15 replies to this topic

[newtech08]

Hello everyone, ive been reading through the tax related posts to try to figure out my situation but Im afraid I still cant so ill post it here and hopefully someone can give me a quick resolution, its seems really complicated to me but im hoping it might be simple. I will be dealing with multiple dropshippers, lets say in states A,B,C. All I do is when customer places order with me is I go on their site and purchase item using customer's home address. Store will be electronics, no inventory stored by me.
Question
1- im still in the process of obtaining a DBA, do I need a tax permit and do i need to charge tax? I will be using my soc sec as sole proprietor
2- what types of taxes do i need to deal with? sales, income, use?
3- since dropshippers are in states A,B,C do i need to charge tax only on item going to state B if item came from dropshipper in state B? Seems complicated to have to figure out which dropshipper item comes from and where its going.
4- I noticed items in the oscommerce control panel where you put in supplier zip codes, locations etc for shipping/tax calculations and obviously it doesnt let you put in 3 values. This is really too much for my brain right now to visualize the shipment/tax charges/calculations as orders are being placed until i actually see it happen but do these settings/calculations in my store even apply if im doing dropshipping in the situation i mentioned or will i be doing calculations outside of oscommerce?
Which leads me to:
5- could someone in a few sentences go through the workflow of when taxes/shipping/other dropshipper charges/other charges i need to apply are applied? And what will I be charged when I go to place the order with the dropshipper? I assume we need to know all this first to know how much to add to the item price to make a profit. I mean basically the customer picks an item they want and puts it in their basket, starting there what are they being charged besides item price.....then what are all the steps in between......up to finally me paying income tax once a year, what do i need to present then?

Thank you all in advance i know its a lot of questions, Id appreciate any input

[jhande]

First off JW my best advice is to seek counsel from your accountant or CPA.

Here's a basic run down, first forget that you are dealing with dropshippers, it doesn't matter who your supplier/wholesaler is or where they are located. You are selling the item to your customer, the dropshipper is selling it to you and supplying delivery. You will need to charge and collect taxes based on the location of your business (DBA). You will have to file tax returns based on both your business location (DBA) and possibly your personal gains from profit where you reside because you are listed as a Sole Proprietor. Each State has there own set of tax laws (and requirements for tax permits) and it is best to obtain the advice from an expert who knows such laws and can guide you accordingly.

Basically the dropshipper has it easy as they are passing the difficult stuff to you. They charge you a "retailers" fee for said items and then the shipping cost. They are done, no big tax headaches for them. You on the other hand need to find out if your State charges sales tax and on what, also to what other States/Counties. Then also add the shipping cost to the item and pass all to the customer. Come tax time it is your responsibilty to properly claim and pay taxes to State and Federal agencies.

My guess is you should have done some of this research before applying for a DBA. I mean, the whole point of a DBA is to run a business in another State other than your own to take advantage of tax breaks for one.

A better starting place than here to learn about your tax situation would be the State government web sites. They usually have some section pertaining to doing business in the State and the different laws and taxes.

Good luck!

[newtech08]

Im confused, ive read numerous things all over the internet including lawguru etc saying that what matters most is the location of your dropshipper and where item is shipped out of since that would be the only state where tax would need to be charged to, ive even seen mentions about not having to deal with tax at all because its the dropshipper's responsibility to act appropriately when the order comes in stating where customer lives.
On the matter of DBA Ive been told by reps from legalzoom that it has nothing to do with running a business in another state and it gives you no breaks that an LLC might. I was told the reason to get one is only to be able to use an assumed name not your own name and possibly be able to have a bank account in that name rather than having people see your personal name on paypal or mailing address, I mean youre still using your own soc sec for tax purposes and you are still just an individual, the most basic form of ownership with all its liabilities. To begin with I didnt want to get a DBA as I know there are tricks to make your personal name not show up on paypal just an email like sales@yourstore.com and i know many people dont bother getting one but i wanted to be legal and be registered so there are no problems in the future.
I definitely need more help on these issues

[newtech08]

bump

[jhande]

newtech08, on Dec 30 2007, 04:54 PM, said:

Im confused, ive read numerous things all over the internet including lawguru etc saying that what matters most is the location of your dropshipper and where item is shipped out of since that would be the only state where tax would need to be charged to, ive even seen mentions about not having to deal with tax at all because its the dropshipper's responsibility to act appropriately when the order comes in stating where customer lives.

