Getting Around The Amazon Tax Mess

[Steven Wagenheim]

Every once in a while, I like to keep up with what's going on in the
world of marketing.

A current hot topic has been the Amazon sales tax fiasco.

In a nutshell, states that are trying to make up for lost revenue are now
going after affiliates promoting Amazon products as they, in fact, do have
a presence in their state.

If you want to get the basic gist of what's going on, read this blog post at
the Internet Marketing Blueprint.

Does Amazon Hate Affiliates?? | The Internet Marketing Blueprint

Also make note of the solution, which is why I'm bringing this up in the
first place.

It would appear that this is a loophole that we can "legally" get around.

But one has to wonder.

If I live in NJ, what reason would I have to incorporate in the state of
Delaware unless I am "legitimately" doing business there?

Look, I'm no lawyer and I certainly no nothing about corporate law, but
it just seems to me that incorporating in Delaware just for the purpose of
being able to sell Amazon products is, well, not entirely kosher.

What do you think?

And if it's a legit solution, how will states respond?

Aside from that, don't these states realize that by imposing these new
tax laws, they're just losing money anyway as they are forcing these sites,
like Amazon, to simply kick those affiliates out?

Honestly, the whole thing makes no sense to me on either end.

But I'd like to know what other Warriors think.

[Dennis Becker]

I'm no lawyer, but I doubt the Delaware thing would fly. You'd still have a presence in the state where you do business (live and/or have an office).

Now if you actually moved to Delaware, that would work. I've actually considered that, for more than just the affiliate tax situation, but my wife doesn't want to move from our home of 30+ years, so for now, that's not gonna happen.

[cashcow]

A lot of companies incorporate in the state of Delaware - I don't think that would be anything out of the norm, but like Dennis has pointed out you would have to be very careful to keep all your Amazon "business" within that company and not do any other business that for some reason would be associated with the state you live in.

I'm not a lawyer, but when you incorporate (yes, I have done it), you are creating a separate business entity. Thus, if you incorporated in Delaware and had an agent (or whatever they call it) and address there it really wouldn't matter where you lived because the entity doing business would be the company you incorporated.

Again, don't take this as legal advice, but I think you would need to do all the business from that company in Delaware - your banking etc.. plus you would have to file all the necessary papers and pay whatever taxes they impose on corporations there.

Having a corporation is a PITA BTW and not something I picture a "little guy" doing just so he can sell Amazon affiliate stuff. People that have a big enough business probably already know how to get around this or have a lawyer that can help them!

[ptone]

Ultimately, it may take a Supreme Court decision in order to make this go away. That could take a while...so right now, if you live in a state that is considering this law, you need to be calling your state legislators and letting them know what you think about the law before its voted on.

[claytons]

You wouldn't even need to bank in Delaware etc. This is very straightforward.

What the laws are saying is that any entity that generates sales from NC is covered and "at risk" from cancelation with Amazon.

If your entity (in this case a DE corp.) isn't in NC...it doesn't matter where the owners and/or employees are (unless they have a true office with multiple employees...a "branch")...your entity isn't covered. Your "place of business" is DE.

All amazon did was go through their database and pull out any company or individual with a mailing address of state = NC...that's it. And that's the only way to enforce this too. They would charge the sales tax for any entity that meets that criteria.

If your entity doesn't meet the criteria...you're not affected.

[jakesellers]

The question of nexus for affiliates is pretty tricky and I fear the contradictory supreme court decisions on the matter will lead to a harmonization of state sales and use taxes into a big, ugly, federal Internet Sales Tax. I think Amazon's moves are just a gambit to inspire lobbying against the states implementing these taxes.

[Adrian Cooper]

Originally Posted by Steven Wagenheim

Every once in a while, I like to keep up with what's going on in the
world of marketing.

A current hot topic has been the Amazon sales tax fiasco.

In a nutshell, states that are trying to make up for lost revenue are now
going after affiliates promoting Amazon products as they, in fact, do have
a presence in their state.
.

Not relevant.

Tax is only due on sales of products, not commissions on the sales of products. Amazon pay the tax. Commissions are classed as income.

[Dan C. Rinnert]

Originally Posted by apc01

Not relevant.

