Making Money, And Paying Taxes, One Click At A Time By Cliff Ennico www.creators.com "Do you have any thoughts on the legal and tax aspects of 'affiliate marketing' - when you use your website to sell other people's products through Clickbank or other affiliate sites? This system creates a link on your website where the customer doesn't actually see content on your site but goes through it directly to Clickbank's site and you are paid a portion of the sale for the link to Clickbank's website." There's nothing new about affiliate marketing - it's been around as long as the Web itself. Basically, by becoming an "affiliate" of another website, you become a "sales representative" of that website - you help that website sell their stuff and if they make any money from a customer who clicks on the "affiliate link" on your website, they pay you a commission. Websites like Clickbank take this process to a different level. Think of Clickbank as an intermediary between websites that are looking for affiliates to help sell their stuff (usually digital information products such as e-books), and people who want to be affiliates. For example, if I had a digital e-book (I don't, at least not yet), I could become a "Clickbank publisher" and allow Clickbank to sell my e-book, either directly or through its affiliates. Now, let's say you fall in love with my e-book and want to sell my book on your website. You would set up a Clickbank account, tell them you want to sell my book, and create a link to the Clickbank website. If someone clicked on the "Cliff's book" link on your website, Clickbank would process the order, collect payment from the customer, pay you your commission, pay me the rest (less Clickbank's fee, currently 7.5%), handle refunds, issue IRS Form 1099 at the end of each year, and provide other services. With Clickbank and other similar sites you can offer a whole bunch of other people's stuff to your customers and get sales commissions without having to lift a finger. Pretty cool, huh? But there's a catch (isn't there always?). When doing business with Clickbank or any other affiliate site, the words "drop shipper" should pop up in your head immediately. Whenever you are selling someone else's stuff but don't actually take possession of it, and that someone else handles all of the order fulfillment tasks (the shipping, handling, packaging and so forth), you are a "drop shipper" for legal and tax purposes. Full disclosure: I'm not a Clickbank scholar, and I haven't studied their website in detail. But a quick look at their operation leaves me with the following questions, which you should ask if you're planning to become a Clickbank "affiliate". Sales Taxes . By becoming a "Clickbank affiliate" for one of Clickbank's "publishers", you are creating a three way business relationship between you, the information publisher, and Clickbank itself. This means someone will have to collect sales taxes whenever any of the following people click on your "affiliate" link and order from Clickbank: people who live in the same state you do; people who live in the same state the information publisher is located; and people who live in Idaho (where Clickbank has its headquarters), Colorado (where Clickbank has an office), and any other state where Clickbank has a physical location or "nexus" for tax purposes. Will Clickbank keep track of this, by charging the customer sales tax and remitting it to the appropriate state tax authority? Or is that your responsibility (or the publisher's)? Legal Claims . Let's say someone clicks on your "affiliate" link, downloads my e-book from Clickbank's website, and discovers to his horror that I've invaded his privacy by disclosing all the lurid details of his private sex life. Clearly, as the publisher of this e-book I am legally responsible for its content, and will have to indemnify Clickbank (defend the lawsuit at my own expense, and pay the judgment if the customer wins) in case the offended reader sues them. But where do you, the poor "affiliate", stand in all this? Since the reader ordered the book from your website, you are in the "chain of sale" and may well be sued along with the rest of us. Is anyone indemnifying YOU if that happens? "Pyramid" Schemes . Clickbank allows its "affiliates" to set up their own "affiliate" programs where other websites (let's call them "sub-affiliates") can create a link to the affiliate's website which automatically links to Clickbank's website (getting dizzy yet?), with everyone in the upstream affiliate "chain" getting a piece of the purchase price each time something is sold. If these programs aren't set up properly, there's a risk that you will be creating an illegal "pyramid" scheme where people get commissions for bringing on board sub-affiliates who aren't actually selling anything. Make sure a good lawyer helps you set up your "Sub-Affiliate Agreement" to make sure you're not caught between a rock (angry sub-affiliates) and a hard place (Clickbank and its legal team). Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2008 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com. More >>

Doing Business When You Can't Stay Put By Cliff Ennico www.creators.com "I'm an Army wife looking to start up a home-based graphics and web design business. I know I need to set things up legally -- and desperately want to, but my problem is our upcoming out of state move. My husband's been given orders to become a recruiter which means he'll be shipped off to Recruiter School soon and upon graduation in the middle of next year we'll be moving to a new location. We won't learn where we're moving until early February. As my husband has at least another eight years in the Army, this kind of thing is bound to happen at least three more times. How do I even begin to set up a business? Do I work as a sole proprietor until we're relocated? Or do I set up something more structured now? " Until your situation changes and you get more settled, you are probably better off operating as a sole proprietor, as you will be able to "move" that from one location to another a lot easier than you can a corporation or limited liability company (LLC). LLCs and corporations are "state specific" - each time you move you will have to shut down the old