Key Takeaways

• The merchant of record is the named seller, not the company that moves the money. With a plain payment processor you stay the merchant of record and nothing transfers.

• Each sale creates two legal transactions: your company sells to the provider, and the provider sells to the buyer. That second sale carries the tax obligation.

• Published rates cluster around 5%. Paddle and Lemon Squeezy both list 5% plus 50 cents per transaction, and Stripe Managed Payments charges 3.5% on top of Payments fees of 2.9% plus 30 cents on domestic cards.

• Stripe Managed Payments handles indirect tax compliance and remittance in more than 75 countries, and Stripe becomes the merchant of record on those transactions instead of your business.

• The liability transfer costs you the buyer relationship: the provider's name goes on the receipt, the provider holds the customer contract, and revenue arrives net of fees.

What legal and tax liability actually transfers to the merchant of record?

Everything that attaches to being the named seller transfers, and nothing that attaches to moving money does. A processor is liable for processing correctly. A merchant of record is liable for the sale itself.

The obligations that move across:

• Indirect tax registration and remittance. The provider registers in each jurisdiction, charges the right sales tax, VAT, or GST, files the returns, and answers the audit. Stripe puts this at more than 75 countries for Managed Payments.

• Chargeback liability. Disputes land against the provider's merchant account. Your exposure becomes a contractual clawback rather than a card network dispute, which changes how involuntary churn shows up in your numbers.

• Refunds. The provider refunds against its own sale, so your paperwork turns into a credit memo against the provider rather than a customer refund.

• PCI DSS scope. Card data hits the provider's checkout, not yours.

• The terms of sale. The buyer's contract runs with the provider, and your terms sit underneath as a supply agreement.

The double sale is what makes this work. One customer payment produces two legal transactions: you sell the subscription to the provider, usually tax-exempt as a business-to-business supply, and the provider sells it onward with tax applied. Without that second sale there's nothing for the provider's tax registration to attach to.

Why do payment processors and resellers get confused with a merchant of record?

All three sit between you and the buyer's money, and only two change whose name is on the sale. Vendor pages often treat "merchant of record" and "reseller" as synonyms, which flattens a real difference: a reseller sets its own price and keeps whatever margin it wins, while a merchant of record sells your product at your price for a fee.

How the three roles split the responsibilities that matter:

A payment facilitator doesn't change this either. It gives you a sub-merchant account under someone else's, so tax and dispute obligations stay yours.

What does a company give up in exchange for that liability transfer?

Margin goes first, and it's the easiest part to measure. Published rates sit two to three times above raw card processing, because the fee buys tax filings, dispute handling, and support alongside the payment.

Rates published on each vendor's own pricing page, checked August 2026:

On a $50 digital sale in the US that's $1.75 through a plain Stripe domestic card charge, $3.00 through Paddle, and $3.50 through Stripe Managed Payments once the 3.5% stacks on the underlying 2.9% plus 30 cents.

The rest is harder to price, and in our experience it's what surprises teams later:

• Customer data ownership. Billing addresses, tax IDs, and payment methods live under the provider's contract with the buyer. Exporting them later is a commercial negotiation, not an API call.

• Gross revenue reporting. Money arrives net of fees, so anyone doing usage-based revenue recognition has to gross it back up to report accurately.

• Pricing flexibility. The provider's checkout, not your model, decides whether metered charges, mid-cycle changes, and consolidated invoicing across products work at all.

• Migration cost. Every active subscription is a contract between the provider and the buyer, so moving off means re-collecting payment authorization from every customer.

Related terms

The merchant-of-record decision touches every one of the following:

• Billing vs Invoicing separates calculating what's owed from issuing the document, and a merchant of record takes over the second one.

• Credit Memo is what you issue against a provider once refunds run through the provider's sale.

• Involuntary Churn changes shape when disputes and failed payments land in the provider's account.

• Usage-Based Revenue Recognition is where net-of-fee settlement gets grossed back up for reporting.

• Consolidated Invoicing is one of the first things to break when the provider's checkout owns the invoice.

FAQ

Can you be your own merchant of record?

Yes, and most software companies already are. Using Stripe, Adyen, or Braintree as a processor leaves you as the named seller, so you register for tax where you have obligations and handle disputes yourself. Stripe sells that path separately: Stripe Tax Basic costs 0.5% per transaction on the no-code integration while you stay the merchant of record.

Whose name appears on the customer's card statement?

The merchant of record's name appears, which is the provider's name if you use one. That's the practical tell for which model a company runs. A charge from "PADDLE.NET" tells you the software vendor handed off the sale, and questions about that charge go to the provider first.

Is "seller of record" a different thing?

No. Most vendors and contracts use seller of record and merchant of record interchangeably for the same role. Don't read a legal distinction into the two labels unless a specific agreement defines one, which is rare outside marketplace tax rules.