“Venmo-ing” the government might sound like a strange phrase, but it’s really not that far off from how people engage financially with each other in the real world, says Sanjay Gupta of ACI Worldwide.
“It’s a way to pay taxes based on how consumers pay,” said Gupta, biller segment manager for Miami-based ACI, which has connected Venmo and PayPal directly to the US government for the payment of taxes.
E-commerce web hosting company GoDaddy and PayPal have both taken recent steps to streamline different types of tax transactions. PayPal has integrated its Venmo P2P app with the Internal Revenue Service through ACI for income tax payments. And GoDaddy has added sales tax calculations to its core web hosting service. The two companies are trying to make tax transaction processing similar to other payment types and could pressure banks to take similar action.
As part of the ACI partnership, Venmo and PayPal appear as a payment option for the Internal Revenue Service, with a user experience similar to paying and presenting electronic invoices. Taxpayers are given a QR code to scan using the Venmo app and select their preferred payment method from a Venmo balance, credit or debit card. PayPal is also an option, with taxpayers being directed to their PayPal ID. The integration does not cover the payment of refunds, although Venmo and PayPal separately offer a direct deposit service that can accept refunds.
More than 90% of tax payments made through ACI’s Payment Portal are made through mobile browsers or desktop browsers, and Gupta said the addition of Venmo and PayPal gives consumers a familiar path to pay. the government.
The automation of tax transactions is also an attempt to streamline at least part of the overall tax filing system, which is burdensome delays since most of the processing is still manual or on paper.
While sales taxes are different from income taxes, it’s also possible to improve the user experience by automating parts of invoicing and tax calculation for businesses, according to Liz Armbruester, senior vice president of global compliance for Avalara, a Seattle-based tax software company. .
“What happens in taxes compresses time. It’s about getting transaction information as close to the time of the transaction as possible, whether it’s direct sales tax or income tax,” Armbruester said.
Avalara recently partnered with GoDaddy to automate sales tax compliance to help small businesses reduce the work required to manage sales taxes. Avalara, which has similar agreements with Shopify and BigCommerce, calculates sales tax rates for over 12,000 jurisdictions based on local regulations and product-specific tax codes.
GoDaddy integrates Avalara’s digital tax system into a new portal which handles payments, website hosting, marketing, sales and appointment management. The tax function digitizes a process in which sellers manually track transaction thresholds for different jurisdictions to know if or when they owe sales tax, record sales tax rates for each state, and keep track of when those rates fall. change.
State sales tax codes change regularly and can present a challenge for small businesses selling online. The 2018 U.S. Supreme Court decision in South Dakota vs. Wayfair allows states to collect sales tax for out-of-state businesses. And companies that sell internationally are often subject to value added taxwhich is calculated differently than sales taxes in the United States
This can give e-commerce businesses dozens of different, seamless tax codes to manage.
“Taxes are constantly changing, and it’s common to automate the calculation and transfer of tax data directly to the invoice,” Armbruester said. Like PayPal, GoDaddy positions tax calculations as a user experience benefit as much as a compliance tool.
“Dealing with the nuances of different sales tax regulations as you grow can be a major headache. Commerce Plus is designed to address this and other issues that prevent a small business from scaling up. superior,” said Greg Goldfarb, vice president. commercial products at GoDaddy, in an email.
PayPal called the IRS integration “a continuation of our efforts to provide PayPal and Venmo customers with convenient ways to manage their taxes digitally,” the company said in an emailed statement.
Block, the former Square, did not return a request for comment on how its Cash App is used for tax transactions in relation to the IRS, although Cash App offers tax filing and refund services. A Zelle Bank spokesperson said the P2P app’s disbursement feature is not used for payments or tax refunds.
The user experience for tax payments is generally poor for businesses and consumers compared to other payment types, according to Karen Oakland, vice president of financial services marketing based in Orange County, Calif., for Smart Communications, which offers, among other things, advice on customer experience. services.
“There’s a lot of stuff happening through mobile apps now, [buy now/pay later] funding, disbursements and general payments,” Oakland said. “This creates pressure to automate other processes.
According to Oakland, as sales or income tax management and payments become more automated through technology deployments, there will be pressure on banks to offer similar capabilities. “Banks are going to have to deliver the same level of digital customer experience that consumers get from mobile apps.”