Stripe or Paddle: who files the tax?

What a merchant of record actually takes on. From chapter 11.

What is Merchant of Record?

In traditional payment processing, you are the merchant of record:

• You collect payments from customers
• You're responsible for tax compliance
• You handle chargebacks and disputes
• You maintain PCI compliance

With Paddle as Merchant of Record:

• Paddle is the seller of your products
• Paddle handles all tax compliance
• Paddle deals with chargebacks and disputes
• You receive revenue minus Paddle's fees

Benefits of the MoR Model

As [Merchant of Record], Paddle is the legal seller on every invoice and tax filing. You no longer register for VAT in EU countries, apply for sales tax permits in US states, file quarterly or monthly returns, keep invoices compliant, sit through tax audits, or track nexus thresholds. For a company selling in 50+ countries, that's 100+ hours a year of compliance work plus $15K-$50K in professional fees.

# Traditional model - you handle tax
def calculate_price_with_tax(base_price, customer_location):
    tax_rate = get_tax_rate(customer_location)  # You implement this
    tax_amount = base_price * tax_rate
    return base_price + tax_amount

# Paddle MoR model - they handle tax
# Paddle's hosted checkout determines the customer's location, applies the
# correct tax, and shows the final price. You only ever quote the net
# amount to your API; Paddle takes care of the rest.

Where Paddle wins, from the same chapter.

Paddle fits global SaaS products that need tax compliance, digital downloads and software licenses, subscription businesses that want simplicity, teams focused on product rather than payments infrastructure, and companies that need fraud protection without setup work.

It's a poor fit for physical goods or complex shipping, marketplace platforms with multiple sellers, high-volume low-margin businesses (the 5% + $0.50 fee bites), complex B2B billing requirements, and custom payment flows that need granular control.

Paddle's MoR model creates [vendor lock-in] that's difficult to escape. Migration means rebuilding all tax compliance infrastructure, re-implementing invoicing, updating customer billing records, handling subscription migration (customers must re-subscribe in many cases since Paddle owns the payment method tokens), and potentially losing transaction history visibility. Companies that outgrow Paddle (typically at $5M+ ARR) face 6-12 month migration projects. Factor that long-term commitment in when choosing Paddle for a growing business.

Side by side, from chapter 11.