Six years ago, many e-commerce and SaaS companies were able to avoid paying sales tax to states where they had customers but no brick-and-mortar stores. But as online shopping has grown, states have found themselves losing tax revenue.
The era of free riding for online retailers came to an end in 2018 when the state of South Dakota sued Wayfair over sales tax collection. The Supreme Court ultimately sided with South Dakota.
Currently, online stores and SaaS companies must collect sales tax from customers wherever necessary, but this is no easy task as tax laws vary widely by city, county, and state.
After working in venture capital and private equity, Rohit Bhadange realized that sales tax compliance was a major pain point for e-commerce and SaaS businesses, so about 18 months ago he launched Zamp, a startup that provides software to automatically calculate and file sales tax for businesses of all sizes.
Since then, Zamp has expanded its customer base to more than 400 companies and achieved millions of dollars in annual recurring revenue, according to Badange. That rapid growth has attracted investors.
On Thursday, Zamp announced a $10 million Series A led by Valor Equity Partners, with participation from Venus Williams, Day One Ventures and other investors.
In addition to expanding its e-commerce and SaaS customer base, Zamp has also begun working with accounting firms that are struggling with talent shortages due to declining interest in the industry. The company's accounting firm clients include Baker Tilly and Withum, both top 25 accounting firms in the U.S.
Badange said accounting firms are under increasing pressure to help their clients achieve sales tax compliance, especially as states step up tax audits. “Enforcement is increasing, tax compliance is increasing, [but the number of] The number of accountants is declining.”
To meet this demand, Zamp is introducing a new product called Z-tax that helps accountants and bookkeepers provide sales tax services without adding headcount.
“We want them to focus on higher value advisory services while we manage the entire sales tax process on the back end,” Badange said.
Zamp isn't alone in the market for sales tax compliance solutions for startups, especially SaaS businesses. Its main competitor is Khosla Ventures and Sequoia-backed Anrok. Founded four years ago, Anrok may be a bit older and bigger (it recently raised a $30 million Series B), but Zamp's rapid growth shows there's room for multiple players in the space.