Here at Paddle, we speak to 100-150 SaaS founders and executives each month about sales tax compliance. We also spend over $165,000 on sales tax compliance ourselves.
From those conversations, we've gained a detailed understanding of the major pain points around sales tax compliance in the SaaS industry, and how that fits into the overall revenue delivery infrastructure.
Here’s our summary of the top five reasons that SaaS executives look for TaxJar alternatives. These challenges apply to a range of online businesses, beyond just SaaS.
Reason #1: TaxJar doesn’t take on your sales tax liability
Each (and every) jurisdiction where your customers are physically located requires you to file and remit taxes there. And that’s where TaxJar plays a key role: taking on the responsibility of tax calculations and registering on your behalf.
But it's vital to remember that your business is still liable for sales tax – even if you use TaxJar. That means you'll still need to collect the right sales tax from customers based on their location, as well as accurately remit taxes in each jurisdiction.
This issue is particularly critical if you’re selling within the US. Here, you’ll need to provide AutoFile with accurate sales information to make accurate calculations. If your filings are wrong, you’re responsible - not TaxJar.
Failing to provide correct information is a big deal, which could result in severe penalties. The situation is even more serious for SaaS businesses selling outside the US, where AutoFile isn’t available.
This creates an even bigger burden for international TaxJar customers, which leads us nicely onto the next reason SaaS businesses look for an alternative.
Reason #2: TaxJar doesn’t cover sales taxes globally (so you’re still liable)
For international SaaS businesses selling outside certain jurisdictions, the situation gets even worse when it comes to filing tax returns. TaxJar only covers taxes in the US, Canada, Australia and the EU.
If you're selling to customers outside of these locations, you'll have to find an alternative to TaxJar for your tax returns. Countries such as India and Australia have some of the highest penalties for incorrect tax filing – even prison. 👮
In these countries - and many others - the SaaS business takes responsibility for collecting the right sales tax, as well as for any tax liabilities. You'll need to make sure that you correctly import all the sales data into TaxJar, to produce accurate sales tax calculations. If you don't do this right, you’ll be liable for incorrect filings.
Overall, this situation makes TaxJar a less than ideal fit for SaaS businesses selling globally.
Reason #3: TaxJar is a complex integration with multiple tools
As a tax calculation tool, TaxJar is just one part of your overall revenue delivery infrastructure. You’ll need to integrate supporting tools on top of it to handle subscriptions and recurring payments.
For example, you'll need to integrate sales tax calculation functionality into tools that carry transaction-level data from your payment gateway, subscription billing tool and SaaS metrics. With TaxJar, this isn't an easy task, because of complicated APIs and documentation.
One notable pain point is linking up your customer transactions with product and country specific rules across all your different subscriptions (such as upgrade or downgrades).
Because TaxJar lacks a comprehensive ‘how-to guide’, you'll need a well-resourced development team to implement these complexities – meaning extra costs in time and money.
Quite surprisingly, TaxJar doesn’t offer automation between itself and Stripe yet, despite being recently acquired by Stripe.
Reason #4: Successful software companies quickly outgrow TaxJar’s capabilities
SaaS is borderless and global by nature. The fastest growing companies drive growth worldwide, going far beyond the limited range of countries that TaxJar currently supports.
This inflates the sales tax liability problem to enormous proportions. Many SaaS leaders tell us that, while growing, they soon face sales tax thresholds beyond what one bookkeeper can handle. To keep on scaling, they need automated tools to stay compliant around the world.
Typically, these SaaS companies reach sales tax thresholds in multiple regions while also facing challenges such as producing accurate management accounts, third-party due diligence, or audits for fundraising, IPO and acquisition.
That's where TaxJar’s limitations become apparent. For fast-growing SaaS companies, TaxJar isn’t a future-proof solution.
Reason #5: Higher total cost of sales tax compliance
Fees are another common reason that SaaS executives consider TaxJar alternatives.
TaxJar fees range from $19 to $99 per month for up to 200 orders. For those going beyond that volume, there’s hidden pricing which mounts up fast.
These fees are expensive when considering that TaxJar’s global coverage is limited to just the US, Canada, Australia and the EU. Businesses selling outside these regions will have to use another tool, leading to even more costs.
TaxJar also charges $159-250 per US state for its third-party registration solution, on top of general fees.
What's more, you'll need to budget engineering time for integrating additional tools to handle other essential parts of the SaaS revenue delivery infrastructure.