Find the best TaxJar alternative for your business and customers. Why businesses look for an alternative and the best solutions on the market.
What is TaxJar?
TaxJar is a tax calculation platform that helps businesses to track, file, and report tax. Founded in 2013, TaxJar was acquired by Stripe in June 2021.
They offer a range of key taxation services, including nexus analysis. Nexus is an important concept for SaaS businesses; it determines when a business’s sales have exceeded the economic threshold for a particular US state, which then requires the business to pay sales tax in that state. To handle that side of things, TaxJar partners with a third-party provider.
In addition, TaxJar offers an AutoFile feature, which automatically prepares and submits tax returns to each US state, along with paying the remittance. This feature only works in the US, but TaxJar provides all necessary information for businesses to file manually, as part of the TaxJar Reports feature.
Beyond the US, the TaxJar platform covers several international regions, including Canada, Australia, and the EU. For businesses registering international taxes, TaxJar recommends a sales tax consultation.
Who is TaxJar good for?
TaxJar serves a wide range of businesses that have complex tax needs, including those in retail, food and beverage, and medical industries - as well as SaaS. It's typically a good fit for businesses of all sizes, helping them with their entire tax life cycle.
Is TaxJar the best option for selling SaaS?
TaxJar offers tax management capabilities for all kinds of products, including software. One of its most useful features is the AutoFile product, for automatic preparation and submission of tax returns.
But because AutoFile only works in the US, SaaS businesses that sell elsewhere in the world will have to handle tax returns by themselves. That's right – Europe, Asia, Africa, South America, and Oceania are all down to you!
If your business sells SaaS worldwide, you’ll have to register in every jurisdiction where you have customers. On top of that, although TaxJar helps with reporting, the ultimate responsibility for risk and compliance stays with you. 🚨
This is a weighty responsibility because there are *big* international fines for tax avoidance, both for businesses and for individuals. Even worse than a serious hit to the bank account is the criminal charges for tax evasion, including jail time.
Check out our Tax Agony Index to see just how bad this can get.
TaxJar does offer the ability to register for international taxes by giving clients a business consultation. It also provides you with necessary information to file taxes manually. Be careful though, you'll still have to handle filing on your own, all around the world.
Another important consideration for SaaS businesses is the revenue delivery infrastructure. As a tax calculation tool, TaxJar is just one part of this.
To build out your entire infrastructure, you also need to integrate separate tools for the following tasks:
- Subscriptions and recurring billing
- Localization (including covering multiple currencies, payment methods and languages)
- Data, reporting and analytics
As a result, TaxJar users in the SaaS industry tend to spend a lot of time integrating additional tools, or exploring TaxJar alternatives.
Five reasons why SaaS businesses look for alternatives to TaxJar
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, Russia 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.
Choosing the right alternative to TaxJar
We've just reviewed the top five reasons that compel SaaS business leaders to find alternatives to TaxJar.
Higher overall costs and complexity, combined with regional limitations and lack of liability for sales tax responsibilities mean that TaxJar isn’t the best fit for SaaS businesses with global scope.
In the next section, we’ll take a deep dive into the best alternatives to TaxJar for your tax management needs, in two key categories: revenue delivery platforms and tax calculators.
Option #1: A revenue delivery platform
For managing global sales tax, a revenue delivery platform is an excellent alternative to TaxJar. It works across the entire customer lifecycle to enhance the process of delivering revenue to your business.
Here are some of the key benefits of using a revenue delivery platform as an alternative to TaxJar:
- Takes on global sales tax liabilities on behalf of your business: removing the burden of compliance and all the associated penalties.
- Unified solution: no more complex integrations of assorted tools, and no need to spend resources on engineering.
- Higher performance: infrastructure for the whole transaction process, plus support with building it and advice on running it.
- Single simple cost: all tools included in the price, plus money saved on engineering and improved performance overall.
Designed with SaaS in mind, Paddle is a leading revenue delivery platform. It handles all aspects of revenue delivery, including subscriptions, buyer support, strategy, data analytics and payments. On top of all that, Paddle also takes on full liability for registering, filing and remitting sales tax globally.
Four key benefits of Paddle as an alternative to TaxJar:
- Optimized payments in every country and currency: Paddle’s Managed Payments gives you access to international banking infrastructure.
- Maximize revenue opportunities and operate with confidence: Paddle Pilot tests and fine-tunes the journey of every dollar.
