Ecommerce Coffee Break - Helping You Become A Smarter Online Seller
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Ecommerce Coffee Break - Helping You Become A Smarter Online Seller
5 Sales Tax Mistakes That Could Ruin Your Business — Rohit Bhadange | Top 3 Sales Tax Issues for Ecommerce, US Sales Tax Tips for International Sellers, Why Wrong Tax Rates Reduce Conversions 20-30%, Sales Tax Basics You Need to Know Before Selling (#347)
In this episode of eCommerce Coffee Break, we dive into the complex world of sales tax compliance for fast-growing eCommerce businesses.
Rohit Bhadange, CEO of Zamp.com, joins the show to share his expertise on how companies can avoid costly tax mistakes, streamline compliance, and manage multi-state tax requirements seamlessly.
Rohit also highlights key challenges eCommerce and omnichannel brands face as they scale and the technology that helps them navigate these obstacles.
Topics discussed in this episode:
- What are the 3 biggest sales tax problems for growing ecommerce businesses
- How international sellers can navigate the complex US sales tax system
- Why marketplace sales count towards tax thresholds in many states
- How improper sales tax collection led to one company owing $4 million in back taxes
- Why charging incorrect sales tax rates can reduce conversion rates
- What ecommerce founders must know about sales tax before selling their business
Links & Resources
Website: https://zamp.com/
LinkedIn: https://www.linkedin.com/in/rohitbhadange/
X/Twitter: https://x.com/salestaxceo
Get access to more free resources by visiting the show notes at
https://t.ly/aHa-Y
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Welcome to the eCommerce Coffee Break podcast. In today's episode, we discuss financial and operational challenges fast growing eCommerce businesses are facing and how to solve them. Joining me on the show today is Rohit Bhadange, CEO at zamp.Com. So let's dive right into it.
This is the eCommerce Coffee Break, a top rated Shopify growth podcast dedicated to Shopify merchants.
and business owners looking to grow their online stores. Learn how to survive in the fast changing e commerce world with your host, Claus Lauter, and get marketing advice you can't find on Google. Welcome to the show.
Hello, welcome to another episode of the e commerce coffee break podcast. Today, we want to talk about taxes, everyone's favorite topic.
We want to talk and dive a little bit deeper into financial and operational challenges that fast growing e commerce businesses are facing. So I need to have an expert here on the call because I'm definitely not the expert here. And with me is Rohit Bhadange, CEO at zamp.Com. Rohit has a background in computer science and business from the prestigious Jerome Fisher Management and Technology Program.
He had launched ZAMP. com raising 14 million and achieving nearly eight figures with revenue within just 15 months. ZAMP now supports over 400 fast growing e commerce and SaaS companies with their sales tax compliance. So definitely something where he has a good background and Rohit is also the leading voice in SaaS and CPG space with 17, 000 LinkedIn followers.
One of the go to experts when it comes to sales tax. So let's welcome him to the show. Hi Rohit. How are you today?
Great. How are you doing? I appreciate you. Appreciate you having me on Claus.
Yeah, let's talk about sales tax. I said everyone's favorite topic. What are the biggest problems that you see that fast growing e commerce businesses have when it comes to sales tax?
It's really three buckets and a lot of it has to do with education. You have all these e commerce companies that are sprinting at, you know, 100 miles an hour trying to get their businesses off the ground. And often what happens is there's two things. Number one, they don't realize when they've hit specific thresholds called economic or physical, you know, physical nexus thresholds in these states.
And then they don't register and they're not collecting sales tax from their customers. What happens then is if you're not collecting taxes from your customers on the relevant orders, you then have to pay it out of pocket down the line, whether it's when you're getting acquired or when it. Whether it's when you're getting audited, et cetera, and then you have penalties, interest, and it just compounds over time.
Cause look back periods can be several years. The second thing that often happens sometimes is people don't realize that you don't necessarily need to collect sales tax everywhere. And so another mistake folks make is like, Oh, we're just going to turn on sales tax in all the States. And now you're collecting sales tax in all these States.
You're a small company you're admitting in 46 States in DC, your sales tax compliance costs are super high. And, or. You don't realize you've turned it on and now you're just collecting all the sales tax that's sitting in your bank, but you're not giving it back. And that's just tax fraud. So I'd say those are kind of like the two different buckets people fall into.
