For SaaS companies, managing tax exposure is vital but can be disconcertingly complicated.
In the US, sales tax laws governing software, and particularly SaaS, differ from state to state, and even within a state thanks to home rule municipalities. Not only that, but nexus rules also vary by state, and SaaS companies, as remote sellers, have to carefully track where they are meeting economic nexus thresholds.
Internationally, countries are increasingly moving to establish rules to recoup indirect taxes from SaaS suppliers, requiring sellers to comply with tax rules in the location of the customer whether they’re in France or Taiwan.
Working with an outside tax accountant can be sufficient for fledgling SaaS companies before things get too complicated, but it won’t be long before you’ll want to make your first tax hire to bring the function in-house.
We caught up with Sharell Krukrubo, tax senior manager at Twilio, to get her take on what to look for in your first tax hire.
Why should I hire someone for tax?
Hiring a tax specialist with broad subject matter expertise will directly impact your bottom line and your operating margin. Eliminating tax exposure and ensuring compliance in each place will prevent you from incurring interest and fees, which can add up extremely quickly. In the case of indirect tax, in particular, properly managing exposure and compliance could save you millions over time. Mitigating indirect tax exposure should also be a part of all exit strategies. During the IPO and M&A processes, indirect tax is one of the most heavily scrutinized areas and can directly reduce the payout to shareholders and employees.
According to Anrok’s tax exposure guide, SaaS companies could be wasting more than 4.3% of their revenue due to tax non-compliance. Some of these businesses may be throwing away as much as 11% of their revenue.