- Maximize conversions while eliminating engineering dependencies: Paddle Checkout offers all popular payment methods and 1-click currencies, all under your own branding.
- Shape every customer’s experience to their unique needs, while boosting your Net Revenue Retention: Paddle Subscribe offers the complete package, not only for acquisition, but also renewals and expansion.
Paddle has supported over 2000 SaaS businesses for almost a decade. Our dedicated advisory team partners with you to offer insights for your go-to-market strategy, whether that’s expanding up or down market, or going global.
Considering Paddle as an alternative to TaxJar? Check out get a demo here.
Option #2: Tax calculators
You could also consider another tax calculator platform as a possible alternative to TaxJar. In this section, we’ll examine the pros and cons of TaxJar’s main competitors.
In general, key points to keep in mind when thinking about tax calculators:
- No sales tax liability: Your business will need to handle this, taking full responsibility for any errors and the resulting penalties.
- Requires integration of assorted tools: Tax calculators only play one role in your revenue delivery stack, so you’ll need to integrate further tools.
- Not specific to SaaS: Not tailored to support SaaS-specific needs, outside of tax calculation.
- Hidden costs: Typical costs will be similar to TaxJar’s way of pricing.
Next, let's check out the competition and find some alternatives to TaxJar.
First up is Avalara, which has a team of tax experts and technologists, offering tax calculator tooling to handle registering, filing and remitting sales tax.
Avalara key features:
- Sales tax calculation
- Reporting and remittance
- Handling sales and renewals documentation
- Automated filing (only in the US)
With Avalara, you'll still be fully liable for filing the correct sales tax figures all over the world, leaving your business vulnerable to penalties if you make a mistake.
Not only that - just like TaxJar, Avalara offers automatic sales tax filing in the US, but not for the rest of the world. That means you'll be on your own when handling sales tax for global clients.
Implementing Avalara is no mean feat either, with its inflexible API and lack of guidance for combining it with all the additional tools essential for running your SaaS business.
In short: Avalara provides a similar feature set to TaxJar, with similar limitations. The main advantage of Avalara as an alternative to TaxJar is that it handles a broader range of global jurisdictions, including those in Asia, South America, Africa and Oceania.
Acquired by Vertex in May 2021, Taxamo is a sales tax payments automation tool that specializes in e-commerce and marketplaces.
Taxamo key features:
- Taxamo Advantage: self-filing and remitting sales tax (business's liability)
- TaxConnex: Sales tax remittance by a tax specialist (business's liability)
- Taxamo Assure: Full sales tax liability (not business's liability)
Taxamo offers customizable APIs with Stripe and PayPal, although without how-to guides to make the process easy. That means you'll need a dedicated engineering team, draining resources both in extra tools and headcount.
In short: The major benefit of Taxamo as an alternative to TaxJar and similar tools is its Taxamo Assume product, which takes on sales tax liability.
But using Taxamo is costly in other ways, namely in creating a revenue delivery infrastructure with a dedicated team to manage your integrations. Instead, a merchant of record or revenue delivery platform makes far more sense.
Next, we have Quaderno, a tax calculator designed for online businesses, selling physical goods, subscription services or digital products.
Quaderno key features:
- Calculates correct sales tax based on buyer location
- Enable businesses to sell directly from their websites
- Offers sales tax reporting
- Integrates with Stripe, PayPal, Braintree, and GoCardless, plus ecommerce platforms
Just like other tax calculators, Quaderno, doesn't take on liability for sales taxes. You'll still need to register in each jurisdiction and handle your own sales tax calculations, filing and payment.
In short: Quaderno has a useful feature of calculating sales tax at checkout. But Quaderno users will have a heavy admin burden as the tool doesn’t include sales tax filing or remittance automation. Also, Quaderno users remain at risk of sales tax errors, which may lead to heavy penalties.
Taxcloud offers a sales tax tool to handle sales tax calculation, filing, and remittance. Uniquely, Taxcloud also offers free of charge sales tax compliance in 25 US member states – good news if your customers happen to be in those states.
But the problem arises when you want to sell to other US states or the rest of the world.
Taxcloud key features (25 states only):
- Indemnification (compensation for harm or loss).
- Handling state notice responses to member state's sales tax notices.
- Automatically file and remit sales taxes.
- Integrations with a range of payment processing and marketplace tools, but without any support.
In short: Taxcloud’s unique 25-state sales tax compliance benefit is great if your customer base is limited to those jurisdictions, but unsuitable for global SaaS sales.