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What to look for in your first tax hire

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Articles
Last Updated

What to look for in your first tax hire

Anrok | Streamlined sales tax for SaaS

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.

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Anrok | Streamlined sales tax for SaaS
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SaaS companies must be particularly vigilant in tracking exposure because of how widely tax rules governing SaaS services vary by jurisdiction. There are different laws at the state, county, and city levels, and this complex scenario keeps shifting each year. As of March 2021, about 20 major jurisdictions have laws that require you to charge sales tax on SaaS, but the number of states seeking to tax SaaS is likely to continue to increase as states look for more sources of revenue.

Jurisdictions differ not only in their laws regulating SaaS taxation but also in what level of taxes, penalties, and interest rates they apply. For example, sales tax ranges from 1% to 10.5% across jurisdictions, while penalties might range from 10% to 30%, and interest rates could be anywhere from 2.5% to 20%.

When should SaaS companies make a tax hire?

SaaS companies should make a tax hire fairly early in their life cycle. Prior to changes in tax laws, companies could wait until later in their life cycle or even after an exit to hire a tax specialist. But maintaining compliance with rapidly changing tax rules in the US and around the world—especially where it comes to transaction taxes and indirect tax—requires vigilance, organization, and time. In short, having a staff member dedicated to ensuring you stay in compliance is the most likely avenue to accurate management and reduced costs.

Should I hire a generalist?

SaaS businesses typically take one of two routes in looking for their first tax hire. One is hiring a generalist to tackle a broad scope of issues, including direct tax compliance, tax credits, global mobility, and global indirect tax, among others. The other approach is hiring an indirect tax specialist to focus on implementing and managing indirect tax.

There are benefits to both options. High-growth SaaS businesses most commonly hire a generalist to manage a broad range of tax areas. Often, in-house tax generalists will work with local and global firms to ensure adequate expertise and compliance for each tax type and jurisdiction. Companies that have outgrown an outsourced model may consider hiring in-house subject matter experts on specialized tax teams.

It is critical for companies to ensure their first tax hire is empowered to leverage technology that will drive compliance, boost efficiency, and manage risk. Using an indirect tax tool like Anrok will make it easier for small or one-person tax departments to adhere to increasing regulation and manage the associated risk.

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