Stripe Expands Service Offering with TaxJar Acquisition

Stripe, the privately-held payments company currently assessed at a $95 billion valuation, has recently completed an acquisition aimed at broadening the suite of tools available to online businesses. The company has acquired TaxJar, a well-known provider of cloud-based tax services designed for automated sales tax calculation, reporting, and filing.

Navigating Complex Tax Regulations

A significant aspect of TaxJar’s functionality lies in its ability to operate across numerous geographic locations and their diverse sales tax regulations – a challenging area for many online businesses. This capability addresses a critical need for companies engaged in interstate or international commerce.

Deal Details and Company Valuation

While the financial specifics of the transaction haven't been publicly revealed, data from PitchBook indicates that TaxJar was valued at $179 million post-money during its last funding round in January 2019. This provides some context regarding the scale of the acquisition.

Integration of TaxJar’s Team

Stripe has confirmed that the entire team of 200 employees from Woburn, Massachusetts-based TaxJar will be joining the company. This integration will bring valuable expertise in tax compliance to Stripe’s operations.

Synergies with Existing Stripe Products

The integration of TaxJar’s technology into Stripe’s revenue platform will position it alongside existing services like Stripe Billing (for subscription management) and Radar (for fraud prevention). Furthermore, the acquisition may facilitate the development of new services leveraging AI and other technologies to automate additional functions. Businesses will also retain the option to utilize TaxJar as a standalone service.

TaxJar’s Customer Base and Growth

Established in 2013, TaxJar currently serves approximately 23,000 customers. While Stripe has not disclosed the extent of overlap between their respective user bases, both companies have experienced substantial growth among startups and online businesses, likely contributing to Stripe’s interest in the acquisition.

Statement from Stripe’s CFO

“TaxJar’s software tools simplify sales tax management, which is why it has become a preferred choice for businesses,” stated Dhivya Suryadevara, Stripe’s CFO. “By integrating TaxJar, we aim to assist millions of internet-based businesses utilizing Stripe with their sales tax obligations and facilitate easier international sales. As a CFO, I am also pleased to welcome a dedicated team focused on tax calculation and reporting.”

TaxJar’s Financial Performance and Growth Trajectory

TaxJar reported profitability since 2016, supported by a $2 million investment in 2014 from Rincon Venture Partners and Daher Capital. Its customer base grew by 53% over two years, reaching 15,000 customers in 2019, and has continued to expand since then.

Stripe’s Prior Investments in Tax Technology

Stripe has previously engaged in tax-related initiatives, including the acquisition of Payable in 2017 to streamline 1099 reporting for contractor payments and a partnership with Intuit to support financial management for on-demand workers. However, the TaxJar acquisition addresses a significant gap in its core product offerings, specifically concerning sales tax.

Addressing a Key Customer Need

Stripe reports that the addition of sales tax collection and remittance – a complex system encompassing up to 11,000 tax jurisdictions within the U.S. alone – was among the most frequently requested features from its users. This demand has been openly expressed by businesses seeking simplified tax compliance.

Streamlining Integration with Stripe

Prior to the acquisition, TaxJar was already integrated with Stripe as a partner, allowing businesses to utilize TaxJar for sales tax calculation and management on Stripe-powered transactions. However, this required separate account creation and URL integration, lacking the seamless experience typically associated with Stripe’s platform.

Focus on Automation and User Experience

This integration will streamline the process for Stripe customers, aligning with the company’s broader strategy of automating repetitive tasks within online sales transactions, including payment rejection algorithms and billing methods.

Vision for Simplifying Tax Compliance

“Our goal at Stripe is to eliminate barriers to growth for startups and multinational corporations,” said Mark Faggiano, CEO and founder of TaxJar. “This means simplifying the complexities of sales tax compliance. We believe that compliance is essential for fostering the growth of the internet economy, and we are excited to join forces with Stripe to empower businesses worldwide.”

TaxJar’s Service Capabilities

The services offered by TaxJar encompass providing accurate, localized sales tax rates at checkout, submitting tax returns to relevant jurisdictions, remitting collected sales tax, generating itemized reports for local jurisdictions, and recommending appropriate product tax codes.

Diversification as a Strategic Move

TaxJar’s existing customer base and revenue model signify a diversification strategy for Stripe, which is crucial as the $95 billion company continues to expand and potentially prepares for a public listing, anticipated in late 2021 or early 2022. This diversification is exemplified by Stripe’s acquisition of Paystack in Nigeria to facilitate payments in Africa.

TaxJar’s Pricing Structure

(TaxJar’s SaaS pricing begins at $19 per month and scales upwards, including an enterprise tier suitable for Stripe’s platform product.)

Stripe’s Revenue and Pandemic Impact

Stripe generated revenues of $1.6 billion (potentially reaching $7.6 billion, though the company declined to confirm) in 2020, as reported in a WSJ profile. The COVID-19 pandemic significantly impacted the company, with sectors like travel experiencing transaction declines while e-commerce saw substantial growth.

The Future of E-commerce and Stripe’s Position

Regardless of the evolving economic landscape, e-commerce is expected to continue its growth trajectory. Expanding service offerings, such as automated sales tax calculations and reporting, will enable Stripe to increase revenue per user and mitigate the impact of fluctuations in specific business sectors.

The Expanding Tax-Tech Landscape

The tax-tech sector, positioned between e-commerce and fintech, has gained momentum in recent years, driven by the growth of the e-commerce market and advancements in fintech. Companies like Avalara, Vertx, and Sovos are also prominent players in this space.

Updated to reflect that Insight Partners led TaxJar’s last funding round.