Establishing Later’s First Sales Tax Ecosystem
Later faced growing complexities in managing global sales tax compliance due to new regulations across regions, including spending a significant portion of the operational budget on retroactive tax payments for customers.
Post launch, we streamlined Later’s tax collection process, ensured compliance across various jurisdictions, and reduced the company’s financial strain.
How can we ensure a scalable sales tax process globally?
SaaS companies like Later were initially only required to collect sales tax in states where they had a physical presence, but after the 2018 Wayfair ruling in the US, collection was based on transaction thresholds across states, complicating compliance.
To support expansion into the North American and European markets as part of the product roadmap initiatives, I collaborated with tax consultants during the discovery phase to ensure compliance with various B2B tax regulations.
Problem Discovery
Above: Users were prompted to enter tax information in the "Additional Information" field on Later’s Settings page, which appears on their bill and can be updated as needed.
In 2021, the previous team shipped a quick fix: a simple form within Later’s Settings page that allows customers to add additional details to display on their billing documents for easier tax filing.
Registered business' request to display tax informaton
While the in-app experience was simple, I was curious about how the post-reporting flow outside the platform affects our users
15/20 customers agreed that tax burdens often peak during filing season
Realizing that we were only solving users' short term problems, we had an opportunity to create additional benefits for our customers outside of the app with the sales tax launch.
Above: Example of a usability issue — with suggestions appearing for each address field, users find themselves caught in a cycle of errors, making it difficult to resolve the issue.
Existing issues preventing accurate taxation
Accurate address entry is crucial for applying the correct tax rates, as errors can result in undercharging or overcharging.
Later's current address validation in checkout and settings has usability issues, and valid addresses aren’t enforced for purchase completion.
Improving address collection ensures tax accuracy and regulatory compliance
Rules to accommodate different regions
We learnt that In the US, sales tax varies by ZIP code due to rates set by states, counties, and cities. Meanwhile, the UK and EU face challenges with VAT on cross-border transactions.
Successfully managing these complexities is crucial for maintaining regulatory compliance and fostering smooth international transactions.
Technical work to improve validating addresses
Developers considered either revamping the existing address validation API or switching to Stripe’s address validation. Due to time constraints, we chose to enhance the current address collection process, requiring a new validation workflow and a shaping session with the feature team.
Any user can be a registered business
Our team initially thought that only small business owners and social media managers were registered businesses, so the planned sales tax launch wouldn’t impact all customer accounts.
However, after analyzing data with the UX Researcher from customers who provided "Additional Information" input, we found that many creators and freelancers in the mix.
Up to 70% of Later's customers could be registered businesses and would benefit from the business collecting sales tax
Process to Implementation
Above: Visualizing the hierarchy helped our product trip understand the logic and design/development effort for each level.
Prioritizing the needs of tax reporting
I gathered the product manager and lead developer to align on the priority of user needs for tax reporting, with insights and challenges related to the project in mind.
With address validation as a user need at the bottom of the hierarchy, we realize the importance of putting functionality at top of mind when brainstorming.
Without functional address validation, we risk user drop-off at checkout, even before reaching the tax process
Above: Shaping with the team identified the jobs to be done and how they could be broken down into design and development phases. To guide us into prioritization, we mapped out a service design blueprint, in order to ensure that the experience beyond the app would be delightful.
Shape up, prioritization, and refinement
The Basecamp Shape Up framework enabled effective team collaboration and agile problem exploration.
Identifying several shippable address collection solutions and their effort versus impact with the feature team contributed to effective prioritization for the MVP launch.
We divided the work into manageable phases, keeping in mind of flexibility for sprint planning
Above: I explored the favoured solutions gathered from the shaping session and further mapped out key user paths with the developers. We identified technical limitations and edge cases, guiding the next sprint to refine options with the team.
Choosing a direction
Through multiple iterations and feedback loops with various stakeholders, we formed strong confidence in the solutions chosen, including the handling of potential edge cases and the technical feasibility involved.
Address validation
Offer users one valid suggestion for easy selection and accurate database entry.
Tax application
If address entered isn't valid, Later will base tax charges on the credit card country as a fallback option.
VAT exemption
Users get a temporary VAT exemption upon entering their VAT info, with a notice that invalid entries may incur tax charges.
Features Launched
Address validation on checkout
Above: With the addition of a more robust and accurate address verification flow, we can now confidently charge tax based on the user’s region.
Tax collection customized to user's region
Above: Capturing each customer’s address allows us to apply sales tax and display information relative to their region.
VAT information input, contextual to the user's validity
Above: We introduced the ability for users to input their VAT ID during checkout, streamlining tax compliance and improving the user experience for businesses.
Migrating existing customers
Above: Existing customers who could be impacted with the change were notified via e-mail to update their VAT information on the Settings page.
Validations and Future Improvements
Impact
Our team moved towards a percentage rollout in order to minimize a potential user disruption and to identify improvement areas based on real-world data post launch.
Collaborating with the UX Researcher, we continuously tracked and analyzed user interactions to identify improvements as well as opportunities for future enhancements.
Since launch, we significantly improved the accuracy of our address validation process
We believe the error is primarily due to users entering addresses from countries with less standardized address formats. This insight will guide the team in upcoming iterations of the sales tax initiative.
Reflecting on the Journey
What I learned
By proactively leading the partnership with the PM and lead developer, we gained insight into complex regulatory challenges and local laws, ensuring our designs aligned with both user needs and business objectives, while also helping to establish KPIs.
Regular check-ins with developers and QA are crucial for addressing challenges, clarifying requirements, and ensuring everything functions as intended. Close collaboration is key, as it allows us to continuously learn and adapt when new insights arise during the development process.
The way forward
Consider localization of addresses in countries with less standardized address formats.
Examine the expansion of the sales tax ecosystem to additional markets (e.g., Oceania, Asia).
Evaluate sales tax exemption options for Canadian customers.
