I estimate that 99% of Californians do not understand the implications of the new small business tax that Governor Jerry Brown signed into law yesterday. This law would mandates online sellers like Amazon.com and Overstock.com to start collecting sales taxes on items shipped to California if they have some sort of relationship with an affiliate. What is an “affiliate?” That is the question that I also estimate 99% of Californians don’t know the answer to. Put simply, affiliates are people who are in the business of pre-selling products from online retailers for a commission. Think of bloggers who blog about the merits of a particular product, then offer a link to buy from an online retailer.

The operative word here is “business.” For many affiliates, this is a small business that they run. As a business, affiliates make an investment in time and money with the hope of making a return on that investment. Sometimes it works, and they do have a positive ROI. Now, with the new law, the biggest online retailer, Amazon, has terminated all affiliate relationships in California. Simply put, all the affiliates that rely on Amazon for their income are out of business. Is this a good thing for the struggling economy and for real people trying to create a living?

As an affiliate marketer myself, I cringe at the thought of yet another tax on top of all the other small business taxes that are imposed on the little guys just trying to make it. I started to write down my thoughts for this blog, but found an article by Pace Lattin that aptly states what I wanted to say:

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There has been a great deal of discussion of all the Affiliate Tax laws being passed in the media. Unfortunately, thanks to a great spin campaign by companies such as Walmart, the discussion has been focused on how these new Nexus Tax laws will affect large companies like Amazon and Overstock. Time and time again these new laws being proposed are called “Amazon Taxes” for the sole purpose of ignoring the rest of the companies that will be affected when these taxes are passed. The real truth behind the Affiliate Tax debate is that these laws will have a profound and significant affect on almost every company in the industry, from the largest to the smallest – but will have the greatest impact on the small companies.

This is not an “Amazon” tax, or an “Overstock” tax, but instead a “Small Business Tax” that has been labeled incorrectly in order that the general media might ignore the reality of what these taxes will do to small businesses. I’ve actually met a few attorneys who don’t quite understand the real problems with these laws. Let’s quickly look at what most of these tax laws will do, and explain it simply:

The laws specify that if there is any affiliate of any company making revenue for a product in that state, then the company itself has to pay taxes for any transaction in those states.
My explanation is purposely obtuse and vague, because in many cases so are the laws that are being passed. The definition of a transaction or purchase is not very specific and thus is extremely problematic. This means that anyone engaged in any sort of ecommerce, whether it is sale of a product, promotion of a program, signups to site, in theory could be forced to pay those states taxes.

Thus if you are CPA network promoting a product and you have affiliates in those states, you may be liable for taxes in those states. Why? Because as anyone who is in this industry knows, the definition of who is selling the product, versus what a network is and even what a publisher is, is often difficult to pin down. Sometimes affiliates of CPA Networks are the publisher, sometimes they are just a PPC buyer, and sometimes the network is a publisher of another network. With all the connections, who is to say what establishes the nexus? Don’t expect States that are desperate for money to actually define this for you, but instead send any company that has any affiliates in that state, anyone that reports that their money is made from marketing, tax bills. We are their new “banks.”

Even if we knew the answer definitively to the different questions, many companies, from lead generation firms to dating sites are going to start avoiding CPA networks in those States for that specific reason. They do not want to risk that working with a company in a certain State will somehow cause a nexus and thus require them to file paperwork, file additional taxes. They’d rather make it easy and work with someone else.

Thus, as I started, the victims here are not the Amazons of the world. They are the small businesses. Most CPA networks are just that: Small businesses, with a few employees, working hand in hand with their affiliates to create valuable opportunities for their advertisers. They, along with their affiliates will suffer the most. These taxes are aimed at our industry, our friends, our community and our businesses. If we continue to allow them continue without standing up, supporting those people who are fighting, it is very possible in a few years we all will wish we did.

