A License To Do Business
Unless you have set up a formal entity such as an LLC, S-Corp, or C-Corp you probably aren't aware that some states will require you to apply for and receive a sales tax license, general excise tax license, or "insert whatever they call it in your state" tax license.
For the ease of writing I'm going to lump them all together and call them "sales tax license" from now on. They're not always the same but for the purpose of explaining them they can be lumped together.
Once again you may be thinking that since you are just a sole proprietor you don't need to get a sales tax license, again this may or may not be wrong depending on the state you live in.
My Personal Example
In 2008 I was in the Navy and got orders to Hawaii. I was still a resident of the state of Colorado. In 2009 I got into affiliate marketing and made a few hundred dollars of affiliate commissions that year.
Unbeknownst to me when I started my internet marketing foray in 2009, I should have registered and applied for a Hawaii sole proprietor general excise tax and filed a non-resident 2009 Hawaii state income tax. Furthermore, I should have been submitting periodic general excise tax reports and payments throughout 2009 for income that I made.
To further complicate matters I formed a LLC in Hawaii in 2010 while I was still a resident of Colorado.
I'm just now getting all of my tax returns straightened out. I had to redo my tax returns from 2009, 2010, and part of 2011 to appropriately reflect how my business had gone from a sole proprietor to a LLC.
What You Should Take Away
Don't bury your head in the sand when it comes to taxes. Research your local tax laws and see what type of things you need to do to be compliant. Better yet find an accountant in your area and talk to them about it. Doing nothing is the worst thing you can do.
In my case after talking to the tax office I found out that only certain types of income is subject to the general excise tax. They also told me exactly what I needed to do to become compliant.
Treat them like they are your friend and not your enemy, because if you treat them like your enemy that is exactly what they are going to be in a couple of years if you make a lot of money and fail to pay taxes on it.
One last thing is sometimes you might be required to still submit reports even if you didn't make any income. In my case even if I don't make any income I am still required to submit the periodic general excise tax report.
The frequency with which you submit these payments will depend on how much income you have. A general rule of thumb is that the more you make, the more often you have to submit them.
Unless you have set up a formal entity such as an LLC, S-Corp, or C-Corp you probably aren't aware that some states will require you to apply for and receive a sales tax license, general excise tax license, or "insert whatever they call it in your state" tax license.
For the ease of writing I'm going to lump them all together and call them "sales tax license" from now on. They're not always the same but for the purpose of explaining them they can be lumped together.
Once again you may be thinking that since you are just a sole proprietor you don't need to get a sales tax license, again this may or may not be wrong depending on the state you live in.
My Personal Example
In 2008 I was in the Navy and got orders to Hawaii. I was still a resident of the state of Colorado. In 2009 I got into affiliate marketing and made a few hundred dollars of affiliate commissions that year.
Unbeknownst to me when I started my internet marketing foray in 2009, I should have registered and applied for a Hawaii sole proprietor general excise tax and filed a non-resident 2009 Hawaii state income tax. Furthermore, I should have been submitting periodic general excise tax reports and payments throughout 2009 for income that I made.
To further complicate matters I formed a LLC in Hawaii in 2010 while I was still a resident of Colorado.
I'm just now getting all of my tax returns straightened out. I had to redo my tax returns from 2009, 2010, and part of 2011 to appropriately reflect how my business had gone from a sole proprietor to a LLC.
What You Should Take Away
Don't bury your head in the sand when it comes to taxes. Research your local tax laws and see what type of things you need to do to be compliant. Better yet find an accountant in your area and talk to them about it. Doing nothing is the worst thing you can do.
In my case after talking to the tax office I found out that only certain types of income is subject to the general excise tax. They also told me exactly what I needed to do to become compliant.
Treat them like they are your friend and not your enemy, because if you treat them like your enemy that is exactly what they are going to be in a couple of years if you make a lot of money and fail to pay taxes on it.
One last thing is sometimes you might be required to still submit reports even if you didn't make any income. In my case even if I don't make any income I am still required to submit the periodic general excise tax report.