one and set up a new one, which can be very expensive and time consuming. By operating as a sole proprietorship, you will be able to use the same federal tax ID number whatever state you are in. As you move into a new state, you will register with that state's tax authority and obtain a state tax ID number. If you move from one state to another in the middle of a calendar year, you will have to file two state tax returns for that year only - one in the "old" state for the time you spent there, the other in the "new" state for the time you spent there. Of course, if you're in a business with a high risk of legal liability, you will be sacrificing the protection from personal liability that a corporation or LLC affords. But since you're doing Web design work, it's highly unlikely you will be sued - if a client is unhappy with your work, they will refuse to pay you, or you will give them some of their money back to keep them happy. Still, just to be safe, I would take out a basic "errors and omissions" insurance policy so that if you ever are sued, the aggrieved customer will go after the policy and not your house or other personal assets. "I need a federal tax ID number because I am opening a new business here in the United States. I am originally from Sao Paulo, Brazil and don't have a Social Security Number. The IRS says that I cannot get a federal tax ID number unless I have a Social Security Number (SSN). There's part of me that thinks I don't really need a tax ID number at all - do I need a tax ID number to invoice my clients?" You will need to retain an accountant to help you with these matters. Tax ID numbers can get very tricky and do not want to do this without professional help. You will need to check your immigration status. If the visa allowing you to live legally in the United States does not allow you to operate a business, then there's nothing you can do about that -- you cannot operate an illegal business here. If your visa status allows you to operate a business here, then you should consider getting an ITIN (Individual Taxpayer ID Number) from the IRS -- it's like an SSN for people like yourself who do not qualify for an SSN (for details, go to www.irs.gov and check out IRS Publication 1915). Once you get the ITIN, you can use that to get a federal tax ID number for your business (perhaps -- the rules are very complicated, which is why you need an accountant). As for invoicing your clients, it depends on the type of business. If you are selling goods at retail or wholesale, you normally do not put your tax ID number on the invoices you send to your customers. If you are in a service business, however, and you perform more than $600 worth of services for a customer during a calendar year, that customer is required to send you a Form 1099, with a carbon copy to the IRS. They will send you IRS Form W-9 requesting your federal ID number, and you sure as heck better have one by that time! I always put my federal tax ID number on every invoice I send to law clients. That way if they wish to send me a Form 1099 they don't have to send me Form W-9 - they just look at their latest bill and there's my number. Otherwise I would have to spend an hour a day each January fielding telephone calls and e-mail messages from people asking for my federal tax ID number. Life's too short. Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2008 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com. More >>

Ten New Year's Resolutions For 2008, Part Two By Cliff Ennico www.creators.com Here are six more New Year's Resolutions for business owners. Find Three New Sources of Saleable Product. If your business is selling stuff online, one of your biggest challenges is finding high quality stuff to sell at a profit. If you're not currently taking consignments, you're out of your mind. Take out an ad in your local newspaper saying "I Take Consignments!" with a toll-free telephone number. Trust me, you will get calls. Let the local senior citizen community know you are available to help them clean out their houses and apartments when they move into an assisted living facility. Finally, make 2008 the year you cut out the middlepeople in your life -- go to www.worldwidebrands.com and www.globalsourcedirect.com and find out where you can buy the stuff you're currently selling directly from the manufacturers in Asia. Get Your Taxes Right. If you have been selling things online and haven't been paying taxes, now is the time to get into compliance with the tax laws. The IRS is losing patience with people who don't know they are in business when they're selling online, and it's only a matter of time before they require PayPal and other online payment systems to send you 1099s (with a copy to the IRS) making your activities public. Get a copy of my new book "The eBay Seller's Tax and Legal Answer Book," and read it cover to cover - it's the best twenty bucks you will ever spend. Renew Your Web Address. If your business is dependent on the Internet, make sure you check Network Solutions ( www.networksolutions.com ) at least once each year to make sure your Web address hasn't expired. They do send you renewal notices, but often these get picked up as "spam" by your antispam software, so you never see them, your Web address expires and gets grabbed by someone else. Pick a date that's easy to remember - like your birthday - and renew each of your important Web addresses on that day. Update Your Software Twice a Year. Just about every software program gets updated at least once or twice a year, but not every software developer sends you an e-mail announcing the latest updates. Make it a point to visit the Website "home page" of each software company whose products you license, and look for a button that says "check for updates" or something like that. It just may save your PC. Sheath Your Cell Phone. Make 2008 the year you stop being a "cell phone slave". Make some rules about when you will use your cell phone, and when you won't, and stick to them. Among those I highly recommend: do not use your cell phone while driving a motor vehicle; use your cell phone only for outgoing business calls; do not use your cell phone in public places where your conversation may be overhead by total strangers with