video-blog

I’ve Registered for Sales Tax or I’ve Registered for a Sellers Permit in a Particular State.

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VideoBG108

Key Takeaways

  • Do I have a state income tax filing requirement in that state?
  • The answer to this question is probably.
  • Now does that mean if you’re registered for seller’s permits in thirty five or forty states that you should just go around and file 35 or 40 state income tax returns?

Do I have a state income tax filing requirement in that state? The answer to this question is probably. By purposely availing yourself to a state, by registering yourself for a seller’s permit and/or registering as a foreign entity and qualifying to do business in a state, more than likely you’re going to subject yourself to state income tax jurisdiction. Now does that mean if you’re registered for seller’s permits in thirty five or forty states that you should just go around and file 35 or 40 state income tax returns? No, the idea with compliance is understanding what your exposure is in different states and then registering or filing returns appropriately in order to meet the needs of your business. So there’s a balance between putting yourself in compliance and then making sure you’re doing the right thing for your business. So the important thing to do is sit down, look at the operations of your company, look at where you’re making sales and craft a multi-state tax strategy and a filing strategy that’s appropriate to that. When we’ve done this for different businesses that we’ve worked with and when we deal with clients on the subject, a lot of times the liability that they have, the filing requirements that they have and what they end up doing is a lot less in scope than they initially thought so it’s important to have a plan in place. It’s important to know that registering in one jurisdiction for a sales tax perspective is probably going to create a filing requirement in that jurisdiction and require managing and mitigating that situation appropriately.

What is Dropshipping and What Are the Tax Consequences?

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VideoBG107

Key Takeaways

  • We are one of the few tax law firms that focuses on multi-state tax issues. These issues are technical and difficult to address and are a “speciality within a speciality” within the area of tax law.
  • We are a nationally recognized local law firm and what do you get with us? A team small enough to provide individualized and personal service for our clients with the ability to really get to know their business.
  • If you want to identify, manage, and mitigate your risk so you can prevent any unwanted tax problems now or in the future, book your first free 60 min session with us today.

A dropshipping transaction involves a situation where a seller is selling a product to a buyer but shipping that product to the buyer’s customer which may or may not be located in a different state.

Dropshipping is an incredibly complicated thing from a tax perspective because you may have one party or multiple parties in multiple jurisdictions. You could have a California seller, you could have a Florida buyer or you could have a customer in New York where the product is ultimately going to.

So the biggest challenge for tax professionals in this situation is where do you pay the tax to? With customers in different states, this is really important because there are a variety of issues around which state has jurisdiction to collect the tax revenue that make this incredibly complicated.

In a dropshipping transaction, you want to make sure you understand the different types of situations that your company faces and then create a plan around how to address those from a tax filing perspective. Then in your sales process, you want to ensure that you’re collecting the appropriate documentation and you’re doing what you can to mitigate your own risk in this situation.

The problem with a lot of dropshipping transactions is many companies assume that because product is going to one place or because their customer is located outside their state that they’re not obligated to collect tax, and unfortunately the way that most state sales tax laws are written, particularly surrounding dropshipping transactions, is it puts the online business on the hook for liability unless they’re collecting resale certificates from that particular state or they’re taking other appropriate measures to mitigate their risk. So there are a lot of tax consequences to dropshipping.

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How Do I Determine What Tax I Owe for Sales Over the Internet?

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VideoBG106

Key Takeaways

  • Economic contacts can be defined by a dollar threshold.
  • Let’s say you make a hundred thousand dollars in sales in a state.
  • Or they can be designed by a transaction threshold, so let’s say you do 200 transactions in a particular state.

Well this gets very complicated with an internet business depending on what you’re selling and where you’re selling it to and your level of contacts with that particular state, whether they’re physical contacts which a lot of internet businesses don’t have or more commonly economic contacts. Economic contacts can be defined by a dollar threshold. Let’s say you make a hundred thousand dollars in sales in a state. Or they can be designed by a transaction threshold, so let’s say you do 200 transactions in a particular state. So it gets really complicated to determine the amount of tax that you owe because each state kind of has similar rules but they’re different in a lot of ways. So the first thing that you do is you figure out based on your sales summary what states you are doing business with the most and that determines the nexus rules in those jurisdictions so that you can make sure that you’re appropriately collecting tax or if you’re not collecting tax, that you’re not at risk or have any liability associated with that. If your business is expanding, you want to know where the threshold is, when you’ve got to turn the switch on so that you start collecting tax in that jurisdiction and then with the other states, it’s about planning. So it’s about looking at your level of contact, looking at your sales and determining whether or not you need to collect tax in that jurisdiction but the way that you do this is you start with your top ten, your top 15 states that you’re doing business in which may represent 65 to 80 percent of your sales and then you look at other subjects where you may have less activity. That’s the best advice I can give to internet businesses or businesses that do a lot of business over the internet in order to account for their sales. Now the good news is there’s a number of software programs, there’s a number of tools, we’ll help you execute this part of the process but it’s not just the execution that’s important because software will only do the execution part, it won’t do the planning part. Software doesn’t think independently, software relies on the inputs it receives to spit out outputs. What you need before you get to the execution part, so you need a good strategy. Going in you need to understand where you’re exposed, what the risk is, what your filing requirements are, what your paying requirements are and then build a plan around that and use software to automate and execute. This doesn’t have to be a long drawn-out process, this doesn’t have to be an insanely costly process, you don’t have to start filing sales tax returns in all 50 states but you do want to plan going in and then you want to make sure you can execute that plan effectively so that you’re not at risk in the future.