I would definately talk to an accountant in your area. Last I knew, the person collecting the money and taking the order from the customer (retail location, whether it be online or store front) was responsible for the sales tax. The dropshipper is mearly acting as a wholesaler of the products to the retailer and offering a shipping service.

Quote

On the matter of DBA Ive been told by reps from legalzoom that it has nothing to do with running a business in another state and it gives you no breaks that an LLC might. I was told the reason to get one is only to be able to use an assumed name not your own name and possibly be able to have a bank account in that name rather than having people see your personal name on paypal or mailing address, I mean youre still using your own soc sec for tax purposes and you are still just an individual, the most basic form of ownership with all its liabilities. To begin with I didnt want to get a DBA as I know there are tricks to make your personal name not show up on paypal just an email like sales@yourstore.com and i know many people dont bother getting one but i wanted to be legal and be registered so there are no problems in the future.
I definitely need more help on these issues

You are correct, I am sorry.
Running a business as a Sole Proprietor would mean you would have to include your name somehow in part of the business name, such as mine - Hande's Hobbies. Here in New Hampshire a DBA is not offered and we would have to go with either an LLC or "S" Corporation. Other people I know and have heard of obtaining a DBA was to start a business in another State. Again I appologize for the mistake and wrong assumptions.

But I would highly recommend that you talk to a local expert, you should be able to find free advice at least for the first consultation, regarding the tax liability.

[newtech08]

Thanks for the info, that does make sense. I was talking to some dropshippers and two of them say they collect the tax already so I dont have to, the third one doesnt so I as the last reseller before the consumer need to, I think thats right. My assumption is that once a party has collected tax on a particular item there is no need for tax to be collected again, if anyone can dispute this or agree id appreciate it. I also asked the dropshipper who doesnt collect tax whether I would just have to collect tax on items shipped to customers in the dropshipper's state, which is pretty much spelled out in many places, but he didnt know. I'll try to get some local input on this from an expert.

On the other hand I was wondering whether a dropshipper that collects tax is a real dropshipper/wholesaler or more of a middle man who isnt at the top level, but I dont know whether the fact that they do or dont collect tax makes them one or the other, would be a good thing to know.

As for the DBA used as sole proprietor I was told in NY any name can be used, not even including any personal names, the only thing I found out after applying and it didnt go through was they dont accept slang or abbreviations or words not in dictionary, which baffles me as i did a search of business names in my county and half of them contain abbreviations or even single letters.

jhande, on Jan 5 2008, 02:09 AM, said:

I would definately talk to an accountant in your area. Last I knew, the person collecting the money and taking the order from the customer (retail location, whether it be online or store front) was responsible for the sales tax. The dropshipper is mearly acting as a wholesaler of the products to the retailer and offering a shipping service.
You are correct, I am sorry.
Running a business as a Sole Proprietor would mean you would have to include your name somehow in part of the business name, such as mine - Hande's Hobbies. Here in New Hampshire a DBA is not offered and we would have to go with either an LLC or "S" Corporation. Other people I know and have heard of obtaining a DBA was to start a business in another State. Again I appologize for the mistake and wrong assumptions.

But I would highly recommend that you talk to a local expert, you should be able to find free advice at least for the first consultation, regarding the tax liability.

[Avec]

You say the drop shipper is collecting tax, are you collecting any money from the customer, or are you acting more as a sales rep? If you are collecting money, you need to collect the appropriate sales tax, regardless of were the product originates. However, if you are simply rep-ing, and not collecting money from the customer, then the actual transaction is between the customer and the drop-shipper/seller.

As a sole proprietor or even s-corp, income is documented on your federal tax return. There are no corporate taxes for these.

[newtech08]

I thought all dropshipping worked the same way, anyway here I collect money from the customer and then place order with dropshipper who sends package to customer, dropshipper states "Orders from customers in state same as dropshipper will automatically be charged that state's sales tax" and another states "We will be responsible for reporting and paying the sales tax for the merchandise that you sell" so wouldnt what youre saying mean double taxation on each item that is never in my hands anyway? I mean if i were to buy from a wholesaler who doesnt collect tax, then store items in my warehouse and sell in a physical store then id understand...

Avec, on Jan 10 2008, 07:31 PM, said:

You say the drop shipper is collecting tax, are you collecting any money from the customer, or are you acting more as a sales rep? If you are collecting money, you need to collect the appropriate sales tax, regardless of were the product originates. However, if you are simply rep-ing, and not collecting money from the customer, then the actual transaction is between the customer and the drop-shipper/seller.

As a sole proprietor or even s-corp, income is documented on your federal tax return. There are no corporate taxes for these.