You're either, you should be collecting sales tax and you're not, uh, or, you know, you are collecting sales tax and, and you're not giving it back. Makes
perfect sense. Now, obviously the lack of knowhow education can be a huge problem there. So you can basically not knowing, running into problems, where can you find, I mean, Shopify is there, other platforms are there.
They, they have the technology to support this sales, um, the sales tax collection. But still you need to have to know how, how do we acquire the know how to know what to do.
Yeah. So for me. If anybody looks at my background, they're going to realize, Hey, this guy's not a sales tax expert. And. And what I did is I, around me, like the entire team that I've brought on from the very beginning, I've been very intentional about bringing people that know sales tax, because for me, I realized, Hey, I know how to hire people.
I know how to fundraise and I know how to get shit done. How can I surround myself with people that have already been here before? How can I fill the gap that I have that is on the sales tax side? So our majority of our team is. Prior operators of, you know, uh, Avalara tax jar. We have prior state auditors on our team.
We have sales tax specialists, experts. And so net net, I think we have 200, 250 years of experience in sales tax in our specific team. And our team is still, you know, small yet mighty. So that really helps. And I think the, the reason we also did that is because I think when it comes to customer engagement, to your point, when it comes to the education piece, every touch point that you have with a potential customer.
There needs to be people that know and understand sales tax on a granular enough level to be able to share that knowledge back. Because often the people that we're talking to are not always founders. They're also CFOs or controllers. They're, you know, CPAs. be able to speak that same language becomes extremely important.
And so we've been really intentional about bringing people on that have either been here before and or be that have the domain expertise because it is a very niche base and even a lot of You talk to a lot of accountants, CPAs and things like that. They don't necessarily actually like doing sales tax and or know how to do sales tax because sales tax in itself is an extremely complex topic and very niche.
It's important to make sure you have the right people around the table for that.
Now, as you mentioned before, fast growing e commerce businesses, they deal more with marketing and growth and scaling. And that's also probably just more fun to deal with than with taxes. Who's the right person in a company to take care about this when they approach you guys?
Who's, who's your contact
partner? So we have contact partners across the board. It's at very early companies. It's, you know, usually it's like the founder The person that's maybe a little bit more financially orientated, someone that's handling the books or interacting with the CPAs, things like that. I'd say generally it's founders is one bucket.
The second bucket is, you know, you kind of start working with the CPA. You start working with your outsourced accountant or things like that. And now all of a sudden. You're reaching out to them and asking them, Hey, who do you, you know, who should we use for sales tax? So oftentimes we also work with outsourced bookkeepers, accountants, CFO services.
Now you start hitting, you know, big seven figures, eight figures beyond. And now you're bringing in a CFO in house. You're bringing in a controller in house. You're bringing in that accounting function in house. And so at that point we start interfacing directly again, back with the team. And that generally it sits within this like finance.
Sometimes it also ends up being like the chief of staff. It ends up being like an operational person, but typically I'd say they have A touch point on the finance side internally in the company, but it really varies. Nobody really wants to touch sales tax because nobody really gets promoted for doing sales tax.
Correct. You usually just get, uh, you just just get fired for doing it wrong. So at the end of the day, the person who does touch it is a very strong willed individual.
Okay. I want to touch a little bit on internationalization. I think about 70 percent of our listeners are in the U. S. and they know the sales system there, but we have about 30 percent of listeners that are somewhere else on the planet.
And tell me a little bit on how the U. S. sales tax system is built up, because I know there is state tax and there is other taxes. How does it work? Okay. Thanks.
Yeah, absolutely. So on the on the international side, you have, you know, like in Europe, for example, you have single rate VAT. So just one rate across the entire country in the United States, sales tax is done on a local level.
So states have their own rates, counties have their own rates, cities, and then you have like districts that have their own rates. All of these rates are consistently changing all the time, because sales tax is a political tool. And so as different people are going in and out of office, they might increase or decrease taxes.
And then the second layer on top of that is now you have all these rates, the second layer on top of that is, okay, like, where, what are the rates in the specific area? So understanding what are the boundaries? Because sometimes, you know, some counties may say, hey, we own this part of the land and the other counties and their reports might say, hey, we own this part of the land.
