Sam Ross, the co-founder and CEO of Numeral, came up with the idea for his sales tax compliance startup while traveling the world after having worked as a product manager at Airbnb. This was early 2018, a time before remote work was as common as it is today. Direct-to-consumer businesses were a major trend then, so he supported his travel by running several self-funded e-commerce brands from the road. He operated an online jewelry store and still maintains a vitamin DTC site.
While he loved the freedom his businesses offered, Ross was perpetually annoyed by the complex and bureaucratic process of handling sales tax on the merchandise he was selling. Until 2018, e-commerce and SaaS companies did not have to pay sales tax to states where they had customers but no physical presence. However, the Supreme Court ruled later that year that these businesses must collect taxes in the jurisdictions where their customers are located. Ross explained that he suddenly went from dealing with tax collection only in California to managing it in over forty states, a process he found very painful.
When Ross applied to the startup accelerator Y Combinator in 2023, he was encouraged by partner Gustaf Alstromer, his former boss at Airbnb, to build a startup that automates every aspect of sales tax management. Numeral recently announced it has raised $35 million in Series B funding, valuing the two-year-old company at $350 million. This round was led by Mayfield and comes just six months after an $18 million Series A. Other investors include Benchmark, Uncork Capital, Y Combinator, and Mantis, the VC firm co-founded by the members of the electronic DJ group The Chainsmokers.
While many software products exist for managing sales tax, Ross believed that AI could remove the complexities and serve clients as a human tax accountant would. This includes tracking how tax laws are changing in over 11,000 jurisdictions, managing tax-related mail, and filing and paying taxes on behalf of the client. AI can handle most aspects of sales tax because the majority of rules are unambiguous, presenting a low risk of errors. However, some laws are quite unusual. For instance, in New York, a full bagel is tax exempt, but if it is cut in half, it is considered ready to eat and becomes taxable. Numeral’s AI is aware of thousands of such specific regulations.
Over the last year, the startup has grown its revenue 3.5 times and now serves over 2,000 software and e-commerce clients, including EightSleep and Graza Olive Oil. While managing sales tax may seem like a niche problem, several startups are trying to solve it. Competitors include Anrok, Zamp, and others. A 26-year-old incumbent, Alavara, which is owned by Vista Equity Partners, is expected to go public later this year.
Ross states that Numeral’s international offering is what differentiates it from its competitors. The company is already filing taxes for clients in markets like Tanzania and Kenya, places where businesses would traditionally have had to rely on a CPA firm.