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Michele Hansen (co-founder of Geocodio) is raising the alarm about Section 174. This legislation could dramatically increase your tax bill this year if you're a small software company in the USA. Michele is organizing a response through the Small Software Business Alliance.
👉 ACT NOW:

Sign up for Michele's list

US citizens: tweet and call your Senators today. They need to know that this is a small business issue and that small businesses in their state are hurt by Section 174.
Share the ssballiance.org URL with your founder friends.
In this episode:


(01:37) - What is section 174?
(04:42) - What's the benefit to the government for this change?
(09:03) - Section 174 is bad for every company that builds software
(11:28) - Disclaimer: We're not tax accountants
(12:21) - What is the SSB Alliance?
(14:05) - Small businesses are the cute puppies of the policy world
(22:05) - A practical example
(25:30) - This is going to impact small software businesses
(28:36) - What can we do?

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Jon's back from his first real vacation in years. In this episode, we discuss how we've been removing inactive accounts on Transistor, SVB, Section 174, Revin is shutting down their Merchant of Record service, SaaS sales tax compliance:

(00:37) - Jon in vacation mode
(02:35) - Kicking off inactive accounts
(04:35) - Silicon Valley Bank
(06:11) - What is Mercury bank?
(13:21) - Section 174 in the USA
(19:24) - Sales tax compliance update
(26:15) - What could we do?
(32:32) - Patreon integration update
(35:16) - MyPodStudios
(36:52) - Patreon Thanks
Links:
Matt Levin's excellent summary of the Silicon Valley Bank run


Ian Landsman: "This is why I don't use startup-friendly banks (Mercury, etc)"
Section 174: join ssballiance.org


Revin has shut down its Merchant of Record service
Flurly (another Merchant of Record) was shut down by Stripe


From the Revin email:
“The most relevant reason [we are closing] is that the Merchant of Record model is too risky for both sellers and the MOR operator. Sellers bear the risk of platform shutdown (as seen in the example of Flurly & Stripe), and the MOR operator could potentially become involved in illicit or illegal activities quickly, which could lead to all sorts of problems.Furthermore, it became increasingly clear that the Merchant of Record model primarily appeals to small-scale sellers or businesses with questionable and high-risk business models. This presents a significant challenge as we strive to move up the market.
The recent change in Stripe's risk behavior has caused us to experience issues with keeping Stripe accounts live.”

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"I don't get it: if that money is for the government, how come the pizza place put it in their cash register?!?"
(Jon is on vacation - our next real episode is coming soon!)
Listen to our past episodes on the headache that is SaaS sales tax compliance:

Part 1
Part 2

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Pascal from sharpen.page
Rewardful.com
Greg Park
Mitchell Davis from RecruitKit.com.au
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Anton Zorin from ProdCamp.com
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Ward from MemberSpace.com
Russell Brown from Photivo.com
Evandro Sasse
Austin Loveless
Michael Sitver
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Colin Gray
Darby Frey
Dave Giunta


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Last week's episode hit a nerve! "The idea that every small software company in the world will be able to be in perfect compliance will every foreign federal, provincial, state, and municipal government that imposes a sales tax is ridiculous. It's an impossible task.


(00:11) - Follow up to previous episode
(02:37) - Responses we got about sales tax
(06:25) - A brief history of sales tax
(09:01) - Many vendors aren't collecting sales tax
(10:46) - What about Stripe Tax?
(12:40) - It's new to North America
(16:17) - How it affects subscription based businesses
(19:35) - It's not clear who's liable
(24:47) - Make it easier and gov't make more money
(28:17) - What about Merchants of Record?
(30:47) - Where is Stripe going?
(35:36) - What are going to do now?
(45:04) - Patreon supporters
Broadly, there were a few different camps with the responses we received: 
North American SaaS companies who have been using Stripe:  "Yes! Sales tax compliance for SaaS is brutal."
European SaaS companies that have had to deal with VAT for a long time (many of whom use a Merchant of Record).
Smaller North American solopreneurs and companies who had no idea they needed to collect and remit sales tax internationally.
North American companies who have one-time sales and use Merchant of Record services.
Responses from indie hackers:


European: “Once again, I notice that the indie hacking community has a somewhat naïve approach to what running a business actually entails. As a European, not having a plan for sales tax is... mindboggling.”

