Region Focus: Worldwide

Worldwide SaaS and Cloud-Enabled Sales and Use Tax Automation Software for Small and Midsize Businesses 2021 Vendor Assessment

October 2021 | us47987521-clone
Kevin Permenter

Kevin Permenter

Research Director, Financial Applications

Product Type:
IDC: MarketScape
This Excerpt Features: TaxJar

IDC MarketScape Worldwide SaaS and Cloud-Enabled Sales and Use Tax Automation Software for Small and Midsize Businesses Vendor Assessment

Capabilities Strategies Participants Contenders Major Players Leaders




TaxJarFeatured Vendor

Major Players


Thomson Reuters

Wolters Kluwer


IDC MarketScape Methodology

IDC Opinion

Current Market Overview

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:

  • Marketplace facilitator laws. In the United States, several states including Illinois, California, and Massachusetts have implemented or reworked their laws requiring marketplace facilitators (i.e., Amazon, Walmart, and eBay) to collect and remit sales tax on behalf of their third-party sellers’ transactions. There is tremendous energy around this issue as states look for stronger visibility and access to the tremendous revenue growth within the digital economy.
  • South Dakota v. Wayfair. The South Dakota v. Wayfair Supreme Court decision is removal of the “physical presence” mandate; now states have the authority to collect sales tax from retailers and other online sellers that have “substantial nexus” (i.e., conduct a considerable amount of business) in that state. Each state and local tax jurisdiction within it that charges sales tax must now decide how it wants to define substantial nexus. This means that all sales will need to be subject to the collection of sales tax, whether they be direct or by third-party sellers.
  • Shifting jurisdictions. Within each state, each jurisdiction has a unique set of rates and characteristics that makes maintaining compliance more difficult. Further, the tax rates within the United States are constantly changing at both the state and the local level.
  • Shifting indirect tax rates. Indirect taxes like sales and use tax, value-added tax (VAT), and goods and services tax (GST) are critical aspects of the emerging global digital economy. Nearly every major economic region is undergoing some level of indirect tax reform; the countries announcing VAT/GST changes include Canada, Malaysia, China, and India. Recent global tax initiatives (e.g., Wayfair, Making Tax Digital, and Golden Tax) are promising to make tax determination even more complex in the coming years.
  • New financial reporting standards. IFRS 15 and ASC 606 have significant impact on how and when revenue can be recognized. IFRS 16 has impacts on how leases are accounted within the corporation. Together, these reporting changes add complexity to the process of corporate tax compliance.

Major Market Trends

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: 

  • The rise in cross-border ecommerce. The digital economy has made it easier to sell products to more countries and do so faster than ever. Growth of the ecommerce has introduced new compliance steps.
  • The evolving nature of digital transaction tax. Tax authorities around the world are becoming more aggressive — activity modernizing their infrastructure to close VAT gap.
  • The role of e-invoicing. A growing number of nations are making digital invoicing (e-invoicing) a mandatory activity. e-Invoicing mandates are quickly taking root.
  • Increased enforcement. The IRS recently announced an increase of 50% in the number of audits on small businesses for the 2021 tax year. This is a harbinger of heightened audit risk in 2021 and beyond.
  • Growth in digital business driving digital taxation. The selling of digital goods and services is set to redefine the way the global economy works. Tax software vendors have already invested a tremendous amount of resources in enhancing/launching products that address the taxation of digital goods and services.

Small Business Difference

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: 

  • Bring on the innovation: Companies looking for sales and use tax software vendors must strongly consider vendors that are utilizing technology advances like machine learning and artificial intelligence to support the sale tax functions including the collection and analysis of relevant data to expose possible areas of risk/exposure.
  • Focus on training and education: The tax regulatory sands are constantly shifting for corporate tax professionals. Consider looking for sales and use tax software providers that offer training and education in the form of regular videos and white papers. In addition, look for software vendors with education portals where customer can find the latest tax regulatory information.
  • Move to the cloud: The rapidly changing tax rates and the pace of digital business almost necessitate the use of cloud computing when calculating and collecting sales and use taxes. Companies looking for sales and use tax software need to strongly consider cloud-based solutions.

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.

Tech Buyer Advice

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:

