Just a month ago, we celebrated the impressive financial discipline taking hold at Shopify (NYSE:SHOP). And then, the stock just blew earnings estimates right out of the water. Shopify has indeed turned out to be a financial bonanza for fellow shareholders over the past month. And honestly, I see the good times rolling in for a long time to come.
Shopify’s audacious goal to become the operating system for unified commerce (i.e., e-commerce and offline commerce, think Shop GO retail POS systems) seems to be inching closer to fruition. Recent strides into taxes, bill payments, and more showcase SHOP’s ambition to expand its foothold within each business, capturing more and more of the total spend on software tools required to make these businesses more efficient.
Let’s dive deeper into SHOP’s intentions in the tax, bill payments, and POS spaces, and explore how these moves have the potential to disrupt traditional players like Avalara, which Visa Equity Partners acquired for roughly $8.4 Billion, BILL (BILL), and established POS systems like those from Square (SQ).
This piece aims to shed light on the long-term potential for Shopify to evolve into something akin to the Microsoft (MSFT) of omnichannel merchants.
Shopify’s Tax Innovations
Shopify is actively enhancing its tax services to aid its customers in navigating the evolving tax landscape in e-commerce. In 2023, Shopify introduced crucial updates to address changes in sales tax regulations, value-added tax (VAT), and goods and services tax (GST). These updates are vital for store owners to accurately calculate taxes during transactions, especially given the varying tax rates and rules in different jurisdictions. Additionally, adjustments in VAT/GST rates can impact pricing structures for both domestic and international sales.
To facilitate efficient management of these tax changes, Shopify offers built-in features powered by technology solutions, including tax automation tools. These tools streamline calculations, ensure compliance with updated regulations, and simplify tasks like calculating taxes at checkout or generating reports necessary for filing returns. Such tools are integral for Shopify store owners to adapt quickly and efficiently to the changing taxation requirements, allowing them to focus more on growing their business rather than wrestling with complex tax matters.
Shopify Tax: Launched to address the challenges of managing sales tax in the U.S., Shopify Tax offers solutions particularly beneficial for new and emerging businesses operating within the country. This service effectively manages the complexity of tax compliance across various states, keeping up-to-date with the rules and requirements of each jurisdiction.
Shopify Tax Platform: Geared towards larger or enterprise retailers, the Shopify Tax Platform provides a more comprehensive solution. It integrates enterprise-grade tax services directly into Shopify’s infrastructure, enabling businesses to manage end-to-end compliance effectively. Store owners can swiftly activate existing tax rules within Shopify or customize new workflows according to their requirements.
Integration with Vertex: Shopify has partnered with Vertex, a leading provider of indirect tax software and solutions. This partnership allows businesses to use a unified solution to streamline global tax management. Vertex is known for its ability to meet compliance and customization requirements of finance and accounting teams, irrespective of the channel, location, or scale of operation. This integration addresses the complexities of selling across multiple global tax jurisdictions and niche categories.
Seamless Checkout Integration: Shopify’s tax platform enables the integration of preferred tax calculation engines directly with Shopify’s checkout. This feature ensures that the tax calculations, exemptions, and adjustments configured by the business are automatically applied during the checkout process, providing a high-quality user experience without compromising compliance.
These initiatives by Shopify demonstrate its dedication to providing robust and adaptable tax management solutions, helping merchants navigate tax compliance intricacies efficiently.
Here is a screen shot of the initial setup in the admin section of a Shopify store to give you a visual of what it looks like.
Initial Setup of Taxes in Shopify Admin:
- Access the Shopify admin panel and navigate to Settings > Taxes and duties.
- In the “Manage sales tax collection” section, click on the United States (or your respective country/region).
- Under “Regions you’re collecting in,” select “Collect sales tax.”
- Choose the state or region where you are registered for tax collection.
- Enter your sales tax ID in the “Sales tax ID” field. If you have applied for one but haven’t received it yet, leave the field blank until you get your ID.
- Optionally, you can choose whether to charge tax on shipping in states where tax laws regarding shipping vary. This is done through the “Advanced options” under “Shipping tax.”
- Click “Collect sales tax” to finalize the setup.
- Add more regions and account numbers as needed by clicking “Collect sales tax” again.
Shopify Tax Platform Integration:
- The Shopify Tax Platform, launched in 2023, allows the integration of preferred tax services directly into Shopify.
- It is designed to seamlessly integrate tax services, such as Vertex, into Shopify’s infrastructure, enabling end-to-end tax compliance management..
- After a tax partner like Vertex is approved and integrated, merchants receive comprehensive support to ensure their needs are met before and after going live.
- Once a tax service like Vertex is activated within the tax settings, it becomes the default tax service for the business, with all configured rates, rules, and processes transferring into Shopify without disruption.
Revolutionizing Tax Management: Shopify’s Genius Move
Shopify, the ecommerce giant, has lately been making waves in the financial world with some groundbreaking new tools designed to make life easier for merchants. Among the most exciting recent developments are the introduction of innovative tax region setup and the ambitious foray into bill payment management. Let’s delve into these game-changing offerings and see why merchants are loving it.
The Tax Region Revolution
Setting up tax regions has historically been a daunting task for merchants. Enter Shopify, with a revolutionary way for merchants to manage their taxes. Once registered with tax authorities, merchants can effectively set up their taxes in Shopify. They simply need to select the country or region in the “Manage sales tax collection” section and enter the tax number. It doesn’t end there – the platform allows for comprehensive management of tax settings, including registrations, tax overrides, exemptions, and calculations. All it takes is grouping products and selecting the regions for sales tax collection, and Shopify automatically handles any tax changes and notifies the merchant of said changes. One ecstatic customer exclaimed, “This is 100 times better. Previously, to sort through all the data, I had created a custom spreadsheet and formulas to spit out the data that the state of Illinois needs. With this report, that’s no longer necessary. I just pull up the Illinois Department of Revenue site in a new browser tab and copy the numbers. Takes 15 minutes max.”
