small business questions?

[Nick]

i am selling online on ebay and amazon from home for years and i have valid CA seller permit. now business grows and i am planning to rent a commercial place and do the same online business from that place. do i need city permit or any other liscense to do that ?. still i will be selling only online

[Jared]

This is an interesting question, and my logic for answering it follows the tax code (my knowledge of it -- I am not an expert). I believe the federal government, and state and local governments, will make regulations more clear concerning this very issue over time; it just hasn't happened yet.

If you run an "online" business from home, then your storefront is your home, right? But, people cannot come to your house to do business, right? So, your storefront is not your home. You office out of your home. Your storefront is the website. Your job site is the customer's mail box.

This is true today. If I run a website... let's say http://www.HOMERUNWEBSITE.com... from my home office, and I live in Texas -- then, if I sell to someone in Texas, I am supposed to collect sales tax on that sale (given that the Texas sales tax code calls the item sold a sales-taxable item). For what its worth, most items bought for resale are taxable under the sales tax code of Texas. But, lots of small businesses, whose storefronts are online websites, do not collect and remit the required sales taxes. One main reason is that they do not have the required state Sales and Use Tax permit. In order to charge and collect sales tax, you must have a state permit to do so. Collecting sales tax without one is illegal. Collecting sales tax and not remitting it is illegal. And, furthermore, collecting sales tax and trying to remit it to the state government without a permit is futile -- you need the permit number to remit the sales tax.

So, what you run into -- and this is a big hidden liability -- if you run a website from a home office in a state -- for instance, Texas -- and you ship the item to a customer in Texas -- and you do not collect the required sales tax -- then if Texas audits your business in the future, you can be made to pay the sales taxes that you should've collected, plus penalties and interest, even though you don't even have the permit required by law to collect those taxes.

The story gets muddy when you ship out of state. There is no federal sales tax, and federal law governs INTERSTATE commerce. However, what do you do when you ship to a warehouse in Arkansas from your home office in Texas to a customer/company that is registered in Texas?

My advice would be to get all permits and licenses that you would need to be granted and have if you were running a business in the state you live in. The idea that "online" somehow exempts you from normal governmental regulation, oversight, and taxation -- is a muddy area; in some way it is still real; and, in many ways it is changing even as we speak. So go ahead and do everything you would normally have to do. Since your storefront is now no longer your home -- it will be a "commercial place" -- and you will likely deduct rent/insurance/utilities/etc. on the commercial place from your gross income on both state and federal income taxes -- do the rest that you would normally have to do.

Familiarize yourself with state and federal laws on sales tax -- when you must; when you can't. If in doubt, you will be less likely to get in trouble if you try to charge tax and remit it to the state government than if you don't try and should have.

If a customer does not feel he or she must pay said sales and use taxes, there are convenient tax forms they can give you to cover your butt. Those would be <INSERT STATE> Resale Certificate or <INSERT STATE> Sales and Use Tax Exemption Certificate. As long as you have one of those on file -- the appropriate one for your sale -- then you are covered. If it is found at a later time that you should've collected sales tax, it will be on the other party to prove otherwise. The likelihood that you will be forced to pay the taxes, penalties, and interest, is minimized.

Other permits and licenses: they are usually cheap to obtain in comparison to consulting a CPA and attorney to figure out if you need them. From a cost-benefit analysis, if you are unsure, then get them.