Tax is only due on sales of products, not commissions on the sales of products. Amazon pay the tax. Commissions are classed as income.

Amazon has to collect sales tax from states where it has a physical presence. Some states are deciding that an affiliate counts as a presence, and wants Amazon to start collecting tax for them. Rather than go through the additional time and expense of collecting sales tax for those states, Amazon simply drops the affiliates from those states. Thus, it no longer has a "presence" in those states and is not required to collect sales tax.

[Steven Wagenheim]

Originally Posted by Dan C. Rinnert

Amazon has to collect sales tax from states where it has a physical presence. Some states are deciding that an affiliate counts as a presence, and wants Amazon to start collecting tax for them. Rather than go through the additional time and expense of collecting sales tax for those states, Amazon simply drops the affiliates from those states. Thus, it no longer has a "presence" in those states and is not required to collect sales tax.

That's about it in a nutshell Dan.

Thanks for the Reader's Digest version.

[Barbara Eyre]

While Amazon may be using our NC addresses to pull us from their database ... there may also be an issue with the tax forms at the end of the year for those of us who make more than $600 in income. Those tax forms (can't remember my I-9's from my W-99's LOL) would need to have our NC address on them because that is where we live ... and not whatever out-of-state address we may get to "mask" ourselves .... right? So, it may bit us in the buttski if we try to mask where we are.

[Tsnyder]

Originally Posted by Barbara Eyre

While Amazon may be using our NC addresses to pull us from their database ... there may also be an issue with the tax forms at the end of the year for those of us who make more than $600 in income. Those tax forms (can't remember my I-9's from my W-99's LOL) would need to have our NC address on them because that is where we live ... and not whatever out-of-state address we may get to "mask" ourselves .... right? So, it may bit us in the buttski if we try to mask where we are.

You're missing a very important point. A corporation is not you... you are
not a corporation. A corporation is a separate legal 'person' for all intents
and purposes.

The corporation would receive the necessary tax documents at its registered
address. The corporation will file its own tax return. It will have nothing to do
with your tax return.

Nobody is trying to hide or mask anything. Corporations are creatures of
statute. There is absolutely nothing shady or underhanded about setting up
a corporation to do business wherever you want it to do that business.

Tsnyder

[ahlexis]

The banking issue is one to be careful about if you should decide to incorporate in Delaware or elsewhere outside your "home" state where you lay your head and sleep at night.

In the past I have used Nevada corporations in this way, as a way of obtaining the benefits of Nevada state law over laws that pertain to the state where I sleep. What we used to do is physically walk the paperwork through the Las Vegas Secretary of State's office, then open a bank account at a nearby local bank that was in the same state. That way if there were any questions, the routing numbers and/or account details were in line with what would be normal for an entity with a physical office in Las Vegas. Part of what is considered your nexis or location involves where you bank, where you actually deposit your money. Want to make sure it isn't broken? Fed-ex or mail your deposits to the bank your account is located in.

Can't go to the state where you are incorporating? That's ok, some registered agents offer an additional service where they can handle opening the bank account for you through one of the bankers they know. But they charge for the service, and sometimes they charge so much it's just cheaper to go yourself even if you book a flight or drive there. And then there is still a requirement of the minimum opening deposit with the bank...

In today's world it makes more sense to have the auto-deposit set up. However, the same issue of account routing numbers are relevant. It used to be that the branch that the account was opened in would show up on the check. Nowadays I have noticed that the business checks a lot of times just show the bank name, the domain name of the bank, and the state the branch was located in. Bank of America specifically has different deposit forms for different situations. Make a deposit in B of A in a different state than the state of the account number, and the teller has to use a different form to take that deposit. I don't fully know why, but I bet it has something to do with their internal method of tracking where the deposit came from. Again, not an issue if the deposit is electronic, but the routing numbers do matter and reveal a lot more info than even your banker probably realizes.

Another thing that proves a nexis exists or does not exist involves directory assistance. You need a phone number listed in the 411 system of the location where you have your mail sent if you are trying to prove you are located in the state that you have incorporated in. Phone numbers can be had for relatively inexpensive these days, as I have read that Verizon offers a listing service that is somewhere just under $20 a year for such situations. I can't remember exactly what the service is called, and the actual cost varies from state to state due to local price differences and state and local government taxes that are added.

