SaaS Sales Tax: When to Care (and What to Automate)

Most bootstrapped SaaS founders don’t get into business because they love tax compliance. You’re trying to ship product, find distribution, and keep churn from eating your weekends. Then a customer in the UK asks for a VAT invoice, Stripe shows a “tax threshold” notification, and suddenly you’re staring at a maze of jurisdictions, rates, and filings.

Here’s the stance I agree with (and it’s refreshingly practical): you probably shouldn’t obsess over sales tax on day one—but you also shouldn’t get blindsided by it once you have real traction. In a conversation on Startups For the Rest of Us (Episode 658), Outseta co-founder Geoff Roberts laid out the reality: global sales tax remittance is confusing, it changes constantly, and the “perfect” solution doesn’t exist.

This post is part of our “AI in Legal & Compliance” series, so we’ll connect the operational reality to what modern compliance teams (and lean founder-operators) actually do: use automation, set thresholds, collect the right data, and create an audit-ready trail—without turning your company into a tax department.

When should a SaaS founder care about sales tax?

Answer first: When sales tax becomes a material risk or distraction—typically around $500k–$1M in annual revenue for a bootstrapped SaaS.

If you talk to a risk-averse lawyer, you’ll hear “from the first sale.” Legally, that’s often the safe answer because sales tax/VAT/GST rules vary widely. Practically, early-stage founders need to choose which risks to take and which problems to postpone.

Geoff’s rule of thumb is a good founder heuristic: don’t let sales tax become the thing that prevents you from getting to product–market fit. Most bootstrapped companies need to focus on:

• shipping and iterating faster than they’re “supposed” to
• keeping burn low
• creating repeatable acquisition channels

Then, as you approach meaningful scale—roughly $500k to $1M/year—you’re usually doing enough cross-border volume that sales tax compliance becomes a real operational obligation, not theoretical homework.

Why it gets ugly fast (even in the US)

Sales tax isn’t stable. It’s not a single rate. It’s a moving target.

A statistic Geoff cited that should make any operator wince: in the US alone, 600+ tax rate changes went into effect in 2021. That’s without touching VAT in Europe, GST regimes, or country-specific digital services rules.

That’s the core compliance problem: it’s not just calculating tax—it’s staying current and provably correct. This is where the “AI in Legal & Compliance” lens matters: automation is less about convenience and more about maintaining a defensible process.

Merchant of record vs. being your own seller: what you’re really choosing

Answer first: A merchant of record (MoR) buys you convenience by taking on tax collection and remittance—at the cost of fees, control, and platform risk.

A merchant of record is the entity that appears on your customer’s card statement and is legally responsible for the transaction (including many tax obligations). If you’re using Stripe in the typical way, you’re the merchant of record. If you use a third-party MoR, they become the seller of record to the customer.

Common merchant-of-record providers include platforms like Paddle and Lemon Squeezy (Geoff also mentioned Gumroad).

The real pros/cons (not the marketing version)

Most founders hear “MoR solves taxes” and stop there. It’s more nuanced.

MoR advantages

• Convenience: they handle tax calculation, collection, and remittance in many jurisdictions.

MoR tradeoffs

• Higher fees: the MoR is charging you for taking on that liability.
• Platform risk: if your MoR freezes payouts, changes terms, or goes down, your cash flow is exposed.
• Customer confusion: customers may see “Paddle” (not your company name) on their statement and open support tickets.
• Front-end constraints: many MoRs push you into their checkout UI, which can complicate your product experience.

A clean way to think about it: an MoR is an outsourcing decision plus a dependency. That’s fine for some business models—and painful for others.

A bootstrapped decision framework (based on how you make money)

Answer first: Creators selling one-time digital products often benefit from MoR convenience; recurring SaaS businesses usually win by staying their own merchant and automating compliance incrementally.

Geoff’s guidance is pragmatic and maps well to bootstrap economics.

If you’re early-stage SaaS: don’t over-rotate

If you’re pre–$10k MRR, obsessing over global tax remittance usually isn’t the highest ROI use of your time. Your job is to create “good problems,” not administrative ones.

What you should do early, though, is set yourself up for less pain later:

• collect customer location evidence (billing address, IP region where appropriate)
• keep clean invoices and transaction logs
• document what you’re doing and when you’ll revisit it

That last point matters more than people think. In compliance work, a documented policy plus consistent execution beats vague good intentions.

If you sell one-time digital products: MoR can be rational

For one-time purchases, paying a higher effective fee hurts once. For SaaS subscriptions, it hurts every month forever.

