4 replies to this topic

[Eternal_Howl]

Hi there,

My partner and I are looking to sell second hand goods. I originate from another country that charges a flat rate of tax throughout the entire country on pretty much everything. The price is built into the ticket price you would see. So you don't get a subtotal, tax add-on and then total (including the tax).

I'm a little (a lot) confused about several things.

Please correct me on anything I say or have read and relay that is incorrect.

It is my understanding that unless you are selling within your own state, you do not have to charge a sales tax.
It is my understanding that this also applies to shipping costs.

So if I am sell something to a guy in the same state, he is charged sales tax. But if that guy is living in another state from me, he doesn't have to pay tax (even on shipping). Is that correct?

Then it gets trickier because I read this:

If you do not have a physical presence, like a real store: You do not have to pay a sales tax - please see this link:
http://www.nolo.com/legal-encyclopedia/article-29919.html
And here's a different one http://www.business.gov/business-law/online-business/sales-tax/

Okay, by what I understand, online businesses, if they do not have a warehouse or a retail store do not have to pay tax as that (rather than your home and your wardrobe) does not constitute as a 'physical presence'. We do not have a store, we do not have a warehouse.

Which is right and which is wrong?

I saw an article a while back on the forums saying that the times of tax-free internet shopping may be over. I have noticed that sometimes I have been charged sales tax when purchasing online and sometimes I haven't.

This may sound like a stupid question, but I am pretty novice in all areas. Would I have to register a business name in order to sell online? In order to collect payment for second-hand collectable goods, do I need a business registered? And I do not mean a .com webdomain - or can a .com domain be deemed registering a business since the com stands for commerce or commercial or whatever it is.

I can read all over the forums and I find a lot of confusing info pertaining to California, but I do not live there.

Just trying to do the right thing but on a very limited budget.

Edited by Eternal_Howl, 24 November 2009, 04:08.

[germ]

I noticed from your profile where you reside and looked up this

Please note that the info at that link is 7 years old. But there is a phone number there (hopefully it would still work if you wanted to use it).

I looked around on the Ks. Dept. Of Revenue site and didn't really find anything else useful.

Maybe some one else will have more to help.

[MrPhil]

To operate a business, you have to register in some form. A "sole proprietorship" is usually as simple as going to your County offices and filing a d/b/a form. A partnership may need a little more paperwork. For some legal protection against creditors and lawsuits, consider incorporating, or at least an LLC (more $).

Get a Taxpayer ID number (similar to a Social Security number, but tied to the business rather than you personally). That way you won't have to display your personal SSN on public certificates, etc. (think identity theft). Income from the business of course has to be reported for income tax. Sole proprietors, some partnerships, and single member LLCs just use Schedule 1040-C. Keep good records of all your expenses, including the web site. Read a book on running a small business ("Small Business for Dummies", etc.).

Collecting sales taxes means that you have to register with your state, to get the proper setup for collecting and remitting sales taxes. There are no sales taxes collected on interstate commerce (except in a few states with reciprocal tax agreements -- ask your tax people if any apply to you). That is, if you have no "nexus" (physical presence of some kind) in a given state, you don't collect sales tax on the sale. If you have a nexus in a state (such as the state you operate from, or affiliate programs, or possibly drop shippers), you have to collect sales tax on sales within that state. Shipping and Handling may or may not be taxable (consult the state). The tax rate you charge may be state-wide, or based on your location (one fixed rate for everyone), or it may be "destination based" (a real pain to administer), based on the shipping address. If you are not required to collect sales tax on an out-of-state sale, the buyer is required to report his purchases and pay "use tax" (equal to local sales tax) on his tax form (guess how many people actually do that?).

Different kinds of goods may have different tax rates. For example, in New York, inexpensive clothing and footwear get a lower rate than general merchandise. If you sell a second-hand dress, it might have a tax rate as low as 0%, but if you sell a handbag to go with it, it would be full rate (up to 9.5%, depending on the buyer's location). Be sure to check if you have to charge different tax rates for different classes of goods. Some things may be taxable in some jurisdictions, and others not.

Good luck and have fun!

Edited by MrPhil, 24 November 2009, 16:41.

[Eternal_Howl]

germ, on 24 November 2009, 04:44, said:

I noticed from your profile where you reside and looked up this

Please note that the info at that link is 7 years old. But there is a phone number there (hopefully it would still work if you wanted to use it).

I looked around on the Ks. Dept. Of Revenue site and didn't really find anything else useful.

Maybe some one else will have more to help.

Thanks Germ for that link. We had been looking around and it's even hard to try and find simple stuff on the revenue.org website. That letter, while older, I believe is still relevant but will do some checking. It also seems to indicate similar things that I have already read about collecting tax from same-state residents vs out-of-state.

[Eternal_Howl]

MrPhil, on 24 November 2009, 16:36, said:

To operate a business, you have to register in some form. A "sole proprietorship" is usually as simple as going to your County offices and filing a d/b/a form. A partnership may need a little more paperwork. For some legal protection against creditors and lawsuits, consider incorporating, or at least an LLC (more $).

Get a Taxpayer ID number (similar to a Social Security number, but tied to the business rather than you personally). That way you won't have to display your personal SSN on public certificates, etc. (think identity theft). Income from the business of course has to be reported for income tax. Sole proprietors, some partnerships, and single member LLCs just use Schedule 1040-C. Keep good records of all your expenses, including the web site. Read a book on running a small business ("Small Business for Dummies", etc.).

Collecting sales taxes means that you have to register with your state, to get the proper setup for collecting and remitting sales taxes. There are no sales taxes collected on interstate commerce (except in a few states with reciprocal tax agreements -- ask your tax people if any apply to you). That is, if you have no "nexus" (physical presence of some kind) in a given state, you don't collect sales tax on the sale. If you have a nexus in a state (such as the state you operate from, or affiliate programs, or possibly drop shippers), you have to collect sales tax on sales within that state. Shipping and Handling may or may not be taxable (consult the state). The tax rate you charge may be state-wide, or based on your location (one fixed rate for everyone), or it may be "destination based" (a real pain to administer), based on the shipping address. If you are not required to collect sales tax on an out-of-state sale, the buyer is required to report his purchases and pay "use tax" (equal to local sales tax) on his tax form (guess how many people actually do that?).

Different kinds of goods may have different tax rates. For example, in New York, inexpensive clothing and footwear get a lower rate than general merchandise. If you sell a second-hand dress, it might have a tax rate as low as 0%, but if you sell a handbag to go with it, it would be full rate (up to 9.5%, depending on the buyer's location). Be sure to check if you have to charge different tax rates for different classes of goods. Some things may be taxable in some jurisdictions, and others not.

Good luck and have fun!

Thank you for further clarification Mr Phil.

I really appreciate the posts from both of you.