What is E-commerce?
E-commerce simply refers to the buying and selling of goods and services on the internet and the data transactions that constitute payment. Brick and mortar stores are no longer the go-to for shopping as more people are going online for their retail needs.
How much money is in E-commerce?
Online shopping has been around for over 25 years and is expected to grow into a 4 trillion dollar industry. It is by far the fastest-growing retail market.
Business Structure
One of the most important things you can do is be aware of the different types of legal structures that exist and how that affects your overall tax and liability burden. You should be fully aware of the different types of business entities and what that means for your business.
What is a business entity?
One or more natural persons create a business entity to carry on a trade or business. Business owners often favor corporations and LLCs because they offer several layers of protection for their owners.
The following are types of business entities:
- Limited liability company: A registered business with limited liability for all members
- Professional limited liability company: An LLC structure for professionals, such as doctors and accountants
- C-corporation: An incorporated business composed of shareholders, directors, and officers
- S-corporation: An incorporated business that is taxed as a pass-through entity
- Professional corporation: A corporate structure for professionals, such as doctors and accountants
- B-corporation: A for-profit corporation that is certified for meeting social and environmental standards
- Nonprofit: Corporations: A formed primarily to benefit the public interest rather than earn a profit.
Small Business Should Never Underestimate Taxes
The Internal Revenue Service has been more active in targeting small businesses for tax audits in the last several years. New businesses have spent 2.5 billion each year preparing taxes and answering questions from the IRS about tax return inquiries.
However, there are things that any new business can do to lessen its tax burden. We will discuss how choosing the right business entity can make your life as a new entrepreneur much easier in the coming future.
Healthcare Savings
Medical costs are rising and can be quite expensive. It is smart to save money for unexpected health care expenses even if you are healthy now. This can be accomplished through a Health Savings Plan or HSA.
An HSA is a type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. By using untaxed dollars in a Health Savings Account (HSA) to pay for deductibles, copayments, coinsurance, and some other expenses, you may be able to lower your overall health care costs. HSA funds generally may not be used to pay premiums. This will help greatly in lowering taxes associated with medical costs.
HSA helps you save in taxes by letting your contributions be pretax, letting them grow tax-free, and allowing any withdrawals to also be tax-free. They are an invaluable source of savings and peace of mind.
Click-Through Nexus legislation- This usually requires a remote seller to meet a minimum sales requirement in the state resulting from an in-state referral agent who is a resident of the state. The agent must be making commission payments to the referral agent for any sales that are the result of the click-through referrals from the agent’s website.
Affiliate Nexus legislation– A remote retailer holds a substantial interest or is owned by a retailer that is located within the state and sells a similar type of product under a similar business name. Instate retailers can also be used to promote or market the product to in-state customers. Affiliate nexus does not require common ownership and may not include services such as sales and delivery.
Marketplace Nexus legislation– This definition applies to marketplace facilitators who operate a business in the state and provide e-commerce infrastructure, customer service, payment processing, and marketing services to individual sellers. The facilitator is the one that is required to register with the state and collect the sales tax rather than the individual sellers.
Notice and Reporting Requirements– This legislation requires that a retailer does not collect the state sales tax themselves but notify their buyers that they must report state use tax on all their purchases. The retailer might be required to send the purchaser a statement of all their purchases.
Economic Nexus– An out-of-state retailer generally is required to collect and remit sales tax once the retailer meets a set level of sales transactions or gross receipts activity (a threshold) within the state. No physical presence is required.
To find out more about state sales tax please visit the sales tax institute.
What is A Tax Resale Certificate?
It is critical that you understand that tax resale certificates can also be used on items that will be resold. Office supplies, such as new computers for your employees, would not fall under the category of retail. It would be considered fraud not to pay sales tax on these items.
If this is confusing for you, just think of tax resale certificates as state tax exemption certificates. Some states actually call them exemption certificates or reseller’s permits.
What Happens To Goods That I Do Not Sell?
You might be wondering what becomes of goods you do not sell on which a sales tax has not been collected. These goods could be subject to a use tax.
What Is The Use Tax?
Use tax applies to purchases made outside the taxing jurisdiction but used within the state. Use tax also applies to items purchased exempt from tax which are subsequently used in a taxable manner.
Is The Tax Resale Certificate The Same As A Seller’s Permit?
Even though tax resale certificates are called reseller’s permits in some states, it is important not to confuse them with seller’s permits. A seller’s permit allows a retailer to charge tax on items that they are going to sell to a customer. A tax resale certificate allows you to buy items that are intended for resale without paying a sales tax on those items.
Does A Vendor Have To Accept My Tax Resale Certificate?
It is extremely important to a retailer’s bottom line that they do not pay sales taxes on goods if there is a possibility that the tax can be exempted on a state level. However, it is also crucial to understand that a wholesaler is not required to accept your tax resale certificate in some states.
Getting A Tax Resale Certification Is One Of The Best Things You Can Do As An Entrepreneur
If you decide to start a business, a tax resale certificate can really save you money on taxes.
In short, a tax retail certificate allows you not to pay sales tax on items that you plan to resell. This can also apply to supplies that are going to be used in products that you will resell, such as wood for a cabinet.
However, the process can be difficult and the rules are different for each state. That is why TaxResaleCertificate should do all the hard work for you. We can make sure that you get all the advantages of a tax resale certificate without having to deal with the hassle of government red tape. Let us handle the hard stuff so you can proceed to run your business with confidence. Make sure you check out our second blog in this series so you can learn even more valuable information about tax resale certificates.