[Avec]

As part of your payment to them, they are collecting sales tax, then you are correct, you don't need to. As part of your arrangement with them is there a set price for the product that you must charge?

[newtech08]

no set price with any of the suppliers, i never heard of that, markup is up to me, does that change anything?
thanks

[newtech08]

Heres where im lost...
The way I understand that is that certain orders I place with them (those shipped to customers in dropshipper's own state) will have sales tax applied which means I will have to make sure those specific orders placed at my store will have the price increased appropriately. So in reality its not true that I wont have to collect tax I will be collecting tax the only difference being im not pocketing the money but rather $ goes right back to the dropshipper. So I don’t know whether that counts as me collecting tax. Since dropshippers will charge me tax if my customers are from certain states, i will need to get that $ back somehow, the easiest would be to simply state that my customers in certain states will be charged tax and charge them exactly tax the dropshipper charged me, but in that sense sounds like i am charging tax and need a reseller permit. So why do these suppliers say i dont need to charge tax/worry about a permit do they mean i need to just increase price of EVERY item to get my $ back since i shouldnt charge some people more (sounds like double taxation that i dont really have rights to)?

[newtech08]

here are the options i have after questioning the dropshippers:

-------------------------------
If I have a resale license:

Dropshipper A
-doesnt charge me tax to orders in his state
-i charge tax and report it

Dropshipper B
-adds tax to orders in his state regardless because he gets goods from smaller suppliers who charge him tax

-----------------------------------
If I dont have a resale license:

Dropshipper A
-charges me tax to orders in his state

Dropshipper B
-charges me tax to orders in his state

------------------------------------------
So now in the first situation if i get a license everything is great with one dropshipper- i dont get charged tax and i collect it in my store, then report it. With the other shipper things arent so great since there is no way to avoid getting taxed. So why go through all the work collecting and reporting tax if it will only work half the time?

In the second situation (not having a resale certificate), I get charged tax by both suppliers. My question is would it be legal to set up my store to add the same exact amount to orders on which im taxed so that id get the money back and have the customer understand that its for tax that im paying on their behalf? Im not pocketing any of that money and tax is charged and reported by supplier so no one is cheating the system. Its either that or having to markup all prices which will make them less competitive so id really like to avoid that.

Can anyone help??????

[jhande]

JW,

I have to ask... Are you planning on running a legal business in the State of New York?

If you answered yes, then I have one more question. Do you fill out your own tax returns or do you have someone do it for you (such as an accountant/bookeeper/CPA/etc...)? If you have someone do it for you, seek their advice.

If you answered no to the first question, then it doesn't matter; why bother us with the questions and details. But I am assuming you are planning on being legit. I checked New Yorks tax rules and permits/licenses online, WOW all kinds of complications.

You really are at the wrong place to be asking such legal advice. You need to talk to someone that knows about running a business in the State of New York with the tax liabilities, permits, licenses, etc...

All I can say is by the looks of it, NY is going to want there cut. After all the items were sold by you from a licensed/permitted business (or reseller certificate) in the State of NY. NY even charges taxes on certain items that were purchased out of State and brought in. How can you explain making a profit on an item that you sold from NY but didn't collect State sales tax? Talk to a professional.

[newtech08]

Thanks Jim, as I said I figured there are more people on here dealing with dropshippers and ill get able to get some free general advice, specifics were only there so its not vague, maybe someone out there was in a similar situation. Id never substitute message board advice for legal advice, no offense, just wanted to narrow things down to ask a lawyer since i doubt an income tax accountant will know all this when i see him before april, and lawyers here are expensive.

[jhande]

I hear ya JW, I certainly have nothing against free advice and information LOL.

I was just concerned that you might get wrongful advice regarding your tax liability in your State. After all each State is a bit different.

You might be right about an income tax accountant not knowing enough information to properly guide you. I had to double check, my accountant is a CPA and has helped me (for free) with information pertaining to different tax issues and new laws. My under construction osC site is not my first business so she has helped on a few for me. In return she does my tax return for the first couple of years after I get the business up and running. After that I do it myself and just call her when I have questions. I figure it's the best way to get going and for $40 a year it's worth it. H&R Block can't give such service LOL. You should be able to find someone such as her and most give a free consultation in hopes of getting your future business, whether it be quarterly or annually.

Good luck!

[trisha12]

I was rescued from my complicated tax calculation by software called Turbo Tax. It also helped me with the great tax deductions and more than that, I got this software on discounted rates through Turbo Tax Coupons.