Pace Lattin
pace@pacelattin.com

Working from home is great. You don’t have to deal with any of the hassle and grind of driving to and from an office. With gas prices at $3.76 per gallon and above in my area, it’s a big money saver. And don’t forget the wear-and-tear cost on your car.

But these are the obvious financial benefits. There is another benefit to working from home. If you work from home, you may also be eligible for a tax break from Uncle Sam.

Here is how it works at a high level. It’s best if you work mainly from home. By this I mean, that you spend over 50% of the time working from a home based office. Make sure you dedicate a portion of your home to use “regularly and exclusively” as your primary space for work. You can also set it up as a “place to meet or deal with your patients, clients and customers.” For example, if you have an eBay trading assistant business, you would dedicate a work space to have your customers drop off their merchandise. In that space, you also have a setup to photograph the merchandise to post on eBay. That dedicated space is by definition your home based office.

If you meet the above criteria, then you are likely eligible to take a deduction on the part of the household expenses that are related to your work. This would be the “business percentage” portion of your expenses. To determine this business percentage, take the area of your work space and divide it by the total square footage of your home. Easy math.

A number of people that I work with are uneasy about claiming this deduction because they are afraid of being audited by the IRS. This is understandable given how complicated tax rules can be. However, this is a legitimate expense that they should claim if they are entitled to it. To help with their uneasiness, I always recommend that they seek the advice of a good CPA.

Any business, whether online or offline, has to pay its taxes. Sorry, you can’t resort to starting an online business thinking that you can evade tax payments. You can run for awhile, but the IRS will catch up with you eventually.

As harsh as this may sound, any business that does not pay its taxes cannot be considered as a business.

Still Want To Start Your Online Business?

Trying to start an online business is pretty much the same as starting any business in the brick-and-mortar world. Some people who are involved with online businesses usually use ignorance as an excuse not to pay taxes.

They would say that they didn’t really know where to go or what government department to approach so they just went ahead with their online business without actually referring to the government or the state that their business is in.

The first thing that you should do if you want to start your online business is to go to your local town
hall and try to list down the requirements needed to form a business in your location.

You should also ask what is required at both state and federal levels. Most communities would actually
require you to register a trade name. If you wish or choose to operate from your home, you should ask about the local zoning laws.

Learn About The Sales Tax Requirements

Your online business will more or less fall under the category of a mail order business (that is if you are
planning to sell stuff online). You will need to learn about the sales tax requirements that come along
with your online business so that you can minimize any tax related problems in the future.

If for example, you don’t have a nexus in another state, you can still sell and ship your merchandise to
costumers residing in another state without actually charging Sales Tax. However, sales to the residents in the same state that you are living in will definitely require a collection of Sales Tax and remittance to the Sales Tax Department of your state.

Operate Your Business Honestly

If you want to have a successful online business that lasts long-term, you should try to keep it as clean and honest as possible. Don’t even try to pull off any illegal or mischievous tricks in your business or it may jeopardize your success.

Make sure that you abide by the Truth in Advertising requirements; do not give customers misleading ads because they will only end up being disappointed or unsatisfied with your services which could lead to more trouble.

In a nutshell, trying to start and operate an online business requires ample time, effort, honesty and
sincerity. It’s a sad fact that a lot of people use the Internet for scamming others and earning money
illegally.

However, it does not mean that it should be a trend that should be followed. It is entirely possible to
have an online business that is clean, honest, legal and profitable. If you really want to pursue your online business, the tips mentioned here will truly be of help to you but it is only a start. You still need to visit a lawyer and CPA to fully cover your bases.

Remember, taxes and your online business go hand in hand for success. And when you do pay your taxes, it is a sign that you actually made money online!

Almost all tax payers would say that the process of paying taxes is one of the most tedious and less-liked activities that they can imagine. Sorry to say that paying sales tax for an online business is no exception.

But hey, why be so negative about taxes? At least that’s what my CPA tells me.
He might have added that if you decide to change the way you think and turn your negativity to a more positive mindset, then you would surely realize that paying online sales tax is not a taxing job at all.