So really figure out what that looks like. Once you have that, the third piece is. What are the, what are the products you're selling? Because depending on the product you're selling, the taxability could be very different. Some products are exempt in certain states, some products, like SAS is exempt in like, you know, half the states, or food is exempt in a lot of states too.
But depending on if it's grocery or pre made or pre packaged, it could just be a little bit different. Depending on the contents of the food, it could also be really different. So, that's why I like having that understanding of that taxability. knowledge of sales tax at a fundamental level becomes really important.
And also being able to configure it right in your e commerce stores from the beginning, because now, as we're talking about it, you can quickly see that if you don't have the right rules set up in the beginning, then it's not going to drive the right results that you're looking for. So a lot of times I see a lot of wrong inputs driving the wrong outputs, but I'd say typically, yeah, sales tax is done on, on that level.
Products are taxed differently. And then you kind of have all these, you know, sourcing rules, destination based sourcing, origin based sourcing, and a few different kinds of permutations that layer on top of that.
Uh, just shows how complicated it is. Now we're talking about also omni channel. Most sellers, merchants are, um, pretty much every platform out there.
I don't know, Amazon, Shopify, whatever, Walmart, whatever's out there. What kind of role does technology play in addressing the challenges there?
Yeah. So I actually want to. We'll talk about technology, but one other thing I want to talk about, I don't want to go too deep into this too fast, but if you're an omni channel business, what are you looking at when it comes to sales tax is a little bit different than what you're looking at just as an e commerce business, because when you're an omni channel business, you're selling in wholesale, you're selling in, uh, you know, the marketplaces and things like that.
Those orders, a lot of times people will think, Hey, those orders don't impact my sales tax on the e commerce side or the direct e commerce side on your Shopify or, you know, who commerce big commerce, whatever that is. But in reality, in about half the States, your marketplace orders count towards your nexus thresholds.
And then in about another half of the States, your wholesale orders count towards those thresholds. So I think going back to your initial questions, like what do people sometimes do wrong? It's not counting those orders at the right time. This is where technology comes in is. When you look at Shopify does a really great job for Shopify only customers.
And I think it does a really great job of calculating. And if you provide it the right inputs, it can give you the right outputs. But then the question is, there's such a high risk of providing the right inputs is, is the company doing that the right way? And that's where solutions like us come in, where we can We bring in their, you know, their Shopify revenue, we bring in their Amazon revenue, their Walmart revenue, Target revenue, all of this.
And we look at it under one complete umbrella. And now we can make suggestions that, Hey, by the way, Shopify is not telling you, you need to charge sales tax in California. But based on these thresholds, I think you've already met that. So, Hey, we should turn that on, register and start collecting. And so with a technology like ours, I think at the end of the day, people don't want to touch sales tax.
They don't want to think about all these nuances. They don't want to think about these ins and outs. They just want to say, Hey, What can we just onboard and not ever think about it again? And so what we've done in the market is we've kind of, we're first to market with this managed solution approach where essentially we're combining a real time tech platform with experts so that people and companies, e commerce businesses, multichannel businesses, they never have to touch any part of the sales tax process.
And so they onboard integrate to the, their accounts. We get their, you know, their login, their state IDs, et cetera, configure their accounts. After that, it's basically just. smooth sailing. And all they need to do is hit approve from their phone, uh, five, 10 minutes every month. And they're pretty much done.
Okay. That was actually something I want to dive into the onboarding process. Does your clients, do they have to do some homework before, or do you do an audit or what's what's the onboarding process overall?
Yeah. So as a part of our sales engagement, one of the things that we always do for our customers is We always want to educate.
We always want to add value at every point. And one of that, one of those things that you kind of touched on is doing an assessment for that customer. What we provide may not always be the right solution for every customer. We want them to be on the same page as us. We want them to trust us. We want them to feel like we are a partner to their business.
Cause at the end of the day, we are a part of their business. We're just, you know, outsourced. And so. For us, getting that level of trust in the beginning is important. So what we do is we do a sales tax assessment, share them kind of the exposure that they have. We'll give them our recommendation as to, Hey, like if we were a business, this is what we would do.
Or we'll say, Hey, listen, like you don't have much exposure. I'd probably wait for a few months. And what that does is now you're building that trust with this individual, but to your point on the onboarding, once they are ready to move forward from an onboarding process, it's about getting, we have them kind of fill out some details and a part of it is also integrating to their platforms.