evil on their minds. Get Control of Your Bookkeeping. If your bookkeeping system consists of a shoebox, you have absolutely no idea what's going on in your business. Sign up for your local community college's evening class on QuickBooks Proreg; and learn to do it the right way. If you use "live" bookkeepers, meet with them at least 3 or 4 times every year, review your chart of accounts and other operating statements with them, and get their opinions on things you are doing right and things you need to improve. Because they are not "in the trenches" with you every day, they are likely to see patterns and trends you are too busy to notice. Start Escrowing for Estimated Taxes. If you pay estimated taxes to the federal and state governments four times a year, and find yourself occasionally without enough cash on hand to make the tax payments, you need to start "escrowing" for these taxes. Take your gross sales each month, withdraw 40% of that amount from your business checking account, and deposit it in an interest-bearing savings account. Do this every month, and learn to operate your business on the remaining 60% of revenue. This way you will be sure to have enough cash on hand to make your tax payments when they come due. Get Involved in the Election Process. This is an election year, and with all the talk about the war in Iraq, universal health insurance coverage, and other policy issues, so far none of the Presidential candidates has said anything about what they will do to help small business owners. Go to their Websites, participate in their periodic "town meetings," and ask them. If your Congressperson or Senator is running for re-election this year, call up her campaign director and volunteer to be an advisor on small business issues. Whatever you do, don't be silent. If you don't make yourself heard, then you won't have any right to complain when your business gets clobbered with high taxes and crazy government regulations in 2009. A happy, prosperous and successful New Year to all of my readers. Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2008 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com. More >>

Ten New Year's Resolutions For 2008, Part One By Cliff Ennico www.creators.com When you stop to think about it, New Year's Resolutions are all about habits. Breaking some bad ones (smoking, drinking excessively, binging on fast food when you've had a bad day), and starting new ones (working out, eating more Brussels sprouts). Businesses, like individuals, develop bad habits over time that need correction, while success in business over the long run usually means adopting good management habits and sticking with them year after year. So, without further ado, here are my 2008 New Year's Resolutions for business owners. Do an Annual "Legal Review" . It isn't enough to hire a good lawyer and pray you don't get sued. Every business has laws and regulations you need to know about, and it's your responsibility to learn about them so you can prevent lawsuits before they happen. Take your lawyer to lunch sometime in January, tell him or her everything your business did last year and is planning to do this year, and get some education on how to do things better. If you are a corporation or limited liability company (LLC), have your attorney draft some resolutions for you and your partners "ratifying" the big decisions you made last year - these will save you a lot of heartache if you are ever sued, or audited by a government agency. Sign 'Em Up; Nail 'Em Down . You've got a part-time salesperson or administrative assistant working in your business one or two days a week. While they're there, you tell them what to do, when to do it, and how to do it. You believe this person is an "independent contractor", so you don't withhold money from their paycheck each week. Bad idea! The IRS is very likely to look at this person as a part-time employee, and they will come down on you like Thor's hammer if they find out. Now's the time to have this person sign a one-page employment agreement "effective January 1, 2008" (your attorney can draft this for a couple of hundred dollars), and add them to your payroll. What should the agreement say? At the very least, it should clearly state (1) that the employee serves "at will" and can be terminated at any time, with or without a reason, (2) that the employee cannot work for a competing company while they're on your payroll, and (3) that the employee will not hire your employees or solicit business from your customers for one year after the employment relationship is terminated for any reason. If the part-timer is your first employee, don't forget to have your accountant sign you up for payroll taxes (IRS Forms 940 and 941), and for your state's unemployment compensation system. You may also have to look into worker's compensation insurance; your insurance agent can help you with that. Loosen Up Your Vocal Cords . One of the best ways to distinguish yourself from your competition, especially if you are a consultant, is to become the local expert in your field. Volunteer to speak at local business luncheon meetings. Teach a course at your local community college. If you run a butcher shop, call your local cable TV news show and volunteer to do a segment on "how to carve your holiday turkey" - people love that stuff, and news reporters love it when you make their life easier by suggesting story ideas. However you do it, get out in front of your marketplace and let them see you. Not only will you build your self-confidence as a public speaker, you will get tons of free publicity for your business. Finally, have a local musician record your presentation, break it down into segments by topic, and put them up on your Website as downloadable "Podcasts". Update Your Web Presence . Look at your business Website, and make at least five (5) changes that will make it more attractive, fun and "cool" to prospective customers. Post some content-rich articles answering commonly-asked questions about what you do. Put some videos on your Website (and post the videos on YouTube) demonstrating in an entertaining way how to do (or not to do) something. Start a "blog" where your customers can talk to each other about the stuff you do, with you as the all-knowing "moderator". Most importantly, hire a search engine optimization (SEO) consultant and learn what you can do to get your Website higher in the Google search rankings. At the same time, delete things from your Website that are boring, difficult to access, or that do nothing to address your customers' fears and passions. If you are a lawyer or accountant, nobody cares what you look like or where you went to school, so get rid of the Website photo and biography. Put up your fee schedule instead, because clients DO care about how much you are going to charge them for your services! More next week . . . Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. His latest books are 'Small Business Survival Guide' (Adams Media, $12.95) and 'The eBay Seller's Tax and Legal Answer Book' (AMACOM, $19.95). This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2008 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com. More >>

