The Tax Man Cometh

[Brian Cook]

A good friend of mine (a fellow IM'er) is being audited by his
state Tax Department for his 2005 and 2006 returns.

The state is claiming that he owes thousands of dollars for
unpaid sales tax.

My friend says he does not owe any sales tax since all of his
IM income was from affiliate sales (i.e., Commission Junction),
Google AdSense, and others.

The auditor now says he wants letters from all of these
companies confirming that none of the sales occurred in the
state. (Apparently, copies of the 1099-misc's were not
enough to satisfy).

I don't know how this will all pan out, but I encourage my
fellow Warriors to keep good records, hire a CPA, and seek
legal counsel about the advisability of incorporating your IM
business.

Brian

[Trader54]

Yes good advice.

I was audited a year ago and it can be a scary thing. Things turned out ok as I had claimed everything. But the rules are not always what one thinks they are.

Good advice to plan ahead, everything today is documented and recorded somewhere,
no way around it.

[SurviveUnemployment]

That is some of the best advice I've seen on here.

[bgmacaw]

Which state? I'd guess from your profile it's New Mexico. It sounds like some political action or 'shrugging' might be called for.

[SteveJohnson]

I don't know how this will all pan out, but I encourage my
fellow Warriors to keep good records, hire a CPA, and seek
legal counsel about the advisability of incorporating your IM
business.

Unfortunately, I think this kind of thing is going to start happening more frequently. It's obvious to any but the most ignorant government employee that your friend (or any affiliate) is only being paid a commission and isn't responsible for the collection and payment of sales taxes - but when have the facts made any difference whatsoever to a government employee, especially a tax collector...

[bobwalk]

I just made my first affiliate sale for a high ticket product. Over $800.00.
You mentioned 1099-misc's. Are they any other tax forms I need for filing
next 2010? I have not incorporated yet but plan to. Any suggestions?

[Adrian Cooper]

Originally Posted by Brian Cook

A good friend of mine (a fellow IM'er) is being audited by his
state Tax Department for his 2005 and 2006 returns.

The state is claiming that he owes thousands of dollars for
unpaid sales tax.

My friend says he does not owe any sales tax since all of his
IM income was from affiliate sales (i.e., Commission Junction),
Google AdSense, and others.

The auditor now says he wants letters from all of these
companies confirming that none of the sales occurred in the
state. (Apparently, copies of the 1099-misc's were not
enough to satisfy).

I don't know how this will all pan out, but I encourage my
fellow Warriors to keep good records, hire a CPA, and seek
legal counsel about the advisability of incorporating your IM
business.

Brian

Sales are irrelevant. It is the merchant making the sales not the affiliate.

[adamv]

That's ridiculous. That's like a car salesman being audited and the state saying that the salesman needs to pay sales tax on the 30 cars he sold last year.

The salesman who works on commission is not responsible for collecting and paying sales tax and we as affiliate marketers are no different than the car salesman, selling a product for a commission.

[Brian Cook]

Originally Posted by bobwalk

I just made my first affiliate sale for a high ticket product. Over $800.00.
You mentioned 1099-misc's. Are they any other tax forms I need for filing
next 2010? I have not incorporated yet but plan to. Any suggestions?

Depending on where you live, there are probably several
different types of business entities (LLP, Sub-S, etc.)
that you could set up. I recommend getting professional
counsel that is tailored to your specific situation.

Congrats on your affiliate sale BTW

Brian

[warfore]

Originally Posted by bobwalk

I just made my first affiliate sale for a high ticket product. Over $800.00.
You mentioned 1099-misc's. Are they any other tax forms I need for filing
next 2010? I have not incorporated yet but plan to. Any suggestions?

Wow! That much on one sale....I need to raise my bar. Congrats.

[Brian Cook]

Originally Posted by bgmacaw

Which state? I'd guess from your profile it's New Mexico. It sounds like some political action or 'shrugging' might be called for.

Yes, it is New Mexico (and it's actually called a "gross receipts tax").

I think it's time I re-read "Atlas Shrugged"!

Brian

[bgmacaw]

Originally Posted by Brian Cook

I think it's time I re-read "Atlas Shrugged"!

Buy a copy through your Amazon account and send it as a gift to your state and federal representatives.