So if you go the mailing address route, make sure you walk, talk, and look just like a local business in that area. If the locals are required to get a business license, you need one, too. This one can get tricky. Clark County (this is the county Las Vegas is located in) decided they needed more revenue so they decided that in order to get a business license they required a fire inspector to sign off on the license, and that it had to have a door that you could physically walk through in order to get the fire inspector's approval. So that left a lot of people with Mailbox Etc. addresses (now called UPS Store) as their corporate addresses scrambling in order to meet the new requirement. Probably was a way to keep Las Vegas commercial real estate market afloat, who knows. In the Nevada Revised Statutes there are laws that allow a mailbox to be used as the only location, but this is primarily for very VERY small towns, not big cities such as Las Vegas or Reno, and the statutes say so.

But where there is a will there is a way. Some of the registered agents in Nevada provide these services as an extra service you can opt for. Since you've got to have a registered agent to receive legal correspondence from the state regarding your corporation anyway, you might as well look for one who can meet your other needs conveniently as well. But some of them are more scrupulous than others. What I mean is, some of them actually have virtual offices where you have your name on the office building directory and access to a conference room if/when you need it, and others do not. Some of them will tell you that you will need these things at some point, others will not. Some registered agents operate their own businesses out of mailbox rental spots where they are just renting a box at a business that someone else owns. That is NOT ok in most cases, as it opens you up to a lot of problems if the state realizes the registered agent is not doing things right. If your registered agent is found to be deficient, the state can invalidate YOUR corporation by putting you in default and giving you 30 days to comply or they will make your corporation non-compliant. There are extra fees and penalty fees on top in order to correct the problem once they do that. And the real problem is, how would you know? If you incorporated and used your registered agent's address as the only address (something you are many times allowed to do) then the only place they would mail the notices would be to the registered agent who got canceled!

It was actually funny to watch some of the Nevada registered agents that offered their services on eBay operate. One of them claimed a long-standing reputation and that they had been in business longer than any other agent on eBay. Yet when they gave me their address that they would be putting on my corporate filing papers as their office, I searched the net and learned that THEY were operating out of a drop box mail rental business. And the guy they actually claimed was deficient had an office suite in a large building that he shared with a real estate office (Remax, I think) and several other local businesses, and was more legit! Just to be certain of the policies, I called the Nevada Secretary of State's office and started asking questions about the rules registered agents are required to follow. Operating out of a drop box was a big NO-NO!

However, I am very familiar with Nevada. Never incorporated in Delaware. There are a few gotcha's that come up in Delaware that don't come up for me personally in Nevada.

One more thing about the bank account. If you call many nationally operating banks, they will tell you they can handle everything over the phone or through the mail, that you will not need to visit a branch located in the state you inc. in to get the bank account. They have what's called an internal branch, one that doesn't have a physical building you can go to as a branch, and you can open an account through it and everything will be fine. It will NOT be fine, as it is fine for THEM but can open your corporation up to being pierced because of not meeting the nexis requirement. You need to have a local branch in the state you incorporate in to meet the requirement, as the routing numbers will most CERTAINLY be different.

[GarrieWilson]

What most people seem to be forgetting is that if you corp in one state but live in another, you have to file papers with the state you live in if you do *any* business in that state. ie You send emails, you are doing business in that state.

You also have to have a way to pay yourself from the corp which could create a nexus for the state you live in. You can't just list yourself as a subcontractor because as a business owner you have to draw a salary of a certain percent. (So ive been told. Its to keep people from makes corps and letting the corp own everything to side step taxes.)

If it was a simple as some of you say, everyone would create offshore companies and not pay taxes.

Of course I'm not an attorney so seek legal advice.

[ahlexis]

Many times corporations are not used to avoid taxes, but to reduce taxes. And sometimes they are used to take advantage of deductions allowed under corporate rules that are not allowed under individual rules. Or to avail oneself of opportunities not available in other locations. (Such as becoming an Amazon affiliate, for instance.)