When You Drop Off eBay's Screen By Cliff Ennico www.creators.com #147;I am a small book store owner. I have been doing business online through Half.com (owned by eBay) for the last 15 months or so. My business through Half.com has steadily increased and I was very happy to gross over $100,000 in the last year. About two months ago, I was notified by Half.com customer service that I was in violation of eBay regulations for #145;category gouging#146; and that my account was suspended. Then, I was told to remove any and all online inventory that was in violation of this policy. Promptly, I made the corrections and requested reinstatement of my account. However, Half.com still refuses reinstatement of my account, stating that I am still in violation. Can you please advise what I should do to get my account reinstated? Is there anyone I can get in touch with and file a complaint? I have lost thousands of dollars as the result of the suspension, and am happy to do whatever is necessary to get back into eBay#146;s good graces.#148; When you start selling on eBay, you agree to be bound by the terms of eBay#146;s #147;user agreement#148;. This document #150; a contract like any in the #147;brick and mortar#148; world #150; can be reached via a link at the bottom of every page on the eBay site. As part of this contract, you agree to be bound by a number of eBay #147;policies#148; #150; in effect, eBay#146;s private legal system for ensuring that buyers have a decent experience on the site. Finding these isn#146;t always easy, but if you click on the #147;Help#148; tab from any page on the eBay site, then click on #147;A to Z Index#148;, you will find most of eBay#146;s policies listed under #147;L#148; (for #147;Listing Policies#148;) and #147;P#148; (for #147;Policies#148;). Just as in the offline world, #147;ignorance of the law is no excuse#148;. While eBay offers a number of services to help its sellers do more and better on the site, it is not responsible for teaching you how to comply with its policies. It is up to you to learn what eBay#146;s policies are and ask questions before you violate them. #147;Category gouging#148; is not defined as an eBay offense, but I suspect what you did here was violate eBay#146;s #147;categorization#148; policy (for details, see pages.ebay.com/help/policies/listing-categorization.html). Basically, you are supposed to list your stuff in the proper category #150; you don#146;t list Hummel figurines in the #147;toys and games#148; category, for example. eBay gives the following examples of #147;categorization#148; violations that specifically relate to books: #147;a cookbook should be listed in the books category, not in sports memorabilia#148;; #147;a book about Royal Worcester china should not be listed in the category for Royal Worcester china#148;. The first one makes good common sense, but I can sympathize with a lot of eBay sellers who foul up on the second one. If you#146;re selling a collector#146;s guide to antique mechanical banks, why shouldn#146;t you be able to list it in the #147;mechanical banks#148; category, as many inexperienced collectors might not even be aware there is a guide to their hobby they can find in the #147;books#148; category? Still, it#146;s eBay#146;s rule, and you gotta play the game their way. The fact that you#146;re not getting a response from eBay#146;s customer service team means one of three things: they#146;re still not satisfied that you understand the #147;categorization#148; policy; you are violating other eBay policies in your listings (for example, you are listing adult-themed books in the #147;books#148; category instead of the #147;Everything Else: Mature Audiences#148; category) and they don#146;t have the time or inclination to tell you what you#146;re doing wrong; or you haven#146;t tried hard enough to make contact with a human being at eBay who can solve your problem. You can call eBay#146;s customer support team at 1-800-717-EBAY from 6am - 9pm, Pacific Time, 7 days a week. You can also contact eBay via e-mail, by clicking on the #147;Live Help#148; link on the eBay homepage and then clicking on #147;Account Suspension#148; (in your case), but I wouldn#146;t use e-mail. Clearly, in the words of the immortal late Steve McQueen, #147;what we have here is a failure to communicate#148; #150; you need to get hold of a human being that speaks English and let them know how important this issue is to you. And do a little soul searching: if you sold over $100,000 last year on eBay, they made a ton of money in fees off of you. eBay is a very rational business, and I strongly doubt they would kick you off the site, blow off your phone calls, and cut off that revenue stream without a really good reason. Might you, just possibly, have been doing other icky things on the eBay site that got them really angry? Just a thought . . . Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. His latest books are 'Small Business Survival Guide' (Adams Media, $12.95) and 'The eBay Seller's Tax and Legal Answer Book' (AMACOM, $19.95). This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2007 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com. More >>