So we integrate across Shopify, Amazon, you know, Walmart, BigCommerce, Stripe. I mean, most of the, you know, e commerce marketplace, ERP. Billing platforms out there. We pull that data in once we pull that data in, we also ask them for key information that we're going to need to register for them or to file for them.
Right away. And so once we have that level of information and we have access to their state logins, where we're actually doing the filings and registering and things like that, then at that point, we're kind of at a good place. Typically this process takes like one or two hours for the customer. It's not super long.
And for the customer, it's like, Hey, if I can invest one or two hours a year, And never have to think about it again. Huge win.
No, absolutely. I think it's a no brainer. Um, I remember back in my times, I did my first startup in 2001. So that's a long time ago. And we went through, I don't know, four or five different tax consultants because no one was knowing what we're doing.
It was like, yeah, we do something online. And it was like, we have no fucking clue. And that was back in Germany where the tax system is completely fucked. Sorry, the word fucked up. But anyway, so when it comes to the technology, I mean, obviously, your staff members, and you mentioned that before, they have a very specific skill set to support e commerce brands, e commerce.
And I think it has a lot to do with trust, giving sales taxes, the management of the sales taxes to a external resource. When it comes to customer support, how do you, and you said there's the onboarding process, but is there like an ongoing relationship?
Absolutely. I think so. Like I said, this goes back to the customer experience.
I think what, when you look at the market today and what you're provided, it's, it's usually like a solution or it's a self serve platform, right? Where, you know, it's like, Hey, I'm Claus. I'm running an e commerce business. I have to go. Um, I signed up for the sales tax provider. I have to sign up, configure my account, enter the information, monitor it, track it.
I'm looking into it. I don't know, really know what I'm looking at. I'm asking questions, not really getting support. And now I'm like, okay, I'm stuck in this like cluster huge mistake. Customers don't want that. They just want a partnership. They want somebody that's going to sit there and a do everything for them, but just give them the education, knowledge, and transparency as you're going through that process.
So one of the things that we really do is over invest in customer experience, because when we, we find that it's a little bit counterintuitive, but. When we overinvest in customer experience, both upfront and throughout the process, we just find that the relationship with our customers is just a lot better.
And B, I think from just from a business and economics perspective, it just ends up being a lot better because there's that value, that extra value in investing extra 20, 30, 40 percent in that customer experience is really important to driving long term relationships, but also brand equity for the business.
So to your point, yes, it's. We consistently have, our team has consistent check ins with the customer every month, sometimes quarterly, depending on the frequency. We're very close to our customers, especially when we build our product as well. Everything that we do is designed for the lifeblood of ZAMP, which is our customers and our partners.
And so, to your point, yes, it's about Custom, how can we make a better customer experience or how can we engage with them? But it's also about using some of that feedback that they have to build a better product that's actually best suited for them. So I, I think not enough companies in the space. Invest enough in customer experience and especially in today's world.
I feel like we're kind of out of that world of, Hey, here's a SaaS solution. One size fits all out of the box. Like you do everything and you're kind of seeing, you saw this. And I think the first wave was kind of that, uh, that payroll wave, right? Where you had this ADP model and then now you have just works, gusto, Ripley and coming up and they're a little bit more hands on their white glove.
They're, you know, an. People like that. And then you kind of saw this in the DevOps space where you had all these DevOps tools, infrastructure tools, and now you have a managed DevOps tools like Vercel, Heroku, things like that. So I think sales tax is kind of similar. You have this. legacy platforms that are self serve, but now people want, they want that higher level of service.
They want to know what's happening under the hood. They want that transparency and that's what we're really providing them.
Yeah, no, I would agree because, um, when it comes to taxes, at some point you deal with the government and you don't want to be punished for doing something wrong. I think that's a very highly sensitive topic that you're dealing with there and you want to make sure that this is spot on and handled the right way.
Now we were talking about your customers. Who's your perfect customer?
If we look at our customers today, It's e commerce, SaaS companies, omnichannel businesses. Typically, I'd say, you know, these are like SMB bid market companies. So think like all the way up to 200 million or so in revenue. That's kind of, I think our sweet spot.
