Internet sales tax laws affecting my business

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Internet sales tax laws affecting my business

Postby kraftwerk » Fri May 03, 2013 3:34 pm

I was wondering if anyone has any experience with these internet sales tax laws that have been popping up i different states. I have been doing work for a large online store and they have told me they will have to terminate our relationship because of a tax law my state has passed. It would require them to start charging sales tax to residents of this state if they have any kind of agents resident here. They asked if I would be willing to move to another state. Is there anyway around this? I do business as a sole prop llc, but from what I have been reading I can't just move the llc to a different state, I would have to change my own personal residence status.
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Re: Internet sales tax laws affecting my business

Postby chaz » Fri May 03, 2013 3:41 pm

See a tax lawyer. More legislation is pending.
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Re: Internet sales tax laws affecting my business

Postby KyleAAA » Fri May 03, 2013 3:46 pm

I'm assuming you're talking about Amazon. You can get around it by using something like vigilinks, but you have to give up a slice of your revenue to them.
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Re: Internet sales tax laws affecting my business

Postby archbish99 » Fri May 03, 2013 4:01 pm

They want to terminate the relationship because having you working for them would give them a nexus in that state and subject them to that state's laws requiring the collection of sales tax to residents of your state. Makes sense. If that's what they've determined is in their business interests to do, I don't think you can stop them or even really incent them to change their mind short of moving to a state with less aggressive laws (or where they've already conceded the effort to avoid collecting sales tax).

On the plus side, the Senate is voting on the Marketplace Fairness Act which, if passed, would make your client's concerns moot -- they would be subject to your state's tax laws regardless of whether they work with you.
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Re: Internet sales tax laws affecting my business

Postby SeattleCPA » Sat May 04, 2013 10:27 am

I think a really thorough discussion of Internet sales taxes nearly violates forum rules because some of the really "newsworthy' stuff relates to proposed legislation. Thus, it's a little tricky to talk about this stuff. That said, and honoring forum policy, let me say that under current law generally if a business has enough of a connection to a state, the business needs to pay income taxes to the state. Further, the business needs to comply with other state tax laws such as those relating to excise and franchise taxes. (Sales taxes are excise taxes.)

Things that create nexus, currently, include having property in a state, employing people or contractors in a state or doing stuff like providing services in a state. And what's going on here in terms of public policy is that the federal laws protect businesses from taxes and as importantly the tax accounting costs of state tax laws as a way spur and support interstate commerce.

One relevant issue here and something missed by people who don't have to do the tax returns is the tax accounting or compliance cost. E.g., people can say stuff like, "Well, don't be a crybaby about the tax accounting... computers and software make this work easy."

But imagine if you did not one state income tax return... but, say, forty state income taxes returns. And then to make the comparison really fair, imagine not doing this once a year, but imagine doing it every month which is often required by excise tax rules. I.e., a business if not careful about nexus maybe would need to do 40 excise tax returns a month. The business's customers may pay the sales taxes but who will pay the accountants?

To circle back to the original poster's question, one can understand why the business feel they need to avoid nexus by doing things like severing arrangements like the one described.

P.S. Actually because the page provides some of the primary source authorities for the current tax laws that control how Internet sales tax works, I'm going to post a link to a page that describes the current situation and, gulp, some proposed stuff that would not be appropriate to talk about here. Moderators? please forgive me if this indirectness also violates forum policy and of course edit or have me edit the post. Here's link: http://www.stephenlnelson.com/remotesalesalestax.htm
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Re: Internet sales tax laws affecting my business

Postby Dulocracy » Sat May 04, 2013 11:42 am

Some of the suggestions here are geared toward breaking "getting around" tax law by using deceptive methods that may wind up causing you criminal trouble, depending on how your state's laws are set up.

Your options are either:
1) Move
2) Create a business in another state with a physical location in that state. The business will be legally operating within the law, as it will be a legal entity that has a physical location only in the other state. The shareholder may live in your state (much like I live where I live, but Amazon is not penalized for that just because I hold some equity there).
3) End the business

Those three options are the three legal options that you seem to have that I see. You likely will want to consult with an attorney familiar with the laws of your state.
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Re: Internet sales tax laws affecting my business

Postby archbish99 » Sat May 04, 2013 12:35 pm

SeattleCPA wrote:One relevant issue here and something missed by people who don't have to do the tax returns is the tax accounting or compliance cost. E.g., people can say stuff like, "Well, don't be a crybaby about the tax accounting... computers and software make this work easy."

No, I only mentally apply the crybaby term to people who previously could sidestep their use tax liability and now complain that it's actually being / going to be collected. There's been no change in what taxes they owe, nor any proposed, and in fact an easier way of paying it that makes compliance easier (for the end customer, at the cost of increased complexity for the seller). The businesses are quite correct that they have an increased complexity in terms of compliance when they make a business deal that subjects them to a new state's tax laws.
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