Making Sure You Get Paid On Time, Every Time By Cliff Ennico www.creators.com "I am a marketing consultant who gets a lot of business, mostly from small companies in far-flung locations around the country, through referrals. Lately it seems like every account has turned problematic for me - the clients pay late, or not at all, and still they expect me to perform my services on time. I realize these are smaller businesses and they have to be careful about cash flow, but still, I can't pay my bills if my clients don't pay theirs on time. How can I do a better job of getting their attention so that I don't have to stay on top of them all the time?" When you're in business for yourself, nothing - and I mean nothing - eats at your insides like clients who don't pay their bills on time. The best time to deal with delinquent accounts is before they happen, and you should never treat someone who owes you money with "kid gloves". By showing your customers you have zero tolerance for late or missed payments, and making sure you have your customers' respect (with a little fear thrown in), you will get paid a lot faster, and will spend a lot less time chasing down receivables. You never will get rid of problem accounts entirely, of course, but here are some tips for keeping deadbeats to an absolute minimum. Get a Retainer Agreement. It's amazing to me how many consultants fail to get written agreements with their customers before they begin work - especially in a situation like yours where there is no pre-existing relationship between you and your client. A simple one or two page agreement sends the client two very important signals: this is a business relationship - while you are a nice person, you are not their "friend" who will wait indefinitely to get paid while other, nastier people get their money on time; and this is a legal contract that you are prepared to sue over if the client tries playing games. The agreement should state clearly your hourly fee, how frequently you will invoice the client, when invoices are payable, and that interest "at 18% per annum or the highest rate allowed by law, if less" will be charged on any overdue invoice. Be sure to include a statement that you will stop work the minute there's a payment problem, and will retain ownership of all materials you have prepared for the client, with the right to sell them to other clients, including the client's competitors. An attorney should not charge more than one hour's time to prepare a "master form" retainer agreement you can revise slightly for each new client. Get an Advance. In consulting deals, the client always, always, always must pay you something up front as an advance against future invoices. Do not work with any client who refuses to prepay at least the first few hours of your consulting time. The sooner clients get into the habit of writing you checks, the better. Make the Advance "Evergreen". Your retainer agreement should contain language allowing you to require the client to continue paying in advance for services once the initial advance has been paid down. This is called an "evergreen" retainer, because you always have money in your checking account to apply against your future invoices, and is especially important when the client is out-of-state and your invoice amounts are relatively small. If the client objects, you can change the language to require payments in advance only in the event the client fails to pay one of your invoices on time. Do Some Diligence. A bank or employer would ask for referrals. Why shouldn't you? Insist on talking to at least one other consultant who's worked for them in the past couple of years. Avoid Crazy People. Be alert for signs of instability, eccentricity or just plain weirdness that signals the lack of a professional approach to business. For Example, Be Suspicious Of Any Person Who Sends You E-Mails In Which The First Letter of Every Word Is Capitalized (As In This Sentence). Get the Referral Source on the Hook. Before contacting a client that has been introduced to you via a referral, get the referral source to send you a letter or e-mail confirming that he or she is making the referral, and stating ("to the best of my knowledge") that he or she believes the referral is creditworthy and can live up to its obligations. That way if the relationship with the client sours, you have solid ammunition to remind the referral source that he is at least partially responsible for the mess you are in. While the referral source won't pay your outstanding bills, and isn't legally obligated to do so, playing on his guilt should motivate him to bring pressure to bear on the deadbeat client to "do the right thing" if the referral source has greater leverage over the client than you do. Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. His latest books are 'Small Business Survival Guide' (Adams Media, $12.95) and 'The eBay Seller's Tax and Legal Answer Book' (AMACOM, $19.95). This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2007 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com. More >>

More Taxing Questions From Internet Retailers By Cliff Ennico www.creators.com The following questions came up during a Webinar I hosted last week for Avalara Inc., a Seattle, Washington based company that specializes in sales tax compliance solutions for Web-based merchants (www.avalara.com): "Does a business have to be a corporation or a limited liability company (LLC) to work with wholesalers? Will the supplier be more likely to give the seller an account than if they are a sole proprietor, or does the supplier care at all?" An online retailer does not have to be a corporation or LLC to buy from suppliers, but it does help. Some wholesalers are reluctant to deal with individual "sole proprietors" because of the risk they will be considered "employees" of the supplier for tax purposes, or of the possibility that the wholesaler will have to send 1099 forms out at the end of each year (more on that below). Also, forming a corporation or LLC makes you look a whole lot bigger than you actually are, and demonstrates to everyone you come into contact with your intention to treat your online selling as a "business" and not as a "hobby". "Does an online seller need to give Form 1099 to their vendors at the end of the year? What if the supplier is out of the country?" Online sellers do not have to send Form 1099 to