The growth in tax regulations has made it increasingly complicated to sell products globally. It is a vicious cycle. Organizations are looking to technology advancements to cope with the ever-changing challenges of global business. Growth in the digital economy has only made the process of managing sales and use taxes (SUT) more difficult as each sales location may have its own tax reporting obligations.
In addition to a global pandemic, corporate tax managers were exposed to a rapid rate of change in tax regulations in 2020. The regulatory rules are constantly changing along the following dimensions:
While the pandemic was a drag on the global economy in many ways, the pandemic was an accelerator for tax complexity and tax enforcement. As a result, the new reality is shaping up for corporate tax managers where digitization of workflows and business models will accelerate rapidly. The data requirements for tax managers will continue to increase in both variety and velocity.
IDC has observed several trends that will shape corporate tax application market over the next three to five years, including:
As always, the heaviest part of the burden from the complex regulations on digital goods and services will fall on the small and midsize business (SMB) digital commerce retailers where tax management resources (e.g., time, money, and people) are more limited. IDC believes that this burden places a heavy focus on affordable, cloud-based tax compliance software in the coming months, especially among smaller digital retailers. A few things SMB clients value in a tax solution for the digital economy are:
Many tax software vendors have invested a tremendous amount of resources in enhancing/launching products that address the taxation of digital goods and services. Many of them offer dedicated initiatives to provide tools and education for business owners as they navigate the digital goods and services taxation landscape as it continues to evolve.
Sales tax applications are evolving rapidly as vendors invest research and development dollars into bolstering, augmenting and, in some cases, redesigning their applications. The applications must align with the new digital enterprise and its preferred way to absorb technology. The vendors must work to align their go-to-market strategies and product development strategies with the new digital enterprise. While the vendors in this study may vary widely in size, experience, levels of support, and sales model, the goal for all the vendors listed in this study is the same — create/curate a differentiating user experience (UX). To do that, the user experience must go beyond the software to include the sales process, account management, implementation, and post-implementation support. As a buyer in this market, a few of the key questions to consider during the buying process are:
This section briefly explains IDC’s key observations resulting in a vendor’s position in the IDC MarketScape. While every vendor is evaluated against each of the criteria outlined in the Appendix, the description here provides a summary of each vendor’s strengths and challenges.
After a thorough evaluation of TaxJar’s strategies and capabilities, IDC has positioned the company in the Leaders category in this 2021 IDC MarketScape for the worldwide SaaS and cloud-enabled sales and use tax automation software for small and midsize businesses market.
TaxJar automates the sales tax life cycle from nexus determination to calculations to reporting and filing and remittance. TaxJar offers integration with ecommerce and ERP platforms, sales tax, calculations, sales tax reporting, automated filing, economic nexus determination, and registrations.
Founded in 2013, in Boston, Massachusetts, as a remote-first company, TaxJar’s mission is to address the growing challenges facing ecommerce merchants regarding the volume and tax transactions in multiple locations and the growing complexity of tax compliance within ecommerce. Now, TaxJar supports a broad range of goods and services sold online, with deep product taxability support in retail, software (SaaS) and digital goods, health and medical (B2C only), food and beverage, and services. TaxJar was acquired by Stripe in June 2021.
Consider TaxJar if you are looking for a software vendor with a focus on customer service and a deep understanding of ecommerce and digital services tax compliance.
“Consider TaxJar if you are looking for a software vendor with a focus on customer service and a deep understanding of ecommerce and digital services tax compliance.”
The vendor inclusion list for this study was selected to accurately depict the vendors that are most representative of any given software application on a buyer’s selection list based on the following:
For the purposes of this analysis, IDC divided potential key measures for success into two primary categories: capabilities and strategies.
Positioning on the y-axis reflects the vendor’s current capabilities and menu of services and how well aligned the vendor is to customer needs. The capabilities category focuses on the capabilities of the company and product today, here and now. Under this category, IDC analysts will look at how well a vendor is building/delivering capabilities that enable it to execute its chosen strategy in the market.
Positioning on the x-axis, or strategies axis, indicates how well the vendor’s future strategy aligns with what customers will require in three to five years. The strategies category focuses on high-level decisions and underlying assumptions about offerings, customer segments, and business and go-to-market plans for the next three to five years.
The size of the individual vendor markers in the IDC MarketScape represents the market share of each individual vendor within the specific market segment being assessed.
IDC MarketScape criteria selection, weightings, and vendor scores represent well-researched IDC judgment about the market and specific vendors. IDC analysts tailor the range of standard characteristics by which vendors are measured through structured discussions, surveys, and interviews with market leaders, participants, and end users. Market weightings are based on user interviews, buyer surveys, and the input of IDC experts in each market. IDC analysts base individual vendor scores, and ultimately vendor positions on the IDC MarketScape, on detailed surveys and interviews with the vendors, publicly available information, and end-user experiences in an effort to provide an accurate and consistent assessment of each vendor’s characteristics, behavior, and capability.
Sales and use tax (SUT) applications help corporations calculate taxes for current transactions, estimate tax burden for future transactions, determine tax exemptions, manage filing and compliance, and store tax-related forms/documents. Core functionality for SUT software includes determination, calculation, exemptions, registration, filing/returns, and reporting capabilities.
This IDC study provides an assessment of the SaaS and cloud-enabled sales and use tax automation software for small and midsize businesses and discusses the criteria that are important for companies to consider when selecting a system.
“Many tax software vendors have invested a tremendous amount of resources in enhancing/launching products that address the rapid changes in the regulatory landscape over the past year. Such vendors are well position for growth as the taxation landscape as it continues to evolve,” says Kevin Permenter, research director, Financial Applications.
International Data Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications and consumer technology markets. IDC helps IT professionals, business executives, and the investment community make fact-based decisions on technology purchases and business strategy. More than 1,100 IDC analysts provide global, regional, and local expertise on technology and industry opportunities and trends in over 110 countries worldwide. For 50 years, IDC has provided strategic insights to help our clients achieve their key business objectives. IDC is a subsidiary of IDG, the world’s leading technology media, research, and events company.