Online business owners or etailers are commonly complaining about online sales tax primarily because
they don’t clearly understand and grasp the meaning, scope and limitations of the law and regulation that pertains to it.

If you want your online business to boom and prosper, you should have the initiative to gain as much
knowledge as you can about taxes and online businesses.

Be Aware Of Taxability And Exemptions

You should be aware that not all services or products are taxable or taxed in the same way as other services and products are.

Furthermore, the taxability of some products also differ from state to state. There are also exemptions
based on how the product is used as well as who uses them. An example to this would be schools and non-profit organizations. These kinds of institutions may not be required to pay sales tax if they avail any of your products or services.

Note that exemptions require clear and concise documentation.

Consider State Sourcing Rules and Validate Addresses

There are more or less 12,500 tax regions in the United States and for you to come up with an accurate sales tax calculation, you would have to identify and validate the “roof top address” and then apply it to the exact set of sales tax rates of that certain transaction.

You must remember that the rate of the sales tax applied to a sale or purchase may be made up of a
country sales tax, a state sales tax, a city sales tax and other special taxing jurisdictions.

The so-called “roof top address” is very important is because it serves as a warning that one household in a neighborhood can have a different sales tax rate than its neighbor, if it is located physically in a different zone already.

Use Tax

Consumer use tax or use tax is a kind of tax that pertains to the using, consuming, storing and
sometimes distribution of personal tangible property.

Aside from that, it can also be applied to services which are taxable. In short, you will need to pay use tax in a state where that “usage” occurs.

A clear example for this would be: you bought a pair of running shoes over the Internet and you did not pay any tax to the seller.

However, you used those pair of running shoes in your state, so you are subject to pay your state the use tax.

As an online business merchant, the above mentioned tips and guidelines are just few of the other tips and guidelines that you need to learn.

Taxes and your online business should work together, if you want you business to become successful.

Say you want to start your very own online business. Aside from having unlimited access to the Internet, you also need to be armed with adequate knowledge about taxes and your online business because without it, you will surely be at loss.

Online retailers, or more commonly known as etailers are not exempt from paying taxes, contrary to the
common misconception of most people. Etailers are still included in the rush for meeting the April 15
deadline for tax filings.

However, veteran etailers would say that the most difficult part for online business owners is navigating and complying with the confusing and complicated laws and conditions governing day-to-day sales taxes.

If you are one etailer who would like to take your online business seriously, you should be prepared to deal with the fact that handling and managing sales taxes is actually an everyday challenge.

The truth is, a lot of etailers are required by the government to file and remit sales tax to states on either a monthly or regular interval. The basis for the filing of sales taxes would more or less
depending on how much revenue your online business generates.

A Few Tips For Etailers

It is vital that you understand your responsibility for sales tax. You must also know that the idea that e-commerce companies are required to collect and remit sales tax in every state is one big myth.

You only have to pay sales tax if you have nexus in that certain state. So what’s a “nexus?”

Well, in online business jargon, nexus means a “connection.” Put in application, making a sale in
another state does not mean that you automatically have a sales tax obligation.

You have to put in mind that there are many rules and laws that you need to consider before you can
determine whether or not you will need to pay for sales tax in a certain state.

When you create your very own nexus in a certain state, you are then required to calculate, collect,
report and remit the sales that you make in that certain state every time you have a transaction there.

This is the reason why you are obliged to pay tax sales based on the location of your business.

However, you must also keep in mind that there are also other ways to create your very own nexus in a state. Aside from physical presence or structure of your business establishment in a certain state, you can also establish a nexus by having sales representatives present in that state, tradeshows,
mobile stores, etc.

Trying to make an online business work amidst the seemingly confusing and complicated rules that apply to different states can be quite challenging.

However, one must not lose hope; with the help of professionals in the legal field and certified public
accountants (CPA), you will surely be enlightened as to what steps you should take for your online business to stabilize and prosper.

By being armed with the right knowledge about taxes and your online business will surely prosper.