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Startup Offers E-tailers a System to Better Manage Sales Taxes

Charlene Anderson, like a lot of small retailers who sell online, is concerned about staying on the right side of state sales tax laws.

And while Congress debates the merits of requiring online merchants to collect sales taxes, online retailers of all sizes — like Anderson’s small shop, Purveyor of all Things Creative in Jackson Hole, Wyo. — must track sales tax in their states and states where they store inventory through fulfillment services such as Fulfillment by Amazon.

“It’s the most pressing issue among online sellers,” said Anderson, who has been selling tools and supplies for creative people on Amazon and eBay since 1998.

It was with that mindset that Anderson agreed last April to beta test an application by TaxJar, a San Diego-based startup, that’s designed to simplify and speed that task.

“What takes folks anywhere from three hours or an entire weekend, to file a sales tax return, is now completely automated and takes only minutes,” said Mark Faggiano, founder and CEO of TaxJar, which recently received $600,000 in new funding from angel investors.

Faggiano, who had a prior Web-based business tax service before selling it, believes TaxJar solves a major headache for small online retailers selling everything from vintage goods to handmade products on Amazon, eBay, Shopify, BigCommerce, Etsy and PayPal.

“For folks that sell online …, sales tax compliance is a huge burden,” Faggiano said. “Forty-five states have different sales tax laws, and the way they assess sales tax is different; some base it on where the business is located, others on where the buyer is located. New York State alone has dozens of sales tax jurisdictions when a sale is made.”

‘Beautifully Accurate’

Before Anderson began using TaxJar, she manually sorted each sales transaction by ZIP code and determined local taxes that apply, filing deadlines and other details. She said Amazon and eBay provide online sellers with a sales report but that such support is limited. Amazon for instance, does not have physical presences in some states.

After five months of testing TaxJar’s program, Anderson and her accountant concluded that the program is “beautifully accurate” in tracking sales taxes, she said.

To use Taxjar, merchants enter their account information for Etsy Direct checkout, Amazon, Shopify, eBay or PayPal to aggregate sales and tax data automatically. Faggiano said signing up takes “less than a minute” and that the system generates reports — updated daily and customized — that show sales and tax collected for any state where one has a sales tax nexus.

Faggiano said what sets TaxJar apart from competitors is its affordability, ease of use and detailed reporting.

Anderson agreed.

“The other companies I looked at were very expensive and set up for larger companies,” she said, calling TaxJar “very simple and well laid out.”

Pricing is based on the number of transactions, with plans that cost $9.95 for up to 1,000 monthly transactions and $50 for up to 15,000 transactions a month, Faggiano said. The company offers a 30-day free trial.

Feedback-Driven Features Planned

TaxJar’s recent seed funding was provided by Dan Rose, vice president of partnerships at Facebook Inc.; Harris Barton, principal at H Barton Asset Management; and Roy Rubin, co-founder and chief operating officer at Magneto. The company plans to use the money for customer acquisition and product development.

“We also plan to prioritize and implement a number of product features, all driven by customer feedback,” Faggiano said.

Those features are expected to include a tax rate look-up service, e-filing of sales tax returns and new data sources that support additional online sellers. The company already offers a back taxes reporting function, which enables retailers to determine whether they have properly collected sales taxes on prior orders.

Faggiano said he’s always been passionate about helping small businesses with tax issues.

In 2007, the entrepreneur co-founded FileLater, a Web-based service that handles tax extensions for small businesses, with Ryan Thompson, a former executive at Outright.com. The business was sold in 2010 to Banks.com.

Thompson, an executive at Magento, and Outright.com co-founder Kevin Reeth helped launch TaxJar in June 2013. Reeth is TaxJar’s chief product officer.

It took two years of research and creating a team to develop Tax Jar’s online service.

TAXJAR

CEO: Mark Faggiano

No. of local employees: One, just Faggiano; others based elsewhere

Investors: Dan Rose, Harris Barton and Roy Rubin

Headquarters: San Diego

Year founded: 2013

What makes the company innovative: Entirely focused on simplifying sales tax compliance for small, online sellers

Key factors for success: Continuing to listen to its growing customer base and building solutions that are right for them

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