Should you build or buy Merchant of Record (MoR)?
A Merchant of Record (MoR) is the legal seller of a company's software or digital goods: it registers for indirect tax in every jurisdiction it sells into, calculates and remits tax on each sale, and takes on chargeback and dispute handling for a percentage of revenue. Paddle, FastSpring, and Lemon Squeezy are the main providers for software sellers.
Most software sellers should keep buying this. Compare an MoR's all-in take rate against Stripe plus a tax-compliance service at your actual volume, including the internal time registrations and filings consume, and switch only when that gap is clearly worth owning the compliance work.
Build it, buy it, or bridge?
When building makes sense
Running the direct model, meaning your own Stripe account plus a tax-compliance partner instead of a merchant of record, is a documented production path for real software companies, not a workaround. Stripe's own case studies describe Outseta choosing Stripe Tax over becoming or using a merchant of record for its global tax compliance, after concluding that an MoR would have forced its customers to pay the highest tax rate in every jurisdiction where the MoR itself crossed a threshold, even where Outseta's own business had not. Outseta now tracks tax obligations across 32 countries directly and monitors more than 50 additional geographies through the Stripe Tax dashboard. This path works when you already have the internal capacity to own registration filings and want the more efficient pricing Outseta found compared to an MoR's take rate. It does not remove the legal-seller liability an MoR absorbs, so it fits companies willing to own that exposure directly rather than transfer it.
When buying makes sense
Most software sellers should keep buying this. A merchant of record takes on the legal-seller role: tax registration across jurisdictions, remittance, and chargeback handling, all bundled into one take rate. That is worth the roughly 5 percent fee for companies that do not want to run their own tax compliance program or take on liability in markets they haven't built entities in. Outseta's own evaluation shows the other side of the decision clearly: it moved away from an MoR specifically because the model would have forced its own customers into a worse tax outcome than direct billing plus Stripe Tax, and because Stripe Tax pricing was more efficient at its scale. Compare an MoR's all-in take rate against Stripe plus a tax partner at your actual transaction volume, including the internal time registrations and filings consume, and switch only when that gap is clearly worth the liability you would then be carrying yourself.
The desk read
Build-versus-buy analysis for Merchant of Record (MoR) is being written. In the meantime, the framework that drives every B4 call is on the B4 Index page.
Frequently asked
Why would a software company choose to run tax compliance directly instead of using an MoR?
When staying with an MoR would force your own customers to pay a higher tax rate than they'd owe under direct billing, because the MoR itself has crossed a compliance threshold in a market where your business hasn't. A tax-engine partner priced per market or by flat fee can also beat an MoR's percentage-of-revenue take rate at scale.
When does buying a merchant-of-record service make sense?
For most software sellers who don't want to run tax registration and filings themselves, or who are selling into many jurisdictions without an entity in each one. The roughly 5 percent take rate buys legal-seller liability transfer that direct billing does not include.
When does the direct billing model make sense instead?
When you already have, or are willing to build, the internal capacity to track tax obligations across your active markets yourself instead of paying an MoR's take rate on everything. That means owning registration, filings, and threshold monitoring market by market, not simply switching payment processors.
Does an MoR fully remove tax and chargeback liability from the software seller?
Not entirely. MoR supplier terms typically still recover chargeback and refund losses from the seller, so part of the liability transfer the take rate implies is narrower in practice than it sounds.