Until six years ago, many e-commerce and SaaS businesses could have avoided paying sales tax to states where they had customers, but no physical presence. But as online shopping grew, states realized they were losing out on tax revenue.
The era of free-riding for online retailers ended in 2018 when South Dakota took Wayfair to court over sales tax collection. The Supreme Court ultimately sided with South Dakota.
Now, online stores and SaaS companies have to collect sales tax from their customers wherever it’s required, which is not an easy task given that tax laws vary significantly by city, county, and state.
Rohit Bhadange, who worked in venture capital and private equity, identified sales tax compliance as a major pain point for e-commerce and SaaS businesses. So, about 18 months ago, he launched Zamp, a startup whose software can automatically calculate and file sales taxes for businesses of all sizes.
Since then, Zamp has grown its customer base to over 400 companies and achieved annual recurring revenue in the mid-millions, according to Bhadange. The fast growth captivated 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 client base, Zamp has begun to partner with accounting firms grappling with a talent shortage caused by declining interest in the profession. The company’s accounting firm clients include the top 25 US accounting firms, Baker Tilly and Withum.
Accounting firms are under increased pressure to assist clients with sales tax compliance, particularly as states intensify their tax audits, Bhadange said. “You have this perfect storm where enforcement is increasing; tax compliance is increasing, [but the number of] accountants is decreasing.”
To meet that demand, Zamp is introducing a new product called Z-tax, which helps accountants and bookkeepers provide sales tax services without increasing their headcount.
“We want them to focus on higher value advisory services while we manage the entire sales tax process on the back end,” Bhadange said.
Zamp is not alone in the market for sales tax compliance solutions for startups, particularly SaaS businesses. Its primary competitor is Anrok, backed by Khosla Ventures and Sequoia. Anrok, founded four years ago, may be slightly older and larger — having recently raised a $30 million Series B — Zamp’s rapid growth indicates that there is room for multiple players in this space.
