Predictable Revenue. Predictable Risk? Sales Tax & Recurring Revenue

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Predictable Revenue. Predictable Risk? Sales Tax and Recurring Revenue Models

Transcript of Predictable Revenue. Predictable Risk? Sales Tax & Recurring Revenue

Page 1: Predictable Revenue. Predictable Risk? Sales Tax & Recurring Revenue

Predictable Revenue. Predictable Risk?Sales Tax and Recurring Revenue Models

Page 2: Predictable Revenue. Predictable Risk? Sales Tax & Recurring Revenue

Slide 2 − Zuora Confidential, not for distribution beyond intended recipient 2

Use promo code Revenue50 and receive 50% off

Page 3: Predictable Revenue. Predictable Risk? Sales Tax & Recurring Revenue

Clete WertsPartner Sales Manager

Julia ZhangProduct Manager

Speakers

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Page 4: Predictable Revenue. Predictable Risk? Sales Tax & Recurring Revenue

Slide 4 − Zuora Confidential, not for distribution beyond intended recipient

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ZuoraA Brief Introduction

Challenges of Sales Tax in Subscription EconomyAvalara Solution

Zuora Tax SolutionAvalara Integration

Agenda

Page 5: Predictable Revenue. Predictable Risk? Sales Tax & Recurring Revenue

Six+ Years of Incredible Growth

Zuora foundedSeries A; First

product launchedSeries B, Zuora featured in WSJ

Series C; Zuora announces 1B in

contracted revenue

Series D, Trademarks Subscription

Economy; EMEA expansion

Zuora wins AlwaysOn Company of the Year Award; expands to Asia

The Leader in Commerce, Billing and Finance Solutions for the Subscription Economy

$20Bn contracted invoice volume;

Series E funding; 50th product release

2013201220112010200920082007

Offices: Silicon Valley, London, Sydney, Beijing, Chicago, Atlanta

500+ Customers

300+Employees

95%Customer Sat

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Our customers span 500+ Subscription Economy businesses from multiple industries

High Tech SaaS Cloud Infrastructure

TelecomDevices

Media

Education Healthcare

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Page 7: Predictable Revenue. Predictable Risk? Sales Tax & Recurring Revenue

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Zuora has been building this system for 6 years

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• Billing & Rating

• Invoice Delivery

• Taxation

• Payment Automation

• 14+ Gateways/Processors

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Page 9: Predictable Revenue. Predictable Risk? Sales Tax & Recurring Revenue

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Zuora Tax Engine

Input• Customer Tax Exemption Status• Customer Sold-To Address• Product Tax Code• Charge Amount

Output• Tax rates and tax amount for

each line item/ jurisdiction

Zuora Tax Engine

Our customers upload and maintain tax tables for each product/service type.

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Tax becomes complicated as your business grows

• Keep up with complicated Tax Rules

• Maintain Tax rates that change frequently

• Remittance the correct tax payment to multiple jurisdictions using proper forms and procedures

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Solution: Embedded Avalara Integration

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What makes Avalara unique?

• Chosen by thousands of businesses to file and remit sales tax on their behalf

• Processes billions of transactions annually• Recommended by software application

resellers, CPAs, and business consultants• SSAE16 Certified and a SST service provider

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A handful of Avalara customers

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Constantly ChangingRates, Rules, & Boundaries

Accurate from Quote-to-Cash

Nexus(Physical Presence)

Product Taxability

Sales Tax Challenges for Recurring Revenue Models

Sourcing Rules

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• What’s taxable, and what’s not? And where?

• Physical vs. digital goods?• Calculating and

filing/remittance• Exempt purchases• Web-based services can

change the nexus dynamic

Sales Tax: Different for subscription models?

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Understanding Nexus Knowing where you are required to collect

“Nexus” describes the connection between a state and a business that permits a taxing authority to require a seller to register, collect and remit sales and use taxes

Nexus allows a state to compel an out-of-state company to register and collect sales or use tax

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Page 17: Predictable Revenue. Predictable Risk? Sales Tax & Recurring Revenue

States finding more sales tax revenue by broadening definitions of nexus

Remote sellers can no longer assume that Quill v. North Dakota means they don’t have to collect sales tax

Nexus in a digital world Where is the item sourced? What is the method of delivery?

“Amazon Laws”̶3 Cyber Monday, 2013: SCOTUS leaves NY click-through

affiliate law in place̶3 11 States have already passed Amazon Laws

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Nexus-creating activities: a growing list

Multi-state locations

Maintenance/service/repairs

Own/lease real property

Hosted Data Centers

Field sales/service staff

Charge Licenses/royalty/fees

Direct and/or online sales

Maintains inventory

Affiliates

Tradeshows

Commissions to resellers (1099s)

Investors/board members

Marketing/Web advertising

Drop shipments

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Page 19: Predictable Revenue. Predictable Risk? Sales Tax & Recurring Revenue

Slide 19 − Zuora Confidential, not for distribution beyond intended recipient

Single Point of Storage/Access vs. Distributed Storage

(ASP Model)

In the Cloud(No Delivery)

Off-the-Shelf Canned Software vs. Custom

Evolution of Technology Taxation

Tangible vs. Electronic Delivery

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Product Taxability of Digital Goods

How is a digital good defined?

