Building in Public January 18, 2021

Tax problem for SaaS companies?

Tae Hyun Kim @livekth

Hello everyone!

I'm trying to find a business opportunity and I'm wondering if SaaS bootstrappers have any tax problems when selling software. I heard that every state in the US and countries globally have different tax mechanisms so being legal on tax and saving its amount simultaneously might be difficult.

Does anyone experience such problems for running a SaaS company?

  1. 3

    I would gladly pay for something like "Gumroad for SaaS".

      1. 1

        True. Gumroad is still simpler.

        1. 1

          You can setup a basic checkout with Paddle with about 4 lines of code, not sure it could be much simpler. Perhaps a hosted checkout page?

          But for SaaS you will always need to code some integration e.g. webhooks so that you can set up customers in your software after they have subscribed.

          1. 1

            The integration isn't really the issue. Paddle is great in that way. But it doesn't commit to "simple".

            Just try to find out what they cost.


            I've done the research and know Paddle is around 5% on the transactions. Why not just write it on the pricing page?

            Compare with Gumroad.


            1. 1

              @alexbill Alex, can you elaborate what you mean by simplicity a bit more? I'm not familiar with the two sites, and probably that's why I don't get it right away.

              1. 1

                If you meant to ask me I'm talking about simplicity as in a leading core value in the entire product. From pricing to integration and everything in-between. Gumroad commits to this, and they capture people who just want to get going.

                This means Gumroad takes on a bunch of complexity in order to deliver a simple experience.

              2. 1

                I think this question was meant for @marcusstenbeck

            2. 1

              Yes more transparency on the pricing would better. Stripe offer a standard rate and then discounts on an individual basis for high volume users. As Paddle don't do this I can only assume they are charging larger businesses a higher than standard rate.

    1. 1

      I'm curious! :)

      What would "Gumroad for SaaS" do to be valuable?

      1. 2
        1. Be a Merchant of Record for my SaaS so I don't have to care about tax compliance.
        2. Be simpler than Paddle.
  2. 3

    There is probably a lot of info on this topic on IndieHackers and elsewhere but to give you a quick overview:

    Countries have different rules regarding sales tax on digital products. The rules which apply generally depend on the location of your customer, not your business. Therefore, different rules can apply for each sale you make. Sales tax typically only applies on B2C sales, not B2B sales.

    There are a number of services to reduce the hassle of dealing with this e.g. Quaderno, TaxJar, Octobat, Avalara etc.

    There are also a number of Merchant of Record solutions that completely take the problem off your hands e.g. Paddle, FastSpring, 2Checkout, Gumroad, PayPro Global

    1. 1

      Thanks for making so many things clear! I was quite confused regarding this.

  3. 2

    Hey Tae, you might find this recent post on VAT useful - a person from Stripe commented on there about the help they can provide (if you're using them)

  4. 1

    In Europe, rules are pretty crazy too :-).

    You have to know what EU country you sell to and whether the customer is business or person, etc.

    If the customer is not business, you need to collect VAT according to their local rules (rules of her country, not yours) and register in the given country. Fortunately, there is a mechanism on how to avoid registration in the given country, but it's also a bit of pain in ass.

  5. 1

    This is getting to be a complex issue in SaaS. It used to be the case that you only had to worry about collecting sales tax for states where you had established a physical nexus. After the Wayfair decision by the Supreme Court, every state can require a SaaS company to collect sales tax even if they don't have physical nexus there.

    If you aren't a sales tax specialist, I think this would be a very difficult business to get into. At the least you would need to partner with someone who was. Even then, competing with a company like Avalara would be a big lift.

  6. 1

    The fear of getting taxes wrong is why I use Paddle. They're the seller of record, so taxes are their problem 😛

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