TheChek News Flow

The Takeaway

OpenAI has touted shopping inside ChatGPT as a major business opportunity as it tries to raise tens of billions in fresh cash. Meanwhile, the company is still nailing down some online commerce basics.

That includes figuring out the best way to navigate state sales taxes—people working on commerce inside OpenAI still haven’t decided how it should handle the collection of sales taxes for purchases made through its site, two people who have talked with them said.

OpenAI started adding checkout features inside ChatGPT late last year, selling some goods inside the app from merchants that use commerce services like Etsy or Shopify. Those firms handle the processing of the transactions, including most of the work around sales taxes. For its shopping expansion to really take off, however, ChatGPT would likely need to list a wider range of goods, including big brands, potentially forcing it to handle more of the transaction processing itself—including the collection of sales taxes.

That could mean building its own capabilities to collect and remit taxes, as well as adding tax compliance staff. And if OpenAI does build a significant shopping business down the road, it could be the target of state audits. Other online firms have been hit with assessments on prior periods when states have decided they should be collecting sales taxes.

The tax questions are part of broader hurdles for OpenAI as it tries to turn shopping into a meaningful source of revenue from ChatGPT’s mostly nonpaying users. The company’s early efforts have required it to confront some of the unglamorous details of online retail, such as standardizing product data in a way AI can reliably understand, and it has leaned on other commerce firms including Shopify and Etsy to make that process smoother.

Marketplace facilitator tax laws, adopted by dozens of U.S. states over the past decade, often require apps that connect buyers and sellers to collect and remit sales taxes even if the apps don’t own the inventory, depending on how the sale is structured. Marketplaces sell many other retailers’ wares across a wide variety of products, whereas individual retailers, like a luggage brand or footwear seller, have a more limited focus.

Amazon and other large marketplaces have spent years arguing over when marketplaces, as opposed to individual sellers, must collect sales taxes. States, meanwhile, have increasingly pushed that responsibility onto marketplaces through court rulings.

Online marketplaces need to master thousands of sometimes shifting tax rules across states. For instance, different states might tax apparel at different rates based on whether the item is considered a necessity or a luxury good, or might offer tax holidays or breaks on items below a certain price level. Big marketplaces are also a prime target for state audits due to their size.

“Most importantly, they just need to understand what the tax implications are,” said Michael Wasser, a managing director at EY focused on state and local taxes, who was speaking about AI firms’ commerce tax strategies in general. “And from our perspective, it’s always wise to understand that before you do it, so that we’re not in a position of trying to help a client once they’re already in hot water.”

OpenAI says in its terms of service that merchants are the ones ultimately facilitating transactions and are responsible for the sales they make through ChatGPT. But state marketplace tax laws supersede those designations, and they often focus in part on how much control an app has over collecting payments, where the rules can be murky.

To be considered a marketplace, “in most instances, they have to be involved in some way in processing payments—collecting payments directly or indirectly is how most states phrase it,” Wasser said. “‘Indirectly’ is a fairly ambiguous term. So there’s a lot of negotiation, a lot of speculation as to where those lines are.”

Ultimately, state determinations will likely come down to how exactly any AI app structures its commerce and payments business. “The devil’s really in the details, just in terms of how each business model is set up,” Wasser said.

Though those tax issues remain an open question inside OpenAI, the company has also already started making changes in how its payments are set up that could give it a greater role in online transactions.

So far, online payment giant Stripe has provided all of OpenAI’s payment infrastructure, including storage of sensitive data like credit card numbers. But in recent weeks, OpenAI struck a deal with a new software vendor to store payment data on secure external servers not tied to a specific payment firm, two people familiar with the vendor discussions said.

That change brings OpenAI slightly deeper into payments in a subtle, behind-the-scenes way. Though an external firm is storing the card data, OpenAI would receive a masked version of the payment information through a process known as tokenization, which it would then pass on to merchants, the people said.

The switch will likely take place before the end of the first quarter, one of the people said.

Moving the card data to an independent card storage provider would also make it easier for OpenAI to bring on merchants that use a wider range of processors beyond Stripe, such as large independent retailers. Currently, the merchants selling through ChatGPT can only receive payments processed through Stripe. In practice, for now that means merchants that also use Etsy and Shopify with Stripe handling the payments.

By separating card storage from Stripe, OpenAI will also be able to potentially work with a wider range of firms to process the payments it collects for software sales, including the recurring subscription fees it charges ChatGPT users, which could help it bring down costs and boost margins. Stripe also currently handles all of OpenAI’s billing and payments for sales of its own software, but OpenAI is weighing bringing in other processors once it has completed the move, one of the people said.

If OpenAI uses more payment processors, Stripe could end up getting a smaller slice of the billions OpenAI plans to collect from its subscription business, including the more than $25 billion in subscription revenue it has projected for next year. Stripe didn’t have a comment.

Adding more payment processors is a natural progression for many companies as they grow. But that would still be a blow for Stripe, which specializes in helping developers set up online payments easily and has gained a significant foothold in the market by getting in early with firms like Shopify and Instacart.