I’ve written several times over the past two years on the topic of global sales tax compliance. It’s a complex topic that’s not well understood, even by experienced founders. 

At Outseta, we needed to figure out how to collect global sales tax ourselves—but we also needed to productize a solution to this problem for our customers, too. I can assure you we looked at every model, integration, and tax software product under the sun. 

I described this problem previously as “the toughest product decision we’ve faced,” and even used the word “inaction” to describe our approach. The point is, we sweated this topic. And while inaction never feels good, it came from a good place—we simply weren’t happy with any of the options that we found.

In retrospect, I’m so happy we waited.

Why Stripe Tax?

When Stripe Tax launched in 2021, our team was excited about the potential of the product and immediately gave it a look. The product can be enabled by customers who also pay for Stripe Billing, or it can be built into a product like Outseta using Stripe’s APIs. 

Outseta doesn’t use Stripe Billing under-the-hood, which is a significant competitive advantage for us—it allows our customers to save .8% per transaction over our competitors who rely on Stripe Billing. As a result, we looked into integrating Stripe Tax via Stripe’s APIs—which in 2021 were less than ideal for our use case.

This is why I’m happy we waited—Stripe eventually updated their APIs in a major way, allowing for a much more straightforward implementation of Stripe Tax with Outseta. If we had built out the integration on Stripe’s original APIs, we would have had to entirely rebuild this functionality—no small task that would have been months of work down the drain. Sometimes waiting pays—the resulting integration is better for it.

From a pricing perspective I’m happy that we waited, too. The third party tax software products that we assessed were prohibitively expensive for our customers. And the more we evaluated becoming a merchant of record, the more we realized the serious downsides of the Merchant of Record model. Our inbox quickly became flooded with stories of customers frustrated to discover that they are actually paying 7%-15% of each transaction in fees when using a MoR. Stripe Tax's pricing for Outseta customers is simple—it's $.50 per transaction if tax is applied.

Beyond that, Stripe Tax has simply matured as a product over the last few years. The more time I've spent with the product, the more my opinion has changed from “this might work” to “wow, this is actually a super impressive.” Hats off to the Stripe team.

Stripe Tax allows you to calculate, collect, and report tax on payments in over 40 countries. But what I’m most excited about is how easy it is to implement, and how it automatically monitors your transactions and alerts you so you only start collecting tax when you need to in each geography.

Stripe Tax is ridiculously easy to implement

As we were building this integration, I was hyper aware of one thing—nobody wants to deal with this stuff! I knew that if our solution was complicated, our customers would struggle. Our integration ended up being far simpler to setup and configure than I could have imagined (thanks, Dave).

Here’s what’s involved in setting up Stripe Tax in your Outseta account:

1. Toggle Stripe Tax to “On”
2. Add a Billing Address field to your sign up form
3. Flip a toggle to make your plans taxable

In Stripe you’ll need to identify three things—where your business is located, what you’re selling (a “tax category”), and whether you want your prices to be inclusive or exclusive of tax.

That’s it! 

Here’s documentation to get started: How to enable Stripe Tax in Outseta

Stripe Tax monitors and alerts you when you need to collect tax

To say nothing of the fact that Stripe automatically applies and collects the appropriate tax rate based on what your selling, the location of the customer, and other factors...

...the feature that I’m most impressed with is the Monitoring dashboard. Stripe automatically looks at all transactions in your Stripe account, and proactively alerts you when you cross tax thresholds in a certain geography. These thresholds represent a specific number of transactions or an amount of revenue processed in a single location which dictate when you are required to start collecting taxes in any given location. 

This may sound like a small thing, but it’s a big deal because it ensures that you don’t start collecting taxes in certain geographies prematurely. This can save early stage businesses a lot of money compared to more blunt approaches where you start collecting tax well before you're required to do so.

Stripe Tax will proactively alert you when there’s a new geography where you need to collect tax—you can start collecting tax in that geography with the click of a button. 

Why not become a Merchant of Record?

As we wrestled with this topic, I thought for a long time that Outseta becoming or integrating with Merchant of Record would be the best approach. That’s not the topic of this post, but I wanted to at least quickly address why we didn’t take this route to start.

• With a MoR, early stage companies (our customers) start collecting taxes in geographies before they need to. They pay the highest possible tax rates in every geography because the MoR is over all of the tax thresholds globally—even when their business is not.
• Processing fees routinely range from 7%-15% per transaction. 
• The MoR model introduces serious risk for your business that’s completely outside of your control.

While those were the reasons we didn’t think the MoR model was the right place to start for our customers, I do want to reiterate that this is a complex topic with a lot of nuance and there are instances where using MoR makes sense.

As a company that processes payments for a wide range of start-ups, our hope is to give our customers flexibility—we would love to offer a MoR solution as well as Stripe Tax to our customers going forward. We will continue to evaluate all possibilities from becoming a MoR ourselves to integrating with other tools.

Stripe Tax is available to all Outseta customers today

If you login to your account, you can enable Stripe Tax from the BILLING > SETTINGS page. Here's the documentation you'll need. The integration is currently listed as being in beta—there are already Outseta customers using this live and we'll be removing that label in the next few weeks. We're excited to get this product into your hands!

—Geoff, Dave, Dimitris, James, Bernard, and Benedicte

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