Stripe is streamlining tax compliance in push beyond payments

Stripe headquarters in San Francisco on Dec. 3, 2020.
Stripe has added several new products in the past few months.


The past year has been rough for payment firms and small businesses, and Stripe sees an opportunity to boost its own growth by streamlining how businesses manage fluid tax liabilities. 

Stripe has connected its Stripe Tax and Stripe Connect products to broaden the scale for both services. Stripe Connect uses an application programming interface to enable platforms such as online marketplaces to support payments and other business services for smaller merchants, which are often operating outside of their core markets. Stripe Tax, which launched in 2021, manages tax compliance and tax payments on behalf of merchants. 

The payment company hopes to compete with other fintechs and traditional processors by easing complex tax management. “Taxes can be a very difficult problem for small businesses with fewer resources,” said Michael Carney, product lead for Stripe Tax.

Small-business tax rules change yearly, and impact not just sales taxes, but rules for business losses, pensions, interest expense, charitable contributions and dozens of other functions and transactions. Additionally, some tax rules that were implemented during the pandemic to ease financial burdens for small businesses are expiring. 

“There were hundreds of tax rule changes last year,” said Carney, adding that for certain digital content, tax rules and rates can vary for differences as subtle as whether a broadcast is live or recorded — and even those rules can change each year. 

“Help with taxes is one of the commonly requested services from small businesses,” Carney said. 

Via Stripe Tax, businesses can view what taxes they need to pay, and can pay those taxes through Stripe. Combining the service with Stripe Connect is part of Stripe’s “platform for platforms” initiative that aims to expand Stripe’s overall network. 

Stripe Connect integrates with software platforms such as Mindbody, Squarespace and WooCommerce and combines with Stripe products such as billing, issuing and the company’s point of sale terminal. 

These platforms connect to industries such as hairdressing and home repair. In many categories, small businesses are selling in new countries or states, resulting in exposure to new and dynamic tax regulations. 

“If you’re spending time on tax compliance, you’re not selling,” Carney said. 

Stripe Tax additionally calculates and collects sales tax, value added tax (VAT) and goods and service tax (GST).   

VAT, which is assessed in Europe and other non-U.S. markets, is an equivalent to sales tax in the U.S. But instead of being calculated as a percentage of the purchase at the point of sale, VAT is based on calculations that determine the increase in value of a good or service at different stages of production. VAT can be complicated for U.S.-based online sellers, making VAT management an attractive service for payment companies to offer. GST is a form of VAT that is levied in some countries. 

Among Stripe’s rivals, both PayPal and Square offer tax services. PayPal calculates sales taxes based on user account profiles. Square also offers a merchant calculator that determines sales tax rates in the U.S. and other countries. Square and PayPal did not provide comments by deadline. 

The SMB market for tax and VAT services is being driven by the projected growth of global e-commerce sales, according to Richard Crone, a payments consultant. 

Global e-commerce sales are expected to pass $6.9 trillion in 2024, according to Statista, which is up from $6.3 trillion in 2023, and $5.7 in 2022. It’s on pace to reach $8.2 trillion by 2026. 

“Tax complexity in cross-border international sales represents a burgeoning opportunity for payment fintechs, especially in the realm of Value-Added Tax processing, where an indirect tax is imposed at each stage of value creation, production, and distribution,” Crone said, adding that VAT is most prevalent in B2B invoicing and processing of invoice remittance lockbox payments. 

Stripe’s valuation fell from about $95 billion to $50 billion in 2022, mirroring a number of fintechs that saw their valuations drop after a runup in 2021. The company’s product rollout pipeline also included expanding the use of softPOS, which enables smartphones to accept payments without add-on hardware, and exploring uses for generative artificial intelligence. 

Stripe has made several moves in 2023 to become a more valuable partner for merchants, which in a challenging economy are looking to centralize service providers. 

In late April, Stripe introduced a revenue and financing automation suite that combines recurring revenue, accounting, analytics and money management. Stripe also updated its billing and revenue reporting tools to improve payment processing. 

“Every B2B invoice must be adjudicated and reconciled before payment,” Crone said. “Any changes to the invoice remittance can impact the final tax, particularly VAT calculations.”

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