  • Begin by looking inward. Before making purchasing decisions on tax software, here are a few key questions to ask regarding the internal resources and processes:
    • What are some of the issues I would like to resolve with this new system?
    • Are the issues technology related?
    • What are my internal support resources and capabilities?
    • How should we define success for this implementation?
    • Which internal stakeholders should we include in the evaluation processes?
    • How will a new system change my organization?
  • Select the right partners (internal and external). The first step in the journey to tax system is developing a strategy and plan for the implementation. This includes doing the due diligence in finding the right vendor. Here are a few key questions to ask regarding the software vendor:
    • Does the vendor have experience with my type of product, service, and company size?
    • Can the vendor show me a hands-on demo with my organization’s “live/real” data to show the benefit to the business?
    • Does the vendor understand the regulations that will impact my business? How are these regulations reflected in my current product and how will it change in the future?
    • What is the vendor’s strategic investment outlook for the next three to five years? Why? How will that change and enhance my business?
  • Consider the foundation. Tax application vendors have seen many iterations from a technology architecture standpoint. Even among cloud vendors there are many different varieties of software architectural approaches. IDC believes that taking time to understand the foundation of the software and its advantages (or limitations) is of critical importance during the buying decision. Here are a few key questions regarding the tax software vendor:
    • What is the data flow design within the current solution?
    • What kind of APIs are available now from this vendor? RESTful? SOAP? GraphQL?
    • What kind of developer tools does the vendor provide (e.g., sandbox, dedicated portal, low-code/no-code tools, and database management tools)?
    • Is any part of the software currently built on a microservice architecture? If so, which parts?
  • Take ownership of the implementation. For the best results, organizations must take a very active role in the actual implementation of the software. Tax software touches upon a lot of other back-office systems (order management, accounts payable, accounts receivable, treasury, expense management, etc.). As a result, extreme attention must be given to how the tax system is set up and how it interacts with other systems within your organization. Here are a few key questions to ask regarding the tax software implementations:
    • What levels of support are available and are they geographically available for my business?
    • How should I set up the service-level agreement (SLA) before signing any contracts?
    • Can the system integrate with my company’s other IT systems and those of my partners?
    • Which IT system needs to be integrated and to what degree?
    • How are we set up to deal with frequent product updates?
  • Note that post-implementation is critical. In many ways, the success of any SaaS implementation hinges on what happens after the implementation is up and running. This is where change management takes center stage and the people’s side of tax management becomes essential. Here are a few key questions to ask regarding the post–go live phase of tax software implementations:
    • Do we have a strategy to encourage rapid adoption among employees?
    • Do we have the right amount of training for employees to master the new features within the system?
    • Are we communicating the purpose and benefits of the system change to the relevant employees?
    • Have we aligned existing policies and procedures to enable the adoption of the new workflows?

Featured Vendor

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.

Quick facts about TaxJar are:

  • Employees: 210+
  • Total number of clients: 24,000+
  • Industry focus: Retail, software, digital goods, healthcare, food and beverage, and services
  • SaaS: Multitenant architecture
  • Pricing model: Subscription (based on tiers/groups of service)
  • Average time of implementation: Less than one week
  • Partner ecosystem: 290+ partners


  • Cloud-native technology: TaxJar was built as a cloud-first application, with scale and performance in mind. TaxJar offers modern APIs with 99.99% uptime and automated filing incorporated using both robotic process automation and rule-based automation to handle interactions with state revenue departments. 
  • Customer focus: TaxJar makes customer support a major priority. TaxJar’s customer service is an integral differentiator. TaxJar achieves this by providing customers with multiple avenues for understanding the nuances of sales tax — from its Sales Tax Blog to its support articles, developer documentation, and online learning courses, to manage the complexity of SUT.
  • Large partner ecosystem: With integrations built in-house for one-click deployment (and supported with developer documentation) and aggregate reporting across all channels, TaxJar allows its customers to view all transactions across every place they sell (Amazon, eBay, Shopify, NetSuite, custom cart, etc.) in one report. This aggregate reporting also enables customers to track economic nexus across all channels in one single view.


  • Scaling up operations: As a rapidly growing company, one of the challenges TaxJar faces is rapidly scaling the team to meet demands of growing customer base and keep pace with the accelerated rate of state legislative changes. TaxJar doubled in size in 2020 and expects to grow exponentially given Stripe’s vision for creating a unified global tax platform.
  • Experience consolidation: eCommerce and payment platforms are seeking more integrated experiences for their customers and seeking to provide a holistic ecommerce experience inclusive of sales tax within their walls. This presents both a challenge and an opportunity for TaxJar as it expands its partnerships and integrations from simple APIs to fully embedded or white-label experiences with platforms. In 2020, TaxJar launched a beta partnership with a top ecommerce platform to embed the sales tax calculations directly into its platform.

Consider TaxJar When

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.”

Kevin Permenter, Research Director, Financial Applications – IDC


IDC MarketScape Vendor Inclusion Criteria

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:

  • Vendors must have a SaaS or cloud offering — on-premises-only applications are out of scope.
  • Software application can be purchased separately (not just functionality built into a larger system) and is available off the shelf without required customization.
  • Software application has capabilities for determination, calculation, exemptions, filing/returns, and/or registration.
  • The vendor had at least $5 million in 2020 tax management software revenue.
  • The vendor has a minimum of one tax solution in market for at least three years.
  • The vendor must have a significant footprint within the small and midmarket businesses (i.e., businesses with less than 1,000 employees).

Reading an IDC MarketScape Graph

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 Methodology

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.

Market Definition

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.

Related Research

  • Worldwide Corporate Tax Management Applications Forecast, 2021–2025: Complexity and the Pandemic Drive Technology Transformation (IDC #US47995821, July 2021)
  • Market Analysis Perspective: Worldwide Corporate Tax Management Applications, 2020 (IDC #US45754920, September 2020) 
  • Worldwide Corporate Tax Management Applications Market Shares, 2020: Pandemic and Shifting Regulations Shape Market Dynamics (IDC #US47995721, July 2020) 
  • Worldwide Corporate Tax Management Applications Forecast, 2020–2024: eCommerce and Dynamic Global Taxation Driving Growth and Innovation (IDC #US46530420, June 2020) 
  • Worldwide Corporate Tax Management Applications Market Shares, 2019: Global Regulatory Changes Raise the Profile of Tax Software (IDC #US46530320, June 2020)


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.

About IDC

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.

IDC MarketScape: Worldwide SaaS and Cloud-Enabled Sales and Use Tax Automation Software for Small and Midsize Businesses 2021 Vendor Assessment