That’s why creators and smaller “digital goods” sellers often accept the MoR premium. It reduces operational complexity and reduces the chance of tax mistakes.

If you’re $1M+ ARR SaaS: pay attention, but don’t panic

At this stage, you’re likely selling into enough jurisdictions that the obligation becomes real. But you still don’t need to boil the ocean.

A workable approach is:

1. Start collecting tax correctly where you can (automation).
2. Remit in the jurisdictions that matter first (materiality).
3. Expand remittance coverage as volume grows (phased compliance).

That’s not “perfect compliance.” It’s operationally sustainable compliance.

The practical stack: calculate with automation, remit in phases

Answer first: Use automated tax calculation to stay current, then roll out remittance jurisdiction by jurisdiction based on thresholds and volume.

Geoff’s recommendation is straightforward: turn on Stripe Tax (or an equivalent tax calculation engine) so you at least know:

• where you’re approaching registration thresholds
• what tax to charge customers
• how much you’ve collected by jurisdiction

The painful part is remittance: registrations, filings, returns, and paying funds to each jurisdiction.

Where AI helps in legal & compliance (even if you’re tiny)

Founders hear “AI compliance” and think it’s only for enterprises. Not anymore. The best use of AI here isn’t filing taxes for you—it’s reducing human error and producing audit-ready evidence.

High-leverage uses:

• Policy drafting: generate a first draft of a sales tax policy, then have counsel/accounting review.
• Obligation tracking: convert threshold alerts into tasks and reminders with clear owners.
• Evidence organization: summarize invoices, exemptions, customer location evidence, and past filings into an audit packet.
• Change monitoring: monitor rate/rule updates (especially US state/local changes) and flag what impacts SaaS.

A useful mental model: AI is your compliance analyst; your accountant is your signer.

A simple “materiality” rule for phased remittance

If you don’t have a full-time finance team, you need a sorting mechanism. Here’s a founder-friendly way to decide where to remit next:

• Home jurisdiction first (where enforcement is most immediate)
• Next, your largest revenue region (often EU/UK for many B2B SaaS)
• Then expand based on two triggers:
  1. you cross an official registration threshold, or
  2. you’ve collected “enough” tax that it would hurt to unwind (choose a number you can defend, like $2k–$10k per jurisdiction)

This isn’t legal advice; it’s operational triage. But triage is how bootstrapped companies survive.

“Will a foreign government come after me?” and other founder FAQs

Answer first: Enforcement risk exists, but many founders report low cross-border enforcement at small scale; acquisition diligence can raise the stakes.

Geoff shared an observation that matches what many operators quietly say: it’s hard to find credible horror stories of a foreign government aggressively chasing a small foreign SaaS for modest unpaid VAT/GST. That doesn’t make non-compliance “fine.” It does mean founders should think in probabilities and impact.

What about acquisitions and due diligence?

This one is real. Even if enforcement is low, buyers don’t love unknown liabilities.

A story Geoff mentioned is telling: a founder disclosed lack of global sales tax remittance during a very large acquisition, and the acquirer allegedly wasn’t shocked.

My view: the bigger risk isn’t that a deal dies—it’s that your buyer prices in uncertainty. Practically, that can look like:

• extra diligence costs
• escrow/holdback terms
• a requirement to remediate post-close

If you’re planning to sell in the next 12–24 months, your bar for “good enough compliance process” should be higher.

What data should you be keeping right now?

Even if you delay filings, you should not delay recordkeeping. Start retaining:

• customer billing country/state
• invoice tax breakdowns
• transaction IDs and payment processor exports
• tax engine reports (e.g., Stripe Tax summaries)
• internal notes: when you turned on tax collection, when thresholds were crossed, and what decisions you made

These artifacts are the difference between a manageable cleanup and a nightmare.

A founder’s bottom line: don’t outsource your thinking

Sales tax compliance is boring. It’s also a scaling step you can’t ignore forever.

For bootstrapped SaaS, the goal isn’t perfection—it’s a process that’s defensible, automated where possible, and improved as revenue grows. Merchant of record platforms can be a good fit for certain businesses, but recurring SaaS founders should be careful about permanent fee drag and platform dependence.

If you’re building without VC, your edge is focus. Handle sales tax the same way you handle everything else: do the minimum that keeps the business safe, then level up your system when the numbers justify it.

Where do you stand right now: are you still in “don’t think about it yet” territory, or have you hit the point where compliance needs to be a real operating cadence?