Um, I think once you start getting beyond that, they typically need, they're typically looking for international support or they're looking for support and things that we can't actually provide. So we found that like, You know, that one to 200 range to be kind of that sweet spot. Typically, if you're less than 1 million, we have some customers that are in that range, not a ton because we usually, you know, it's not often that they need support on the sales tax side.
Some of them are just getting ahead of the game, which is great. But, uh, I think for that, it's just more about education, relationship building and things like that. Uh, but we were very good about making sure we work with the right customers. It's more about, Hey, what are your requirements? Can we meet those requirements?
Cause we've talked to customers that do 10 million omni channel and just based on what they're looking for, we can't. Necessary fulfill their requirements. And very, we're very clear about, Hey, we, we can't do this. This is what we can do. You should go to X, Y, Z for this part. And so again, that comes down to building that trust relationship with the customers.
Can you share some success stories or case studies of customers you have onboarded and what you saw, what was a mess and what went better afterwards? You don't need to name anybody. I'm not,
I'm not going to name anybody, but I, I, so recently we onboarded a, uh, we onboarded a food and beverage company in the last few years.
They've gone basically from zero to mid eight figures and growing super fast, probably going to hit nine figures by the end of this year or early next year, and They came to us and they were like, Hey guys, like we didn't realize this, but we've been collecting sales tax. in all these states and we haven't given it back.
And now if you think about this, you've been collecting sales tax in all these states. Now the states are coming after them. They're, they're getting notices. They're getting, uh, they're saying, Hey, by the way, you owe us this, you owe us that there's liabilities, et cetera. And they're like, guys, like we don't have the money to do this.
And so that's, we're having people that are prior state auditors that have worked as sales tax experts and specialists really helps because now you can have a conversation with the states and say, Hey, This was a mistake. Like we, we're trying to fix this here. You know, we're trying to be on the up and up.
This wasn't intentional tax fraud, or this wasn't intentional issues. We'll work with them to find a great solution. And sometimes it's, Hey, yes, it's, it's sometimes you have to bite the bullet and you have to pay a certain amount. Sometimes you can kind of come up with payment schedules. Sometimes you can figure out, Hey, like maybe you guys need to raise some money.
So we kind of worked with them to figure out the right path forward. I think this company specifically, they owed about 4 million in taxes. And if you look at that, they think If you look at mid eight figures, give or take, I think it was like about like, 15 percent of the margins almost. And so I think when you're looking at that as an e commerce business, you don't even have that much working capital for Black Friday.
So how are you going to meet that? So I think the cool thing was our team took that. They brought down that liability significantly. I think we're talking like 40, 50%. And I think we finally put them in a place where they could pay most of that up front. And yes, they might have to incur a little bit more penalties and interest, but.
We figured out a way to kind of remit that over the next few months. And now this customer's, you know, clean slated, fully clean. And honestly, they're about to get potentially acquired soon. Now that this, the books are clean, they don't have to deal with potentially losing out on money on the table because of sales tax liabilities.
Yeah. Can you imagine some founders had very long sleepless nights there? Um, when you probably most DTC brands specifically when they're startups or when they're new, uh, cashflow driven businesses. Oh, a hundred percent. I mean,
I literally talked to somebody, she hits on the phone with me and she's like, I literally have not been sleeping for the last six months.
We have 6 million that we have to pay and we don't have it. I'm like, Don't worry, we're gonna figure this out. Don't worry. Uh, but the other thing that we also see sometimes is we've had a we've brought on folks where we actually see an increase in conversions because they're they're charging too much sales tax.
Like they'll they might be hitting them with like 10 percent tax everywhere, but people sometimes aren't used to paying taxes on certain things. And so there'll be like, Oh, I didn't realize like I had to pay tax on this food. So I'm not, I'm actually not going to buy it. And I'm not going to say it was just because of us, but I think as soon as we kind of figured out that calculation piece, we saw conversions kind of pick up like 20, 30%.
So you kind of see revenue impact depending on which kind of customers we're talking to.
Yeah, I think one very important fact that you mentioned there is if you plan to sell your business at some point, um, you need to have your books in order and you should start very early with that because if somebody, there's enough companies out there and quite a few interviews on that that are looking for successful e commerce businesses, but obviously the first thing there is, is are the books in order and then definitely having the sales tax in order is right.