I Sell Products Through Amazon or a Marketplace Facilitator. Do I Owe Tax

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VideoBG105

Key Takeaways

  • Topic: I Sell Products Through Amazon or a Marketplace Facilitator. Do I Owe Tax
  • Read the full article below for complete details on this topic.

I Make Sales through Amazon eBay Walmart etc etc or Some Other Marketplace facilitator do I have an obligation to file sales tax returns and or pay tax the answer to this question is you might and might is a key word here because a lot of states as you may have heard have passed these marketplace facilitator laws so let’s take California for example California is the jurisdiction that I’m in and it’s one of the more aggressive States towards businesses that operate through a marketplace facilitator so California has actually created a fairly high threshold if you do $500,000 in transactions or less then you do not have to file sales tax returns and you don’t have to pay sales tax either reason you know what to pay sales tax is because Amazon or one of these other marketplace facilitators is collecting tax on your behalf you don’t have a filing or a reporting requirement until you cross that certain threshold the problem is is the way the marketplace facilitator statutes are written in California if you do any sales outside of the marketplace facilitator then you immediately have a filing and or a obligation to pay over sales tax so a lot of businesses that operate on the internet will sell through Amazon but they’ll also make direct sales through their website and you know let’s say your Amazon sales are 80 to 90 percent of your business even if you sell like ten dollars through your website to California you have now gone outside of the protection of the marketplace facilitator statues so now you at least have a filing requirement in California amazon may still be collecting the tax through the transactions that you’re doing with Amazon but by not reporting now you’re out of compliance so it’s important as a internet based business to understand what your channels are and understand through those channels what your exposure is from a tax perspective do you have a filing requirement do you owe any thing in tax or do you have a collection requirement in the states that you’re selling in and if the answer to those is yes then you need to get in compliance the states are getting more sophisticated in this area they’re relying on a lot of third party data they’re lying on a lot of information and they’re slowly and quickly working through and trying to catch businesses that are not in compliance so the important thing again is have a plan put it in place and execute that plan appropriately so that you can go back to business.

What Are Common Problems for Multi-State Businesses?

by
VideoBG104

Key Takeaways

  • So the most common problem I see for multi-state businesses is a failure to understand what the problem is and what I mean by that is depending on your level of sophistication, you may rely on a CP…
  • You may have the benefit of having an internal CFO or an internal controller or somebody else who kind of guides you through the financial world.
  • So the problem with multi-state taxation is you’re bringing in laws of different jurisdictions that may be out of the core competency of the people that you trust for your tax reporting and advice.

So the most common problem I see for multi-state businesses is a failure to understand what the problem is and what I mean by that is depending on your level of sophistication, you may rely on a CPA for tax advice. You may have the benefit of having an internal CFO or an internal controller or somebody else who kind of guides you through the financial world. The problem with most companies is when most companies think about taxes, they’re thinking about federal income tax and potentially state income tax, but if they’re thinking about state income tax, they’re only thinking about the state that they’re in. So the problem with multi-state taxation is you’re bringing in laws of different jurisdictions that may be out of the core competency of the people that you trust for your tax reporting and advice. Let’s take a CPA for example. Most CPAs don’t specialize in multi-state taxation. If you think about your CPA, your CPA probably specializes in preparing federal and state corporate income tax returns or they may do individual returns as well and so their bread-and-butter, their day in and day out, is preparing federal and state income tax returns. The problem in doing that is a multi-state taxation is a different animal, so in preparing your federal and state income tax returns, a lot of accountants don’t realize that the activity that you’re conducting is creating Nexus or subjecting you to liability in different states. It’s not something that they generally catch because it’s not something that’s that’s in their wheelhouse or that they’re thinking about. I mean you’re watching this video right now. Take your own individual situation. When was the last time you talked to your CPA about multi-state tax consequences? When was the last time your CFO brought up “hey you know we’re expanding in all these different states, what are the jurisdictional requirements in different states?” Multi-state taxation is not an issue that a lot of companies think about. You don’t really think about the engine of your car unless the check engine light comes on but because of the shifting landscape in this area, because the states are aggressively expanding their tax bases, it’s a huge area of risk for a lot of businesses so it’s important to understand the many variables that go into multi-state taxation and make sure you have an appropriate and effective plan for dealing with that.