wholesalers with whom they are dealing at arm's length. They do, however, have to send Form 1099s to consignors and drop shippers for whom they act as selling agent, unless (1) the consignor or drop shipper is a corporation, or (2) the total amount the online seller paid the consignor or drop shipper during the calendar year was less than $600. Generally, online sellers do not need to send Form 1099 to overseas vendors if they are not already subject to U.S. taxes (i.e. have no legal presence in the U.S.); if they do have a U.S. presence, then the above rules apply. "If an online seller wants to source products from a supplier that is based overseas, do they need to obtain a license to start importing products?" Generally, a federal "import license" is required only to import certain products - basically, the same ones you probably would need a state license to sell if you were selling them domestically (think alcohol, tobacco, motor vehicles and the like). Talk to a "customs broker" or international trade lawyer to find out if any license requirements apply to your business (to find a customs broker in your area, check out www.ncbfaa.org ). One exception concerns goods that are subject to trade "quotas" - when importing these you will need to get a license from the exporting country certifying that each shipment is within the annual U.S. quota. If it isn't, you will have to wait until next January when the new annual quota kicks in. "If an online seller is selling name brand products, how can they make sure that the supplier they are using isn't infringing anybody else's products? Is the process the same when the supplier is outside of the country?" Ask to see copies of documents authorizing the supplier to deal in brand name merchandise, or contact the manufacturer directly (eBay's "Verified Rights Owner" or VeRO program -- http://pages.ebay.com/help/tp/programs-vero-ov.html -- can put you in touch with many luxury-goods manufacturers). And use common sense - Gucci does not authorize manufacturers in rural China to license their products to eBay sellers in the U.S. When in doubt, assume that the supplier is dealing in illegal "knockoffs", and source your product elsewhere. Also, when dealing with factories in the developing world, make sure they are not using prisoners or "slave laborers" in their manufacturing operations. "What are some big mistakes online sellers make when trying to negotiate with suppliers?" First, failing to negotiate at all. Too many small businesses assume that their suppliers' prices are non-negotiable when they order in small quantities, and it's just not true. Many suppliers - especially overseas - will not take you seriously as a retailer if you do not attempt to negotiate their prices. Second, assuming that the price is the only negotiable item. Even if a supplier stands firm on its price for certain goods, you might be able to negotiate the shipping, delivery, warranty and other "noncash" terms and conditions. For a checklist of negotiable items in a typical wholesale purchase, see the contract forms at the end of my latest book, "The eBay Seller's Tax and Legal Answer Book". For a good basic negotiating guide, see the chapter on "Negotiating" in "Start Your Own Business", edited by Rieva Lesonsky. Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. His latest books are 'Small Business Survival Guide' (Adams Media, $12.95) and 'The eBay Seller's Tax and Legal Answer Book' (AMACOM, $19.95). This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2007 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com. More >>

When Buying From Wholesalers, Watch Your Taxes By Cliff Ennico www.creators.com The following questions came up as I was interviewed last week on Product Sourcing Radio ( www.wsradio.com ), an Internet radio program hosted by executives of Worldwide Brands, Inc. in Orlando, Florida ( www.worldwidebrands.com ): "We constantly tell online sellers that to buy from a genuine wholesaler, they need to have a state sales tax ID number. Why is this the case?" Generally, there is no sales tax on wholesale purchases of inventory. A wholesaler needs evidence that you are not buying stuff for your personal use, and are required to charge you sales tax unless you deliver a "resale certificate" to them - basically, an affidavit swearing on your Great-grandmother's grave that you are buying stiff with the intent to resell it. You can find a copy of your state's Resale Certificate form at your state tax authority's website (to find it, go to www.taxsites.com/state.html ), under the "Forms and Publications" link. The resale certificate form will require you to provide the wholesaler with your state tax ID number (also commonly known as a "sales tax number" or "resale number"). You will need to obtain this from your state tax authority before you can legitimately buy goods at wholesale. "What about states that don't have sales taxes? Maybe the retailer is in a state with no sales tax, but the wholesaler is. Or the retailer or wholesaler is in a state with no sales tax, but one of them has a presence in another state that has a sales tax. How can an e-tailer find out what they need for their own unique situation?" Generally, sales tax must be collected by the "vendor" - in this case, the wholesaler. If the wholesaler is in a state with no sales tax, then they will not need to charge sales tax when selling to retailers anywhere in the world. If the wholesaler is in a state with a sales tax but is selling to an out-of-state retailer, the transaction is an "interstate sale" and therefore exempt from tax (at least under current law). However, the wholesaler may still ask for a Resale Certificate as proof that the out-of-state retailer is a legitimate business. "If a wholesaler is in a state with no sales tax, what can a retailer do to verify that they are, in fact, dealing with a legitimate wholesaler?" If the wholesaler is a corporation or limited liability company (LLC) - most will be - ask for a copy of their Certificate of Incorporation or Articles of Organization, with proof that the document was filed with the Secretary of State's office in the wholesaler's state. In most states, you can get this information online by searching the wholesaler's company