Sales tax solution built specifically for software-as-a-service (SaaS) businesses Anrok raised $4.3m in a seed funding round co-led by Index Ventures and Sequoia Capital.
The company intends to use the funds to continue to expand operations and its business reach.
Led by Michelle Valentine, Anrok provides a platform that allows internet businesses to determine, calculate, and manage sales tax obligations. Anrok plugs into a company’s billing and payment systems, incorporating each state’s nexus thresholds and taxability rules in real-time, and returning the relevant tax rate of each transaction.
Transactions are then stored and automatically organized into returns for filing – an obligation which has increased from virtually never, to what is now a monthly requirement in many states.
Anrok delivers its service via an API, and charges based on the total dollar value of sales that it helps a customer manage. Its percentage fee falls with volume, and you can’t pay more than 0.19% of managed revenue, so it’s pretty cheap regardless, given how strong software gross margins tend to be.
The reason which makes the funding rather timely is that more companies have moved online – moreso in the wake of the pandemic and that SaaS businesses are facing a major shift in the taxability of software.
Furthermore, it’s important to note that in 2018, a Supreme Court decision in South Dakota v. Wayfair paved the way for states to collect billions of dollars in tax revenue from purchases made online. Of the 45 states that levy sales tax, all have since introduced revenue or transaction thresholds that, once crossed, mandate companies to collect and remit sales tax.
The decision has created a major fiscal opportunity for states looking to recover from losses incurred due to the Covid-19 pandemic, which has shuttered retail businesses for much of the past year — but for companies selling purely digital products and services, the development has created a new compliance burden.
Moreover, with cloud software companies positioned to grow 47% in the next two years, the launch of Anrok means these businesses can monitor and fulfil their sales tax obligations, manage compliance efficiently and power the economy while driving their own business growth.
Valentine said, “Governments are finally waking up to the reality that much of the economy has moved online. However, introducing the existing system of sales tax to digital products and services is like trying to make a round peg fit in a square hole. For software companies, knowing where your customers are and having to calculate the appropriate tax amount in real-time is far from straightforward. That’s why we’re excited to deliver Anrok to customers to help them navigate this new environment and accurately calculate tax for ever-changing subscription invoices.”
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