1. Making Your EBiz Legal:
Why and How.
FEATURED COMMENTARY
By Chris Malta Home EBiz Product Sourcing Expert
It’s not uncommon for new
Internet retailers to be intimidated by the thought of acquiring
reseller certificates, EINs, and DBAs. But if you sell physical
goods on the ‘net, you can’t afford to let a little paperwork stop
you from experiencing the benefits of being a legally recognized
business. Because, if you want to buy your inventory from real
wholesale suppliers, you must be an official, legal business.
The Taxman Cometh According to eBiz attorney Cliff Ennico, of
CliffEnnico.com, wholesalers require proof that you’re a legal
business for a very good reason. They keep this proof on file, to
protect themselves, should they ever be audited. In the U.S.,
wholesale transactions aren’t taxed. Wholesalers don’t charge
taxes to their retailer customers, because those retailers are
going to charge taxes to their customers, explains Ennico. As
long as someone is paying taxes on those goods at some point
during their journey to market, the IRS is happy.
However, if the IRS were to catch a wholesaler selling tax-free
goods to an end consumer, that wholesaler would wind up in a world
of legal and financial trouble. So every business they sell to
must demonstrate that they’re a legally authorized reseller,
buying their goods for resale and not for personal enjoyment.
I’ll Need to See Some ID, Please As an online seller, you’re
responsible to collect and pay sales tax on all sales to customers
in your own state. Therefore, you’re required by law to resistor
for a state sales tax ID (a.k.a. reseller certificate) when you
set up your business. Registering is as easy as going to your
state tax authority website, clicking on ‘Forms and Publications’,
and filling out the registration form. (One helpful resource is
TaxLinks.com, a website that provides links to the state tax
authority websites for all fifty states.) Typically, you’ll use a
copy of this document to verify your business’ legitimacy.
Not every state imposes sales tax on retail items, however, and
that complicates the issue. If you live in a tax-exempt state,
you’re unable to acquire a reseller certificate. In that case, a
wholesaler will need another form of identification proving the
your business’ validity. Some of the most common alternate forms
of proof are as follows:
If you’re operating as a sole proprietor or partnership, you can
file a Doing Business As certificate (DBA) at your county clerk’s
office, and supply your wholesaler with a copy. If you’re an LLC
or a corporation, you can supply your wholesaler with a copy of
your filed certificate of organization or articles of
organization. You’ll also need to include a copy of the
confirmation form you received back in the mail, that lets your
supplier see that the document has been filed. If you’re
operating without a trade name or a DBA, then you’ll most likely
have to provide a federal tax ID (EIN). Although the law allows
you to register your social security number as your EIN, it’s a
much better idea to let the government issue you one. They’re
free, and having one to use in your business correspondence means
that you aren’t sharing your SSN with anyone you don’t have to be.
Another option is to use your state tax ID number this is
different than your state sales tax ID number. Even in states that
don’t charge sales tax, there are other state taxes that might
apply to your business. Usually, the state will issue a state tax
ID number, which you can use as a form of business identification.
The bottom line is, no matter how you structure your eBiz, you
must take steps to make it a legitimate, authorized business
before you can work with true wholesale suppliers. The minimal
time and effort you’ll spend will more than pay for itself in the
rewards of being able to set up those wholesale accounts and get a
consistent, reliable supply of products at prices that give you
room to turn a profit. Says Ennico, If you’re going to sell
online, getting your business legal is just something you need to
do. It’s easy and painless, and the rewards far outweigh the
costs.
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