And doing "any business" in a state does not always involve what the state considers doing business, Garrie. You are right about people needing to seek proper training with a legal expert. But not just any legal expert, an expert who specializes in corporate structures and using them to maximum advantage while staying within the law. It's like with a doctor. It is not required to get an anesthesiologist for an ear infection. And so one must make sure that their legal expert is an expert in the area of doing business. A divorce specialist won't do.

California and Nevada have specific lists of things that your entity can do within their state and NOT be considered "doing business" according to their statutes. For instance, if a corporation or other entity buys real estate, it is not considered doing business if the property is just an investment that is not the major part of the business' operations. And as such, they would not be required to file as a foreign corporation in the state the property is located. (Foreign to the state where the property is located) However, if that same entity does nothing BUT buy property as a way of making money in that state, then it IS doing business. I would not be surprised if other states had such lists as well.

Also, sometimes it's advantageous to let the corp own everything even with the issue of the appearance of tax avoidance, because if there is no profit then how is there a tax? 28% of zero is still no taxes due. The goal of the corporation when it comes to most small businesses is to maximize the expenses legally. Individuals are taxed on income, but corporations and other entities are not. They are taxed based on profits. Which is deduced by subtracting expenses from income when it comes to filing the corporate IRS Form 1120.

As for filing papers if you do ANY business in that state, the corporation would NOT do business in that state if it is structured properly.

For instance, some of the Warriors are considering doing Offshore Gold. What if the Warrior travels from location to location, and never stays in one state long enough to be considered a resident of any state by the amount of time in one location? In that case it would be up to the individual to decide what state of the places they go that they would "declare" themselves a resident of, and then get a driver's license or government issued ID from that state. And they could continue to operate by doing business in each location without a formal filing if structured properly. This does not mean they would not have to pay sales taxes, just not have to file papers as a foreign corp doing business in that state.

Not all actions to maintain a business or a corporation automatically declare one doing business in that state. One of the things used to determine if someone is doing business is where they obtain their money. Another is where they bank it, as in where the deposit goes.

I'm willing to bet that if the Amazon affiliate builds sites using a "set it and forget it" method that does not require a lot of interaction, then no, they are NOT automatically declared doing business someplace else besides where they have their official office location declared on the corporate filings.

Here's a case in point: Do you live in a state that has a Capital One Bank? If you do not, but you are able to obtain a Capital One credit card, I'd be willing to bet that the credit card entity was not required to register in the state you live in unless they have a physical office of some sort in that state. Just merely having customers in that state does not require registration.

[GRF]

I'm directly effected by this. The bill has passed in Illinois and most likely to get signed off on by our Governer Patt Quinn and go into effect July/2011.

I Sent 2 questions to LegalZoom.com - Are there any residency requirements to form an LLC in the state of Wyoming? Anyone living in any state can form a Wyoming LLC?

- Also asked, If I change to it to an LLC in Wyoming, can continue to earn revenue from Amazon affiliate program? My affiliate earning get direct deposited in my Illinois bank account so I don't get a check.

In Amazon account there is box to change your tax ID and of course address. But what would I change the address to since I live in Illinois?

Does Anyone know and can help me and many others out?

[tpw]

In another thread on this topic, I wondered aloud whether this could really be the solution for many caught in the tug-of-war between state legislatures and online companies such as Amazon.

Companies have been incorporating in Delaware for tax reasons for nearly a generation, because Delaware taxation is friendlier, but more so because it is easier to incorporate there.

We have not heard states crying foul about Delaware incorporated companies much before.

Someone suggested that if a Delaware-incorporated company must register as a foreign-corporation in any state it does business, and it was assumed this also applies to any company who has an employee living in that state.

However, if the person registering a corporation was not an employee on the payroll of the corporation, and was a paid consultant working for the corporation, then the corporation would still not have a physical presence in the state.

The "consultant" would only be liable for income taxes earned, rather than sales taxes generated by the sales the company did.

Now, the flip-side of this consideration is whether states determine who should charge taxes based on where the owners live.

As I understand it, if I own stocks in Laughes and Giggle Inc., and I receive dividends based on the performance of the stock, the fact that I live in a state where Laughes and Giggles, Inc. does not operate does not resemble a physical presence of LGI in my state.

So once again, this scenario should green light Delaware as a solid work-around.



