Sales Tax Compliance for E-commerce and SaaS Businesses: A Growing Concern
Until six years ago, many e-commerce and SaaS businesses could have avoided paying sales tax to states where they had customers, but no physical presence. However, as online shopping grew, states realized they were losing out on tax revenue.
The End of Free-Riding for Online Retailers
But as the online market continued to grow, states began to take action. In 2018, South Dakota took Wayfair to court over sales tax collection, and the Supreme Court ultimately sided with South Dakota. This decision marked a significant shift in the way e-commerce and SaaS businesses approach sales tax compliance.
The Challenges of Sales Tax Compliance
Now, online stores and SaaS companies have to collect sales tax from their customers wherever it’s required, which is not an easy task given that tax laws vary significantly by city, county, and state. Rohit Bhadange, who worked in venture capital and private equity, identified sales tax compliance as a major pain point for e-commerce and SaaS businesses.
The Solution: Zamp
In response to this challenge, Bhadange launched Zamp, a startup whose software can automatically calculate and file sales taxes for businesses of all sizes. Since its launch about 18 months ago, Zamp has grown its customer base to over 400 companies and achieved annual recurring revenue in the mid-millions, according to Bhadange.
Zamp’s Rapid Growth
The fast growth of Zamp has captivated investors, and on Thursday, the company announced a $10 million Series A led by Valor Equity Partners with participation from Venus Williams, Day One Ventures, and other investors. In addition to expanding its e-commerce and SaaS client base, Zamp has begun to partner with accounting firms grappling with a talent shortage caused by declining interest in the profession.
Partnerships with Accounting Firms
The company’s accounting firm clients include top 25 U.S. accounting firms Baker Tilly and Withum. Bhadange said that accounting firms are under increased pressure to assist clients with sales tax compliance, particularly as states intensify their tax audits. "You have this perfect storm where enforcement is increasing; tax compliance is increasing, [but the number of] accountants is decreasing," he explained.
Introducing Z-tax
To meet that demand, Zamp is introducing a new product called Z-tax, which helps accountants and bookkeepers provide sales tax services without increasing their headcount. "We want them to focus on higher value advisory services while we manage the entire sales tax process on the back end," Bhadange said.
Competition in the Market
Zamp is not alone in the market for sales tax compliance solutions for startups, particularly SaaS businesses. Its primary competitor is Anrok, backed by Khosla Ventures and Sequoia. Anrok, founded four years ago, may be slightly older and larger — having recently raised a $30 million Series B — but Zamp’s rapid growth indicates there is room for multiple players in this space.
The Future of Sales Tax Compliance
As the demand for sales tax compliance solutions continues to grow, it will be interesting to see how Zamp and its competitors navigate the market. With the introduction of Z-tax, Zamp is positioning itself as a leader in the space, but there are certainly challenges ahead. As Bhadange noted, "We’re not just building software; we’re solving a real-world problem that’s affecting thousands of businesses across the country."
Conclusion
The shift towards sales tax compliance for e-commerce and SaaS businesses has significant implications for entrepreneurs and business owners alike. With Zamp leading the charge in providing innovative solutions to this complex issue, it will be exciting to see how the market evolves in the coming years.
About the Author
Marina Temkin is a venture capital and startups reporter at TechCrunch. Prior to joining TechCrunch, she wrote about VC for PitchBook and Venture Capital Journal. Earlier in her career, Marina was a financial analyst and earned a CFA charterholder designation.
Related Topics
- Day One Ventures
- Valor Equity Partners
- Venus Williams
- Zamp
- Sales Tax Compliance
- E-commerce
- SaaS Businesses