The frequency with which you submit these payments will depend on how much income you have. A general rule of thumb is that the more you make, the more often you have to submit them.
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Reply
k1nl1
Premium
That is indeed a really good and helpful article. I have a question thou. Do you have an idea how it goes if you are constantly traveling? I am not in that position yet, but my idea is to focus on internet marketing and other similar ventures and be able to travel while doing so possibly for more then 3-4 years. This means constant moving from one month to the next and I can imagine that would complicate things.
I see you have experience with cross country income tax situations as you were a Colorado resident officially, but had to register as well in Hawaii while conducting online business there. Do you think that I have to register in every country as a sole proprietor to be able to operate or is there another possibility?
I see you have experience with cross country income tax situations as you were a Colorado resident officially, but had to register as well in Hawaii while conducting online business there. Do you think that I have to register in every country as a sole proprietor to be able to operate or is there another possibility?
ThomasPaul
Premium Plus
For my situation I was living in Hawaii for the entire time I was there. Due to my military status and Hawaii state laws it let me keep my Colorado residency until I decided to officially change my residence to Hawaii.
I think it all depends on how long you are in each area. If you are bouncing around from place to place without staying too long you probably don't have to worry about it. If you stay in one place for an extended period of time you probably want to consult an accountant.
Then there's another aspect of "how is the state going to track you down and prove you were in their state and made income while in that state?"
In most cases it may totally be a non-issue if it's an online business. You could always briefly researxh on the state tax office website things of that nature.
I think it all depends on how long you are in each area. If you are bouncing around from place to place without staying too long you probably don't have to worry about it. If you stay in one place for an extended period of time you probably want to consult an accountant.
Then there's another aspect of "how is the state going to track you down and prove you were in their state and made income while in that state?"
In most cases it may totally be a non-issue if it's an online business. You could always briefly researxh on the state tax office website things of that nature.
ThomasPaul
Premium Plus
nathaniell
Premium
Do you know if we could be required to pay the 'sales tax' portion considering we're not actually SELLING the product? I mean, as affiliates, we are intermediaries making a commission off of a transaction where we are neither buyer nor seller.
Great tutorial, and it's got me thinking about tax season coming up.
My method is that I only use my Paypal account to pay for things related to my business (99% of the time). I have my Paypal connected to Outright, which is not connected to any other financial accounts. That way, Outright tells me how much I'm making, how much I'm spending, and all transactions are listed. It was a life saver last year when I had to look over where I spend money and on what.
Great tutorial, and it's got me thinking about tax season coming up.
My method is that I only use my Paypal account to pay for things related to my business (99% of the time). I have my Paypal connected to Outright, which is not connected to any other financial accounts. That way, Outright tells me how much I'm making, how much I'm spending, and all transactions are listed. It was a life saver last year when I had to look over where I spend money and on what.
ThomasPaul
Premium Plus
Hmmm, I'm never heard of outright I'll have to look into it.
As far as paying the sales tax portion, I really do not know the answer. I see your point because we're just essentially "advertising" the product which further complicates things.
The best advice I can probably give is to consult an accountant in the state you live, preferably one who know's about internet marketing.
The whole sales tax thing is just a big can of worms.
As far as paying the sales tax portion, I really do not know the answer. I see your point because we're just essentially "advertising" the product which further complicates things.
The best advice I can probably give is to consult an accountant in the state you live, preferably one who know's about internet marketing.
The whole sales tax thing is just a big can of worms.
nathaniell
Premium
Yeah, I figured I'll have to ask a professional for most questions, because when it comes down to it, if my taxes are wrong, I can't really say THOMASPAUL TOLD ME! haha.
Outright is pretty basic, but good for business. If you're looking for organizing all finances in a major way, Mint is the way to go. It's also free, but is more for all-in-one type budgeting.
Outright is pretty basic, but good for business. If you're looking for organizing all finances in a major way, Mint is the way to go. It's also free, but is more for all-in-one type budgeting.