Disclaimer: I am not an attorney, nor do I pretend to play one online. If you would like to know your legal rights and obligations, please contact an attorney who lives in your state or the state where you desire to incorporate.

[Marvin Johnston]

Originally Posted by Steven Wagenheim

A current hot topic has been the Amazon sales tax fiasco.

In a nutshell, states that are trying to make up for lost revenue are now
going after affiliates promoting Amazon products as they, in fact, do have
a presence in their state.

Also make note of the solution, which is why I'm bringing this up in the
first place.

When you wrote "THE solution", you probably meant "A solution."

What I do not even slightly understand is if this affects affiliate MARKETERS, why aren't they using their marketing skills to show how this law is a bad thing. And fight it tooth and nail.

Giving up sounds more like someone used to taking orders as opposed to running their own lives (business.)

Marvin

[GRF]

I'm trying to come up with a work-around other that getting an LLC (which looks like around $400) and still live in Illinois.

I have a sister-in-law that lives in Montana. If I change my contact address to that, would that allow me to keep my affiliate status on Amazon?

I don't get checks from Amazon, my affiliate earnings are direct deposited into a bank account in Illinois. Will Amazon RED FLAG that? Or do I need to set up a bank account in Montana and maybe have a debit card so I can withdraw earnings?

Also, what about the tax ID? Will my Illinois SSN be a RED FLAG to Amazon?

[Khadaji]

Originally Posted by GRF

Also, what about the tax ID? Will my Illinois SSN be a RED FLAG to Amazon?

I can't believe it would be.

My SSN doesn't change according to where I live, it only reflects the state where it was first applied for. Can you imagine the headache if everyone were required to get a new SSN whenever they moved?

The SSN won't be a factor...

[GRF]

OK so SSN is not an issue.

My affiliate earnings are direct deposited into a bank account in Illinois. Will Amazon RED FLAG that?

It only records Account and Routing # and name of Bank plus my name.

Will Amazon bother with this you think?

Or in a pinch, I could have the check sent to her address each month and give her a small fee for mailing it to me each month or so to my Illinois address.

[Richard Van]

How does this work exactly?

Am I right in thinking US citizens have to live in the state in which their firm is registered?

I do the IM for a firm here in London that specialises in setting up companies in various other countries, for example they could set up a Delaware company for me and I could run my business from there, even though I'm in London. They set up the company, bank accounts, virtual offices etc.

A lot of people here do this and I've heard a lot of Americans set up in various states they don't live in, for the various tax benefits.

The point I'm making and I'm not really making a point, I'm asking how this works, is if I can set up a company in just about any US state, surely an American in Illinois or wherever Amazons pulling out of could do the same. Or not?

I'd like to add, I'm not an expert, in fact I've no idea. I'd just like to know why this is so hard to get around. Do you actually need to live in the state or can you have a virtual office and registered business address?

[pizzatherapy]

Here's my first hand experience about this in my state of Hawaii.

About two years ago, Hawaii passed a taxation law affecting all Amazon revenue and Amazon affiliates here. Amazon warned me what was coming and dropped me as an affiliate as soon as the law took affect..

I wish I had moved that part my business to another state. Luckily, the Governor vetoed the bill and it did not become law. Amazon reinstated me two months later.

Because of the revenue shortfalls, many states are looking at taxing Internet businesses, such as Amazon as a quick fix. And a means of generating addional revenue.

A number of affiliates spoke up saying that the law actually hurt state revenues. If Hawaii affiliates are not making sales, affiliates are not paying taxes on their sales.

If this were to happen again, I think I would move at least my Amazon affiliate program to another state.

[CDarklock]

Originally Posted by Steven Wagenheim

If I live in NJ, what reason would I have to incorporate in the state of
Delaware unless I am "legitimately" doing business there?

Delaware has very attractive laws and policies designed to encourage corporate formation in their state rather than another.

As a result, corporations have formed in Delaware almost by default for... well, at least a quarter of a century. When I first considered incorporating, it was already pretty much the standard. I asked an attorney (father of a friend) how to incorporate my business, and he said "well, you probably want to incorporate in Delaware."

They were literally the first words out of his mouth.