What Types of Collection Actions Can California Take Against Me If I Am in Another State?

by
VideoBG103

This is a common question we get from prospective clients. I get a lot of clients who are on the East Coast for example and they’re in New York or North Carolina or Florida or any one of those Atlantic states and they say “well I’m all the way over here, I’ve never been to California, I don’t like to travel to California, I don’t plan on going to California so if I owe money in California for state sales tax, for state income tax liability, what can they really do to me?” And the answer to that is they can do a whole lot to you. The reason for that is while you may not have contact with California and you may not step foot in California, probably the people that you do business with or the banking institutions that you use or the third parties that you use have some sort of nexus with California. For example, if you live on the East Coast and you use Bank of America, we have Bank of America branches in California.

Key Takeaways

  • This is a common question we get from prospective clients.
  • For example, if you live on the East Coast and you use Bank of America, we have Bank of America branches in California.
  • California doesn’t need to send a levy notice to liquidate your bank account all the way to Maine – they can just walk into the branch in California or even easier, just fax it over.

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What Is Residency? Can I Be a Resident of More Than One State?

by
VideoBG102

Key Takeaways

  • So there’s different concepts to residency but the most common concept is from an individual perspective.
  • Let’s say you live in one state and you move to another state.
  • Your residency changes and you know if you pick up and leave California and move to Texas and you never come back to California, no problem.

So there’s different concepts to residency but the most common concept is from an individual perspective. Let’s say you live in one state and you move to another state. Your residency changes and you know if you pick up and leave California and move to Texas and you never come back to California, no problem. The problem is is that people and businesses aren’t usually that simple as a person can have multiple contacts with multiple states. They might travel around, they might live in several different states for a period of time and so residency is really where the tax home is for the taxpayer and what residency really entails is an analysis of what’s called domicile. Domicile is where you plant your flag. It’s where you set up your tax jurisdiction and the way that most state residency rules work is in order to sever residency with the state, you have got to pick up your flag out of that state and plant it in another. There’s a variety of factors that go into this but residency is a very complicated thing because people say “well can I be resident of two states” and yes, from a physical perspective you can be a resident of two states. You can say I live in California and I summer in Colorado or you know whatever it is, but the reality of the situation is with residency is even if you go back and forth between two states, your domicile is in one of those states and one of those states has controlling jurisdiction over you. You can’t have a situation where you have two controlling jurisdictions, so it’s really important from a residency analysis to stop thinking about it from a “where do I live perspective” and start thinking about it from a tax perspective and that’s where a lot of people get into trouble.

What Do I Do If There Is a Serious Error on My Return and I Get Audited?

by
VideoBG101

So the first thing you need to do if there’s a serious error on your return is to understand what your risk is. Was the error caused willfully? Was it not caused willfully? This is not the time to be an advocate. You need to answer yourself honestly because it’s always important to understand where the truth is in order to find out what your position is and the position you’re going to take in negotiating with the Auditor. If the error was a simple mistake and there’s no criminal liability, then the decision needs to be made on whether or not you’re going to disclose that to the auditor or not. If you don’t disclose it to the auditor and the auditor catches it later, there could be consequences in terms of penalties; however if you get out in front of the issue and disclose it, although you’re on

Key Takeaways

  • So the first thing you need to do if there’s a serious error on your return is to understand what your risk is. Was the error caused willfully? Was it not caused willfully? This is not the time to be an advocate.
  • the hook for whatever the taxable adjustment is as a result of the error, you may be able to leverage it to your advantage.

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As an Out of State Business, What Do I Do If I Owe Money to California?

by
VideoBG99

Key Takeaways

  • Topic: As an Out of State Business, What Do I Do If I Owe Money to California?
  • Read the full article below for complete details on this topic.

As an Out of State Business, What Do I Do If I Owe Money to California? So if you owe money to California then you need to take action taking action is important, because no matter where your business is located even if you’re not physically within the borders of California that doesn’t mean California can’t take action against you so a tax debt in California can transpose itself and cause you problems again even if you’re not in California so the very first thing to understand is how much you really owe and then the second thing to understand is what is your risk associated with that tax debt what can California do to you California has a variety of collection tools in its arsenal against multi-state businesses but it doesn’t mean that they’re going to come into the state of Texas and seize your house so it’s important to understand what they can do to you and how much you owe and then based on that creating a strategy to get in compliance with California or to mitigate the reliability in some way and there’s a variety of different options for doing that as very fact-specific but the long and short of it is you want to understand what your risk is and then you want to get yourself a plan for getting back into compliance as soon as possible if you leave California untended – if you try to ignore the liability or if you bury your head in the sand that’s where you’re gonna create problems for yourself and your business so the important thing is if you owe a tax it to California make sure you get help as soon as possible or to put yourself back into compliance.

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