name on the state Secretary of State's website. Checking the wholesaler's local Better Business Bureau or Chamber of Commerce website can't hurt, and you should always Google the company name to see what people on the Web are saying about them. "A lot of e-commerce businesses use fulfillment houses to warehouse and ship their products to their customers. If your fulfillment house is in another state, then does your business have a presence or 'nexus' in that state for tax purposes?" It depends on (1) who issues the invoice and (2) what address appears on the shipping labels. If you allow the fulfillment house to issue invoices under your name but with their shipping address for returned items, then you might well have a "nexus" in the state where the fulfillment house is located. Always, always, always use your own shipping labels and invoice forms when dealing with out-of-state fulfillment houses so this doesn't happen. "Let's say that a retailer and a wholesaler are both in states with no sales tax. The wholesaler obviously will not need a sales tax ID number, but they will want proof that the retailer is a legitimate business. What kind of proof does the retailer need to provide?" Most wholesalers will accept copies of any of the following: if you are an LLC or corporation, your Certificate of Incorporation or Articles of Organization, with the confirmation of filing with your state Secretary of State's office; the letter you received from the IRS awarding you your federal tax ID number; or a DBA ("doing business as") certificate, with the confirmation of filing with your county or town clerk's office. "What is a business license, and when does an online retailer need one?" I'm not aware of any state that requires you to obtain a "license" just for the privilege of running a business (although you may need a license to sell certain goods or engage in certain professions). In many states, the term "business license" can refer to any of the following: the DBA certificate you file with the county clerk's office; the state "sales and use tax permit" that entitles you to collect sales taxes; or in states with no sales tax, the document by which the state issues your state tax ID number. Whether or not your state has a sales tax, you are required to register any new business with your state tax authority. The document you get back from the tax authority when you register is probably your "business license". Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. His latest books are 'Small Business Survival Guide' (Adams Media, $12.95) and 'The eBay Seller's Tax and Legal Answer Book' (AMACOM, $19.95). This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2007 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com. More >>

Growing A Business Beyond The Initial Startup Stage By Cliff Ennico www.creators.com I had the privilege of participating in an all-star panel discussion on "Getting a Grip on Rapid Expansion" at last week's New York Times Small Business Summit in New York City. Joining me on the podium were Select Wines LLC founder John D'Aquila, Garage Tek founder Marc Shuman, and Paula McCoy-Pinderhughes, author and former small business editor of Black Enterprise magazine. Here are some insights I and the other panelists offered to the more than 500 attendees. "When You're Growing a Business, It's All About Growing Revenue." It sounds pretty trite, but a lot of entrepreneurs forget that "growing a business" is all about growing the "top line" of the income statement - gross sales or gross revenue. You can boost your operating efficiency and profitability (the "bottom line") by cutting costs, but if you're not taking steps to grow your revenue, you are not growing your business in any meaningful sense. So how do you grow revenue? Simple. There are only two ways. Either you increase the prices you charge for the goods and services you are already offering, or you sell more goods and services. Let's look at each strategy. Raise Your Prices. A lot of entrepreneurs believe they can't do this, because they're in a tightly competitive market. But if you can persuade your market that they're getting extra "value added" for their money - something more than your competitors are offering - you can charge more with a perfectly straight face and the market will gladly pay more. For example, you can hire a local interior designer to redo your bathroom for about $100 to $150 an hour in most places, but if you ask Martha Stewart to redesign your bathroom she's going to charge a whole lot more than that. Why? Because you are now not just buying a new bathroom; you are buying the bragging rights of telling the world that your bathroom is a Martha Stewart original design. Frankly, you should pay a lot more for that. Sell More Stuff. Find new domestic and (especially) international markets for your products and services - there are huge markets in Africa, Asia and Latin America for things you would have trouble giving away in the United States. Also, find new uses for your products and services. Arm Hammer Baking Soda was originally used to bake cakes (and can still be used that way), but its most popular use today is as a refrigerator and appliance deodorant. Look to see what your customers are actually doing with your stuff once they buy it - and brace yourself for some interesting surprises. "Understand the Three Commandments of Growing a Business". I call these the three "ates" because each word ends in the letters "ate". Here they are: Automate. At some point it becomes impossible for your management team to run your business day to day. You will have to create systems to run the business, and train your management team to run the systems. Use technology wherever possible to operate the systems so as to free your management team's time up for creative and strategic thinking. Delegate. Hire employees, train them well, and learn how to supervise their activities without doing their work for them. It's not easy, but you can't grow a successful mail-order business if you're packing boxes six hours a day. Anyone who's ever read Michael Gerber's classic book "The E-Myth Revisited" knows what I am talking about here. Concentrate. Startup businesses tend to do too many things for too many