution. We also spend over $165,000 on sales tax compliance ourselves, so we know the challenges of SaaS sales tax compliance pretty intimately.
Here are the top five reasons we’ve heard from SaaS businesses on why they seek an alternative to Avalara.
1) Avalara doesn't take on your sales tax liability
So we’ve already mentioned this one, but it’s worth repeating: even though Avalara helps with tax registration, calculation, submitting returns and remittance, it stops short of taking on the liability.
If any mistakes are made, it’s your business that gets into trouble. That means there’s extra pressure to import sales data into Avalara correctly and on time. (And remember, because Avalara doesn’t handle raw sales data, you’ll need a separate platform to do this, and trust that the integration works).
That not only adds work, but risk too. The fines for corporate tax avoidance are becoming increasingly punitive, with executives now being held personally responsible too.
2) Avalara doesn't offer global coverage
If your business is only selling in the US, Canada, and EU, then Avalara has you covered – though they do charge extra for dedicated solutions designed for each of those markets and even states.
But most SaaS businesses have a global customer base. Global application is where Avalara comes unstuck. It may be able to handle the calculation part in some jurisdictions, but that’s the easy bit.
In many tax jurisdictions, it’s the registering, filing, and paying of sales tax where the real heavy lifting comes in; and for lots of countries, you’ll find yourself needing additional support to fill in where Avalara can’t help.
3) Integration with other software is needed (and is complex)
At its core, Avalara is a tax calculation tool. But, as mentioned earlier, revenue delivery is about much, much more. You’ll need other software to manage the full spectrum of tasks involved in accepting and recognizing revenue efficiently and compliantly. And each one of those tools will need to be plugged into Avalara in order to automatically feed it the sales and transaction data it needs.
Don’t underestimate the challenges of software integration - we know your engineering team won’t. It can be particularly complex when pulling in data to calculate sales tax, this is because of how many variables are at play; the type of product, the price, where it’s sold, changes to a subscription package, currency fluctuations, and the supply chain all count. And Avalara deals with none of them, expecting - instead - that all this data will be fed in from other sources.
Avalara’s APIs and supporting documentation are complicated in comparison to modern API standards, which doesn’t help. And they also don’t provide a ‘How To’ guide, so you’ll need to figure all this out yourself… or pay an expert to do it for you. 🤷
Integration is never a one-off job, either. Software platforms continually evolve, and this can impact how they currently work with other systems. Maintenance is key, because the last thing you want is an unexpected broken connection in your setup.
Many can end up reluctant to migrate other tasks to better software providers too, purely down to the time and cost it will take to configure them with Avalara, leading to missed opportunities.
4) Successful software companies quickly outgrow Avalara
Based on the previous points, it is not surprising to learn that, as SaaS companies grow, they quickly find themselves limited by Avalara.
As you grow in different markets and hit more and more sales tax thresholds, your overheads for handling the related admin grow exponentially. You’ll need to register, calculate, file, and remit in an ever-increasing number of jurisdictions and risk owing back taxes and penalties the longer you delay. The complexity of your sales tax obligations (when you see success across jurisdictions) goes way beyond what Avalara can handle. SaaS businesses at this growth stage have told us they have been forced to quickly source and employ an army of tax accountants to fill the gaps.
Growth also brings pressure from non-governmental parties who want oversight of your sales tax position - be that for internal management accounts or due diligence for audit, fundraising, IPO, and acquisition purposes. Again, Avalara doesn’t fulfill your needs here. And when you’re in this hyper-growth stage, you want to be doubling down on the inputs of success - such as product innovation, marketing, and sales - and not spending precious time managing the outcomes.
5) Fees are complex and not transparent
We’ve tried to understand how Avalara charges for its services, but we’ve been left confused (and slightly shocked) by some of the numbers.
For example, the cost of their tax calculation software depends on the transaction volume, ranging from $21,000 to $160,000 annually. On top of that, you have one-off implementation costs of $14,500. Tax returns range from $42 to $54 per each filing + a $25 - $475 activation fee, depending on the volume. And for certain jurisdiction-specific tasks, you can expect to pay more.
Alas, none of this is on their website, so you’ll need to put in a call to their sales team.
Remember that this is just Avalara’s fees at the end of the day, too. As we’ve explained, with Avalara’s limitations when it comes to scaling a SaaS business internationally, as well as its lack of the comprehensive capabilities of a revenue delivery platform, you’ll be needing to spend more to buy and integrate other software.