This is probably the single biggest line item that people get dinged for. Because it's typically like five to 10 percent of revenue. Yeah. So even if you know you're doing it incorrectly, if you don't know if you're doing it incorrectly, you might as well get it fixed right before you sell. Because at exit, or if you're trying to navigate exit, they're going to charge you a lot, lot more to get it done at that point.
Cause they know that, you know, they have the power.
Good point. How does your pricing structure work? How do you charge your clients?
Yeah. So this is, this is a good question. One of the biggest differentiators, I think, against the market. So we don't charge clients based on usage. We charge clients based on what their business needs.
And what I mean by that is we're not charging people per filing, per registration, per calculation, per integration, et cetera, because what that does is that doesn't align their compliance needs with the needs with, with the provider needs the providers incentivized to keep them as compliant as possible to do as much as possible for this business, but the businesses want to stay under the radar.
They don't, they want to. Be as have little interaction with the government as possible. And so what I say with our business we do is we align our pricing with them. And so we charge based on how many states you need coverage in. And this way the customer doesn't have to worry about, Oh, are we doing annual filings or monthly filings?
Are we doing this or that? It's more just about, Hey, like what's right for my business? What is the risk that I want to, I'm willing to take? And, and let's do that. And I don't have to worry about that. Am I doing too much? Am I doing too little? You know, things like that. It kind of simplifies everything.
And then customers understand that they're like, Oh yes, we have Nexus in seven States. Okay, great. Let's, let's go with this. And I think that helps also just align our incentives with the customers. Because the other thing I see a lot of times in this market is, and you might have seen this from your days when you're, when you're selling on just because marketplace places like Amazon do sales tax for you, let's say your entire, all of your orders in California were.
Uh, you know, done by Amazon, sometimes what you'll see is providers today, they'll file 0 returns, meaning they're not remitting any money to the state, but they're telling you as a merchant that, hey, by the way, you have to legally submit a return. And to my point earlier, yes, is that the most legal thing to do?
Absolutely. Does it make any sense to do that? Are states going to care? Probably not. And now you're paying like, what, 60, 70, 80 a return for 0? Like what are you doing?
Yeah, you're burning money. Not a good idea.
But people don't know, and I think that's the, that's the lack of education. That's the education that's really missing in the space.
No, totally. And I think that's so important that providers like ZAMP, for instance, you bring not only the technology solution on board, you bring the expertise, the know how, the experience on board and tailor made for e commerce businesses, for DTCs, DTC businesses, so that's, that's a great package there.
Before we come to the end of the coffee break today, is there anything that you want to share with our listeners that we haven't covered yet?
I'd say, uh, if you're, if you're, you know, a business that's just starting to grow, starting to pick up, just get a little bit of education around the sales tax space.
Understand what is the risk? What's not the risk? Uh, understand what are things that you need to think about? You don't have to take action today, but knowledge is power. And I think Sales tax is like a maze, and if you're going into this maze blind, you're not going to know when you get stuck with the dead end.
I've seen a lot of companies that, this isn't to scare anybody, but I've just, anecdotally, I've seen a lot of companies shut down because they can't pay their sales tax, and it's really unfortunate. But, and so, there's an easy way to prepare for this, I think you just get an assessment. Understand what you need to do.
We do them for free for, for, uh, for classes, uh, friends. We'll do them for free and we'll, we'll help them. But I think just getting that education and under going into this maze now with blind, with your eyes wide open, instead of with a blindfold, uh, is always going to help because at the end of the day, we're all looking for that outcome.
We either want to build a great business, you know, sell this business, IPO, whatever that is, and to get to that point, that sales tax conversation is going to have to happen at one point or another. So better just to get ahead of it. Yeah,
for all listeners, get to that topic as quick as possible, um, then it's from your plate.
You have somebody taking care about it and you don't have sleepless nights. Where can people go to find out more about you guys?
Yeah, we're at ZAMP. com, Z A M P dot com. Um, you can also find me on Twitter at sales tax CEO or, uh, we're at ZAMP tax on Twitter as well.
Cool. I will put the links in the show notes as always.
Then you're just one click away. Rod, thanks so much for a deep dive into sales tax and how you can optimize your business and grow your business by doing it the right way. And I hope a lot of people will click on the links and get in contact with you. Thanks so much for your time today.
Thanks Claus. I appreciate having me.
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