Caleb Benoit – Founder, Connect Roasters
How Big Can Taxes Get for Shopify?
The potential for Shopify in the realm of taxes and accounting is colossal. Just looking at the acquisition of Avalara for $8.4 billion, it becomes evident that the sheer market size and growth potential in this space are tremendous. Shopify, being the enabler of multi-channel commerce for merchants, has the golden opportunity to become the one-stop solution for various tools that merchants already spend their money on. A seamless, all-encompassing tech stack under one roof – that’s the game Shopify is playing now.
Shopify’s Bill Payment Moves
In addition to its tax management revolution, Shopify has also ventured into bill payment management with the introduction of Shopify Bill Pay. This offering is tailored to compete with established services like Bill.com, specifically catering to the needs of businesses, especially those operating in the ecommerce realm. The list of features and capabilities of Shopify Bill Pay is nothing short of impressive:
Integrated Payment Management: Shopify Bill Pay integrates seamlessly with the Shopify admin dashboard, allowing merchants to manage and pay vendors directly from the platform without the headache of juggling multiple services. This integration promises a more streamlined approach to payment management.
Multiple Payment Options: Businesses can choose from a variety of payment methods, providing unparalleled flexibility. Whether it’s checks, bank transfers, credit/debit cards, or even payments from the Shopify Balance account, this tool caters to every merchant’s unique needs.
Vendor Flexibility: Vendors can receive payments according to their preferences, be it bank transfers or traditional paper checks. This added layer of convenience benefits both parties involved in the payment process.
Time and Cost Efficiency: Shopify Bill Pay is designed to be a time-saving tool, touted to be twice as fast as other B2B expense solutions. On top of that, it’s a no-subscription-fee model, ensuring cost efficiency for small business owners.
QuickBooks Integration: The tool seamlessly synchronizes with QuickBooks Online, simplifying accounting processes and ensuring accurate financial records.
Dedicated Bill Pay Dashboard: Shopify Bill Pay provides a dedicated dashboard for streamlined bill management, allowing businesses to filter, sort, and schedule payments for utmost convenience and efficiency.
International Payments: With global reach, Shopify Bill Pay empowers businesses to make international payments, bridging the gap for those operating on the global stage.
In comparison to traditional offerings, Shopify Bill Pay offers a fully integrated solution, embedded within the ecommerce platform to cater directly to Shopify users. It’s currently exclusively available to US-based merchants, offering an impressive array of features without any subscription fees. The simplicity of installing Bill Pay is just the cherry on top for merchants looking for a hassle-free billing solution.
Shopify’s Dominance Threatened by Bill.com’s Market Soar and Disruption Potential
Shopify, a giant in the e-commerce domain, is facing an imminent threat from Bill.com as it gears up to infiltrate into the small and mid-sized business market. With an addressable market of over 70 million businesses and a customer base of 471,200, valued at $7.3 Billion, Bill.com has positioned itself to challenge Shopify’s territory by integrating its solutions into the Shopify platform.
Expanding Horizons: Shopify POS Offering
In a bid to broaden its scope, Shopify introduced the Point of Sale (POS) system back in 2013, effectively broadening its services from e-commerce to a comprehensive retail and payment processing system for both online and offline sales. This strategic move altered the landscape for Shopify, allowing seamless integration of physical sales with the existing online store platform.
The Winter ’23 Edition witnessed substantial enhancements in the POS system, aimed at improving functionality and usability for businesses of all sizes. These enhancements encompass:
Shopify POS Go: An all-in-one POS device equipping businesses to conduct payment transactions, sales closure, and business management from any location. This device is imbued with Retail OS, the POS software by Shopify, permitting inventory lookup, customer profile access, and personalized shopping experiences. It also integrates a barcode scanner and card reader for on-the-floor payment processing.
Support for Multiple Store Locations: The POS system now supports up to 1,000 physical store locations in addition to e-commerce sites, all manageable from a unified platform, eliminating the need for multiple POS integrations and data fragmentation.
Enhanced Inventory Management: Detailed inventory states provide better tracking and management across multiple store locations, reducing overselling.
Gift Card Management: Improved functionalities for handling gift cards, simplifying search, acceptance, management, and sale of both digital and physical gift cards.
International Store Operations: Shopify POS, along with Shopify hardware and Shopify Payments, is now available in 14 markets, providing a consistent POS system for international store operations.
Shopify POS Go
The POS space has been largely dominated by Square, valued at nearly $40 Billion, with a substantial part of its gross profit stemming from POS systems and related software sales.
When comparing Shopify’s POS with Square, it is evident that Shopify poses a formidable challenge in various key areas:
Integration with E-commerce: The deep integration of Shopify POS with the e-commerce platform presents a significant advantage for businesses already involved in the Shopify ecosystem.
Hardware and Cost: Shopify and Square provide a range of hardware options, tailored for different platforms.
Market Focus: Shopify’s appeal to businesses aligned with its ecosystem, while Square remains an attractive option for stand-alone POS solutions.
Glimpse into the Future: Conclusion
The potential for Shopify in the long run is indeed promising. With a combined addressable market of over $100 Billion, Shopify possesses the opportunity to ascend to the upper echelons of the market, becoming the quintessential solution for omnichannel merchants – akin to the Microsoft of the retail domain, potentially reaching a market cap exceeding $1 Trillion.