different customers. Find out what it is you do best, or what your customers are paying the most for, extend those lines of business to create an identifiable brand, and be ruthless enough to cut out product and service lines that are dragging down your performance. A business can be so well-rounded that there's no point to it - if one or two product or service lines are accounting for more than 75% of your total business, spend all your time building on those and delete the rest. Finally, beware of Murphy's Law: "anything that can go wrong will go wrong". Whenever you are offering multiple products and services, the ones your customers seem to want the most (and generate the most profit for your business) are usually the ones you are least excited about providing. Don't become emotionally attached to any product or service you offer. This is a business, not a baby, and if something isn't making you money you shouldn't be wasting your precious time doing, making or servicing it, even if it's enjoyable or self-fulfilling. Let it die (or do it as a hobby, if you have time), and build your business on what works. Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. His latest books are 'Small Business Survival Guide' (Adams Media, $12.95) and 'The eBay Seller's Tax and Legal Answer Book' (AMACOM, $19.95). This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2007 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com. More >>

Getting Started In An Import/Export Business By Cliff Ennico www.creators.com "I'm 27 years old, Mexican-American, born and raised in Mexico City and have lived in the U.S. for the past 10 years. I've always worked for a company and have never been self-employed. I recently lost my job and I am looking; however, in the meantime, I want to sell some things on eBay to pay off some of my expenses and also find a way to sell gourmet foods for people I became friends with from my former job and make commissions. This would mean I would be working as a broker. However, I do not have experience working on my own. I met a person at a trade show back in July that is president of a small company in New York that imports gourmet foods and high-end nonedible items from Mexico. He said he can't offer me a full-time position until perhaps the beginning of next year. For now, he said he can offer me $500 a month to pay my travel expenses and a 5% sales commission on the 2 gourmet food items he wants me to sell, but these items were recently introduced to the U.S. food industry and I think it would take at least six months to be able to sell them legally here. He already wants me to work on some things for him, but I don't want to do anything and spend time and money until I have something in writing (contract, agreement, etc). What do you suggest?" I'm assuming, first of all, that you are either a U.S. citizen or "green card" holder. If you are neither, you should talk to a good immigration attorney before getting involved in any U.S.-based business. You should enter into a sales representative agreement with the New York company with the following important provisions: you should be entitled to commissions whenever the New York company accepts an order from a customer you have introduced to them; commissions should continue to be payable on all sales to customers you have introduced to the New York company, whether or not you generated those specific sales, as long as the agreement is in effect and for a period of one year thereafter; and a statement that the New York company is solely responsible for ensuring that all food products "comply with applicable U.S. laws and regulations", including U.S. Department of Agriculture (USDA) and U.S. Food, Drug and Cosmetic Administration (FDA) rules. If you are sued because one of their products violates U.S. laws and regulations, they should "indemnify" you (pay your defenses and protect you against loss) for that. "An acquaintance of mine has a restaurant and started a couple of years ago with an import/distribution business with gourmet foods from Argentina. He said he wants me to be his partner so he can focus more on the restaurant business. I've never been offered a partnership before. He wants my sales/distribution knowledge in return and assures me that I wouldn't spend any money to own part of his business, because he knows I don't have money. I told him to write me a proposal and he said he had no idea what to write in it. I'd like to know what to expect in a contract/proposal, so that I make sure he's not going to cheat on me." First of all, I wouldn't enter into an informal partnership with this person. Instead, I would insist on forming a limited liability company (LLC). That way, if he does something bad, your personal assets are protected from liability, and vice versa. You should have a lawyer draft a formal Operating Agreement for the LLC with the following important provisions: that the LLC will engage only in the import and distribution business; that the restaurant owner "assigns" to the LLC all contacts, information, data, knowledge and know-how relating to the Argentine food import business; that the restaurant owner will not engage in any import or distribution business other than through the LLC; that you will not engage in any import or distribution business that "directly competes" with the LLC's business, but are otherwise free to engage in import and distribution activities (for example, as an employee of a large company); that the two of you will share all profits and losses 50/50 (or however else you agree); that the two of you will take monthly distributions after paying all LLC operating expenses; and that the LLC will dissolve upon one of you "withdrawing" from the LLC (for example, to take a full-time job). For more information on getting started in an import/export business, check out international trade consultant Laurel Delaney's free e-newsletter at www.globetrade.com . Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. His latest books are 'Small Business Survival Guide' (Adams Media, $12.95) and 'The eBay Seller's Tax and Legal Answer Book' (AMACOM, $19.95). This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2007 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com. More >>