Different states have different requirements about what you have to file and when you have to file it and what you can and can't issue in the way of stock, and it can get very hairy.

Delaware makes it simple.

And since your corporation can be incorporated anywhere you like, there's no reason not to incorporate where it's to your best advantage.

Lately, Nevada has been gaining steam as a good place to incorporate, as well... but they have sales tax. Delaware does not.

[CDarklock]

Originally Posted by Richard Van

Am I right in thinking US citizens have to live in the state in which their firm is registered?

No. You must have what is called a "registered agent" in the state where your corporation is formed. This is often an attorney, but can be anyone, who serves as the recipient of official communications with your company. Minimal registered agent services can usually be hired at $30 a month or less.

[CDarklock]

Originally Posted by GRF

Will my Illinois SSN be a RED FLAG to Amazon?

Your SSN doesn't change when you move. While it identifies where it was issued, it does not identify where you are.

[Tbone350]

Hey guys

Just take a look in this youtube video.

Amazon tax debate

I can't post the link because I have less than 15 post. So just go to youtube and type "Amazon tax debate"... then sort by upload date.. You'll see Rep. Dave Winters discusses the Amazon sales tax legislation.

[Richard Van]

Originally Posted by CDarklock

No. You must have what is called a "registered agent" in the state where your corporation is formed. This is often an attorney, but can be anyone, who serves as the recipient of official communications with your company. Minimal registered agent services can usually be hired at $30 a month or less.

Thanks Caliban,

So if you have an attorney in the said state you could potentially get around the whole issue?

Potentially you can hire a registered agent for a minimum of $30 a month?

So is that not the answer?

[affenpinscher]

Steve,

Here is what Wikipedia says: "Delaware is well known as a corporate haven. Over 50% of U.S. publicly-traded corporations and 60% of the Fortune 500 companies are incorporated in that state."

Those include Microsoft, The Boeing Company, Proctor & Gamble, etc. There's nothing nefarious about it. Companies like the liability protection and business-friendly courts in Delaware. Nevada is coming on strong in both areas however.

If you're Microsoft, you incorporate in Delaware but have to incorporate as 'foreign entity' in the states where you do business which I suspect for Microsoft is all 50.

If you're a one or two person business, the liability protection may not mean much to you.

If you incorporate in one state whether you have to incorporate in your home state depends on how your state defines 'doing business.' For instance, I have a corporation that does nothing but hold copyrights on books I've written. Even California doesn't require me to register in California since there is no business being done.

[pkaflins]

I'm new to the forum but I've been researching how to get around this amazon tax mess. I am a Connecticut affiliate marketer and it appears that the state will be passing their own amazon law with this year's budget in the coming days or weeks.

It seems that incorporating out of state is the way to go, but the issue remains that since I would be the only employee of this out of state corporation AND I still LIVE in CT, would that not create nexus for the corporation in CT and essentially cancel out the benefits of incorporating outside of CT?

Thanks for any advice on this...Paul

[The_Idea_Gal]

I totally agree with you. I'm in CT and lost Amazon and a few others and it really does seem more trouble than its worth. It would be a tax nightmare!

[JamestheJust on Elance]

Originally Posted by ptone

Ultimately, it may take a Supreme Court decision in order to make this go away. That could take a while...so right now, if you live in a state that is considering this law, you need to be calling your state legislators and letting them know what you think about the law before its voted on.

Um...you mean, like the Supreme Court decision from 1994 (or was it 1998) that they're ignoring? You mean like that? ... Didn't help. The whole issue boils down to Wal-Mart buddying up with big politicos more interested in getting votes from people they're flat out lying to.

For the politician, it's about the vote. Their solution doesn't work, it's been proven NOT to produce more income, but just shuts out affiliates from their income.

But it reads so well in the headlines, "Governors Brown, Quinn, et al take a stand for local business..." As if they give a rip? No, it's about their votes...

Oh, and that handy Wal-Mart, Sears and Barnes n Noble lobbyist money lining their bank accounts.

[JamestheJust on Elance]

This is why Wyoming is the only option for LLCs, etc. - they don't report officers to the IRS.

[colinph970]

Pay an accountant to minimise your tax bill legally and live your life