Marketing 101

I have something to share with you that is very important – especially if you sell to anyone out of state. This is purely informational because it may or will affect you.

I just read this update from an ezine I get from Business Tax Expert Diane Kennedy (no relation to Dan). Again, If you sell anything to people in another state, please read this. It’s VERY important.

Here is the original email from Diane:

Hi Friend,

Whew! What a week last week was. Megan Hughes (Business First Formations) and I spent a large part of it reading recent state bills regarding ‘nexus.’

Believe it or not, that’s the definition of a fun time for me! And that’s especially true if there is something in these bills that I can pass on to you to save you some money, before it’s too late.

The biggest business tax challenge in 2011 and beyond will be state tax and state tax audits. Let’s talk about that.

An IRS Audit May Be the Least of Your Problems

Do you:

• Ship products,
• Have employees in another state,
• Sell to customers/clients in other states,
• Own property in another state,
• Hold seminars or present at expos,
• Have inventory in another state,
• Sell products over the phone, or
• Have a website?

If You Said “YES” You May Have a State Tax Issue!

There are 3 traps you need to avoid.

Trap #1: Thinking nexus doesn’t apply to you.

Nexus means connection. If you have a connection to another state, you may have sales tax and/or income tax nexus.

A computer consulting firm is located in Texas, but they work with clients across the country. They had employees located in 3 other states. The employees did work at client offices.

They have both sales tax and income tax nexus in their home state and the 3 other states.

The same computer consulting firm changes up their model and does all the work virtually. They all work from their home state now, with all the employees in that same state.

They still have both sales tax and income tax nexus in their home state and the 3 other states.

Read on to find out why!

Trap #2: Not following the rules when you have sales tax nexus.

Once you have sales tax nexus in a state, you have to follow that state’s rules when it comes to what is subject to sales tax.

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Food or candy? It makes a difference in Illinois. The Illinois DOR says: “You must check the ingredients label or package. If an item contains flour or requires refrigeration, it remains taxed as food (low rate). If an item contains sugar, it is taxed as general merchandise (high rate).”

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Detective services are subject to sales tax in New York City.

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New York has also ruled computer consulting is a product, not a service and that means sales tax. (Watch out for this one!)

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Digital downloads are subject to sales tax in 18 states.

Don’t assume that you know the rules in another state. There are a lot of very strange sales tax rules out there these days.

Trap #3: Not understanding the new rules of Economic Presence.

You are responsible for state income tax (or gross receipts tax or Washington B & O tax or Texas Margin Tax) if you are ‘doing business in a state.’

But that’s where it gets tricky.

You obviously are doing business in a state if you have a physical presence such as an office or sales force. But 22 states have added a new rule called “economic presence”. With economic presence, you could have state income tax due to a state based simply on the fact that you make a sale to someone who lives in that state.

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If you license intangible assets (such as a franchise agreement, copyright, royalty, etc) to someone who is in New Jersey, you have economic presence and owe state income tax to New Jersey.

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Ohio and California have adopted a “Factor Present” nexus standard that says your company has nexus in their state if you have one of the following with their state:

1. $50,000 or 25% of total property,
2. $50,000 or 25% of total payroll, or
3. $500,000 or 25% of total sales.

Worried about nexus?

If you answered ‘yes’, then you’ve got a firm grasp of the situation.

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Action Items: Learn about nexus. Talk to your accountant and make sure she understands the rules both where you live and every other place your business may have nexus.

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What you don’t know could hurt you and your business.

Warmly,

Diane Kennedy
http://usataxaid.com

Visit her site to learn more! Protect yourself and don’t be caught being uninformed. Ignorance won’t serve you.

If you like this post, please leave a comment and/or share it with your social networks.

Dedicated to helping you multiply your income in 2010 (and beyond),

“No BS” Craig

Craig Valine, Certified “No BS” Business Advisor
Glazer-Kennedy Insider’s Circle
Glendale/Pasadena Local Chapter

Craig@GlendalePasadenaGKIC.com
(626) 507-8228   Office