May 7, 2010
More Taxing Questions From Internet Retailers
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.

Posted by Staff at 1:50 AM