Cooper: “I think it might be a European perspective; we are dealing with VAT from day 1, so it's just one of the parts of running a business from the start, it can't really be neglected.”

Edwin Saraccini: “To clarify, [for Canadians] this is absolutely new territory (Debated in parliament for years) and recently put to legislation in 2021.”

Daniel Vassallo: “It's impossible to be compliant everywhere. The Kingdom of Tonga could tomorrow come up with an internet tax and require you to remit 25% of your sales to the tax office in person in their local currency. And they won't tell you about it. It's just a cost/benefit analysis.”

Derrick Grigg: “How can they enforce tax collection on a business they have no jurisdiction over? Governments are shaking businesses down. I’m all for collecting and paying properly where you physically operate but collecting and remitting outside your province never mind nation is a stretch.”

Derrick Reimer: “Dear Stripe: We SaaS founders are desperate for a full-stack global tax compliance solution without having to leave you for a merchant-of-record. Are you planning to solve this?”
Did you know...
"There are actually several different types of sales tax systems in use throughout the United States. The biggest difference is whether the seller or the purchaser is the main taxpayer. In some states, the tax is imposed on sellers, who then have the option of passing the tax along to their purchasers. In other states, the tax is imposed on the purchaser, with the seller being responsible for collecting the tax and remitting it to the state. And then there are other states where the liability for the tax is shared by sellers and purchasers." (Source)

New thoughts on Sales tax compliance


I still haven’t heard from anyone who has successfully migrated a “mature” SaaS from Stripe to Paddle or LemonSqueezy. These are no-gos:
Can’t cause more churn.
Can’t require customers to re-enter information.
Can’t change our checkout experience.


We might consider Paddle / LemonSqueezy if:
Their fees were more affordable (compared to our existing fees it would be ~$63K year more, $5,250 per month more)
Their dev experience had a better rating from the folks we know.
I had heard from anybody who was at our stage and had actually migrated successfully.


A few folks suggested Revin, which promises “simple global sales tax compliance for Stripe for only $499

Sales tax compliance: nobody in SaaS wants to talk about it. Jon and Justin tried to do something about it and it turned into a nightmare. According to Stripe Tax, there are about 90 different regions that software companies may have to register in, and then calculate, collect, and remit sales tax on their behalf. But in North America, many SaaS companies don't seem to care: many that we looked at weren't collecting sales tax at all, while a few had just started collecting in the US states.

(00:13) - Welcome
(01:54) - Benefits of podcasting for a small business
(03:44) - New Year's update
(05:59) - Patreon integration feature
(10:23) - Dear listener... a request!
(10:50) - Exciting! Sales Tax! Discussion!
(29:01) - What have we tried
(40:12) - A new issue that we can't make progress on
(47:00) - Thanks to our Patreon supporters
If you've been wondering about how sales tax applies to SaaS, listen to this episode.Thanks to our monthly supporters


Pascal from sharpen.page
Rewardful.com
Greg Park
Mitchell Davis from RecruitKit.com.au
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Anton Zorin from ProdCamp.com
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Ward from MemberSpace.com
Russell Brown from Photivo.com
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Fathom Analytics
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Want to start a podcast on Transistor? Justin has a special coupon for you: get 15% off your first year of hosting: transistor.fm/justin


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The whole Transistor team got together for a retreat in Montréal. Jon, Justin, Helen, and Jason chat about the experience. 
What should we talk about next? 

Twitter: @buildyoursaas, @mijustin, @jonbuda, @jsonpearl, and @helenryles

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Check out Simon and Volkan’s new bootstrappers podcast: https://shipsaasfaster.com/ 



Thanks to our monthly supporters

Pascal from sharpen.page
Rewardful.com
Greg Park
Mitchell Davis from RecruitKit.com.au
Marcel Fahle, wearebold.af
Ethan Gunderson
Anton Zorin from ProdCamp.com
Bill Condo (@mavrck)
Ward from MemberSpace.com
Russell Brown from Photivo.com
Evandro Sasse
Austin Loveless
Michael Sitver
Fathom Analytics
Dan Buda
Colin Gray
Darby Frey
Dave Giunta

Want to start a podcast on Transistor? Justin has a special coupon for you: get 15% off your first year of hosting: transistor.fm/justin


★ Support this podcast on Patreon ★