The Cross Border Digital Products and Services Tax

Last week's episode hit a nerve! "The idea that every small software company in the world will be able to be in perfect compliance will every foreign federal, provincial, state, and municipal government that imposes a sales tax is ridiculous. It's an impossible task.

• (00:11) - Follow up to previous episode
• (02:32) - Responses we got about sales tax
• (06:20) - A brief history of sales tax
• (08:56) - Many vendors aren't collecting sales tax
• (10:41) - What about Stripe Tax?
• (12:35) - It's new to North America
• (16:12) - How it affects subscription based businesses
• (19:30) - It's not clear who's liable
• (24:28) - Make it easier and gov't make more money
• (27:58) - What about Merchants of Record?
• (30:28) - Where is Stripe going?
• (35:17) - What are going to do now?
• (44:45) - Patreon supporters

Broadly, there were a few different camps with the responses we received: 

1. North American SaaS companies who have been using Stripe:  "Yes! Sales tax compliance for SaaS is brutal."
2. European SaaS companies that have had to deal with VAT for a long time (many of whom use a Merchant of Record).
3. Smaller North American solopreneurs and companies who had no idea they needed to collect and remit sales tax internationally.
4. North American companies who have one-time sales and use Merchant of Record services.

Responses from indie hackers:

• European: “Once again, I notice that the indie hacking community has a somewhat naïve approach to what running a business actually entails. As a European, not having a plan for sales tax is... mindboggling.”
• Cooper: “I think it might be a European perspective; we are dealing with VAT from day 1, so it's just one of the parts of running a business from the start, it can't really be neglected.”
• Edwin Saraccini: “To clarify, [for Canadians] this is absolutely new territory (Debated in parliament for years) and recently put to legislation in 2021.”
• Daniel Vassallo: “It's impossible to be compliant everywhere. The Kingdom of Tonga could tomorrow come up with an internet tax and require you to remit 25% of your sales to the tax office in person in their local currency. And they won't tell you about it. It's just a cost/benefit analysis.”
• Derrick Grigg: “How can they enforce tax collection on a business they have no jurisdiction over? Governments are shaking businesses down. I’m all for collecting and paying properly where you physically operate but collecting and remitting outside your province never mind nation is a stretch.”
• Derrick Reimer: “Dear Stripe: We SaaS founders are desperate for a full-stack global tax compliance solution without having to leave you for a merchant-of-record. Are you planning to solve this?”

Did you know...

"There are actually several different types of sales tax systems in use throughout the United States. The biggest difference is whether the seller or the purchaser is the main taxpayer. In some states, the tax is imposed on sellers, who then have the option of passing the tax along to their purchasers. In other states, the tax is imposed on the purchaser, with the seller being responsible for collecting the tax and remitting it to the state. And then there are other states where the liability for the tax is shared by sellers and purchasers." 

(Source)

New thoughts on Sales tax compliance

• I still haven’t heard from anyone who has successfully migrated a “mature” SaaS from Stripe to Paddle or LemonSqueezy. These are no-gos:
  • Can’t cause more churn.
  • Can’t require customers to re-enter information.
  • Can’t change our checkout experience.
• We might consider Paddle / LemonSqueezy if:
  • Their fees were more affordable (compared to our existing fees it would be ~$63K year more, $5,250 per month more)
  • Their dev experience had a better rating from the folks we know.
  • I had heard from anybody who was at our stage and had actually migrated successfully.
• A few folks suggested Revin, which promises “simple global sales tax compliance for Stripe for only $499/month,”  but:
  • They have to “create a new Stripe account for your brand.”
  • Do they own your Stripe account?
  • You’ll lose your historical stats and revenue analytics
• The current solution we’re considering is Stripe Tax + TaxJar (and start with US and Canadian tax remittance)

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