How is a digital good taxed?

When is a digital good exempt from tax?

How is taxability different if it’s a one-time

purchase vs. by subscription?

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Download Adobe Acrobat 9 Pro Extended

https://www.adobe.com/downloads/

Packaged Software

NON-

TAXABLE

TAXABLE

Digital Download

Product Taxability Confusion

CALIFORNIA

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Washington

NON-

TAXABLE

TAXABLE

Georgia

Product Taxability Confusion

RINGTONES

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Product Taxability of Tangible Goods Purchased by subscription…

Is it any different than a one-time purchase?

When is it exempt from tax? – $$ threshold– Sales tax holidays– Length/type of subscription?

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NON-

TAXABLE

<6 months, sent second class mail

TAXABLE

>=6 months, sentsecond class mail

Product Taxability Confusion

TEXAS

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Understanding product & service taxability exceptions

Rules and rates vary between states

The following industries have varying taxability rules:̶3 Software / hardware ̶3 Digital goods ̶3 Services̶3 Medical device / equipment ̶3 Food / beverage ̶3 Clothing / apparel̶3 Dietary supplements ̶3 And many other industries / products

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Constantly Changing Sales Tax Compliance

11,000+ taxing jurisdictions

Thousands of changes to tax laws, including:̶3 Jurisdictional rate changes̶3 Tax holidays̶3 Jurisdictions that levy new taxes or eliminate taxes̶3 Jurisdictions that expand geographic boundaries

Accuracy is everything!̶3 For customers, auditors, your business

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ZIP Codes: wrong tool for the job

Taxing jurisdictions don’t always follow ZIP Codes!

Individual counties and municipalities levy sales taxes in addition to state rates

Tax rates can vary significantly within a ZIP code

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Slide 28 − Zuora Confidential, not for distribution beyond intended recipientSlide 28 − Zuora Confidential, not for distribution beyond intended recipient

7450 Leyden StreetTotal Sales Tax:

0.0925

COLORADO: 0.0290 ADAMS: 0.0075

COMMERCE CITY: 0.0450 SCIENTIFIC & CULTURAL:

0.0010 DENVER AREA TR: 0.0100

7495 Locust StreetTotal Sales Tax:

0.0475

COLORADO: 0.0290 ADAMS: 0.0075

SCIENTIFIC & CULTURAL: 0.0010

DENVER AREA TR: 0.0100

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The state of our States

States are still recovering from the Recession In 2013, 31 states projected budget deficits totaling $55 billion NRF estimates $24 billion in sales taxes goes uncollected on

the Internet

Therefore As tax-collecting agents of the State(s), they are looking to your

business to find more money This increased focus creates compliance risk for you

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States finding more sales tax revenueby hiring auditors

California announces hiring 100 auditors over the next three years

Idaho hires 48 auditors that stay on as full time staff

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End-to-End compliance for Zuora

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Zuora & Avalara Partnership

Pre-Built Connector by Zuora

‒ No development work required

One Sales Tax Engine̶3 Constantly updates sales tax rate̶3 Product Taxability support̶3 Up-to-date reporting̶3 Automated Filing

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Embedded Avalara Integration

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Billing engine supports multiple tax engines

Get Subscriptions Reads Usage Data

Processes Charges

Processes Taxes

Generates Invoices

Billing Engine

Zuora Tax Engine

AvalaraTax Engine

Each Rate Plan Charge can use a different Tax Engine

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Slide 35 − Zuora Confidential, not for distribution beyond intended recipient

Setup 1: Create company and nexus in Avalara

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Setup 2: Set up Avalara tax engine in Zuora

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Setup 3: Create your tax codes

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Setup 4: Assign a tax code to rate plan charge

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Calculate tax on invoices – via Bill Run or API

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Display tax on quotes

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Slide 41 − Zuora Confidential, not for distribution beyond intended recipient

Display and collect the tax for online orders

{"previewAccountInfo": "currency": "USD", "billCycleDay": 1, "billToContact":  {        "city": "Foster City",        "country": "United States",        "county": "San Mateo",        "zipCode": "94044",        "state": "CA",        "taxRegion": "CA"    }},"invoiceTargetDate": "2014-05-01", "contractEffectiveDate": "2014-05-01", "subscribeToRatePlans": [  {  "productRatePlanId": "2c92c8f......"  }

Subscribe () RequestSubscribe () Response…..{    "success": true,    "contractedMrr": 100,    "totalContractedValue": 1200,    "amount": 91.23,    "amountWithoutTax": 79.99,    "taxAmount": 11.24,    "invoiceTargetDate": "2014-05-01",   …..   }

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Slide 42 − Zuora Confidential, not for distribution beyond intended recipient

Collect the right tax when order is submitted

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Slide 43 − Zuora Confidential, not for distribution beyond intended recipient

Tax Docs created in Avalara ready for remittance

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Slide 44 − Zuora Confidential, not for distribution beyond intended recipient

Delivered in May Release

If you’re interested, please contact Zuora Support

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Questions?

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Page 46: Predictable Revenue. Predictable Risk? Sales Tax & Recurring Revenue

Slide 46 − Zuora Confidential, not for distribution beyond intended recipient 46

Use promo code Revenue50 and receive 50% off

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Thank You

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