[Leads4Builders]

Man, this is scary stuff. Thanks for bringing this to our attention

[ss442]

Personally, I don't think it's any of the governments damned business where the revenue comes from unless you receive a 1099. As far as I am concerned in internet marketing, I am an independent contractor.

As an independent contractor, there is a universe of items and services you can begin to write off including the square footage of office space in your home, internet services, computers, printers, ink, paper, part of the utilities, travel, and more. So find write offs and use them.

Our tax system is unbearable, insane, stupid, irritating, intimidating, complex, hypocritical, onerous, one sided, political, useless, expensive, overused, anti business, and just a "huge stinking pile of crap". A perfect reflection of the elected staff on capital hill.

Ever year for I don't know how many years the idiots in Washington say the same BS, "I want to simplify the tax code". "Yea right", and the pages in the tax code get larger, nothing is simpler and as always it becomes more expensive.

What we need is a flat tax to stop trying to make criminals out of taxpayers. It isn't our responsibility to become tax collectors for the federal or state government as far as I am concerned.

[billt91]

You will probably get a chance to see a national flat tax very soon in the form of a national sale tax. This will be on top of your income tax.

[Michael Taylor]

They're completely crazy. It's the merchant's responsibility to collect sales taxes, not the affiliate. Have him ask the tax monster at what point in the transaction sales taxes are collected. If that monster replies they're to be collected at the point of sale, then case closed.

[Michael Taylor]

Originally Posted by billt91

You will probably get a chance to see a national flat tax very soon in the form of a national sale tax. This will be on top of your income tax.

A national sales tax would be in place of the income tax, not on top of it. At least this is true of the Fair Tax version.

Americans For Fair Taxation: Americans For Fair Taxation

[Sean Kelly]

Originally Posted by Michael Taylor

A national sales tax would be in place of the income tax, not on top of it. At least this is true of the Fair Tax version.

Americans For Fair Taxation: Americans For Fair Taxation

Not if they model Europe where there is a national sales tax and also income tax

Assume 10% sales tax on a $100 product and 40% income tax.

You need to earn $183 (becomes almost $110 after tax) to pay $110 ($100 product + $10 tax).
To buy this $100 product, the government gets $93 ($83 + $10).

Tax sucks, lets 'hope' most of it goes into good projects.

I saw a small road roundabout being built here in Belgium 6 months ago.
Cost: 540,000 euros, thats roughly $760,000 USD.
Guess who paid for it?

Heck, let me build it.. I'll do it for 200K

Sean

[bgmacaw]

Originally Posted by Michael Taylor

A national sales tax would be in place of the income tax, not on top of it. At least this is true of the Fair Tax version.

Americans For Fair Taxation: Americans For Fair Taxation

Yeah, that's the song and dance they do on paper and radio talk shows but here in the real world we know that most politicians from any party are looters and wouldn't feel bad in the least about restarting the income tax at the first 'crisis' they encountered.

[PrettyJenny]

Thanks, this is a remind that I need to keep track with everything. I wonder if any European IMers here have tax problems?

[seasoned]

Originally Posted by Brian Cook

A good friend of mine (a fellow IM'er) is being audited by his
state Tax Department for his 2005 and 2006 returns.

The state is claiming that he owes thousands of dollars for
unpaid sales tax.

My friend says he does not owe any sales tax since all of his
IM income was from affiliate sales (i.e., Commission Junction),
Google AdSense, and others.

The auditor now says he wants letters from all of these
companies confirming that none of the sales occurred in the
state. (Apparently, copies of the 1099-misc's were not
enough to satisfy).

I don't know how this will all pan out, but I encourage my
fellow Warriors to keep good records, hire a CPA, and seek
legal counsel about the advisability of incorporating your IM
business.

Brian

OK, what state is he in? The "auditor" is a lying IDIOT!!!!!!!! Affiliates do NOT sell! They are not liable for ANY sales tax, PERIOD!

I DID have a similar thing happen in California where I slipped up, because I was in a hurry, and the form was poorly worded, and USED and SOLD got confused, and they said that I had to return funds TO MYSELF!!!!!!

But affiliates shouldn't even report this stuff as sales. It is simply INCOME!

BTW states and foreign governments have been trying to destroy mail order and ecommerce for several years. They do this by complicating the tax code, and crossing out various exclusions put in to ALLOW mail order. I guess ecommerce just made it too easy for them to be willing to allow it any more. Some companies now place restrictions on affiliates, etc... because of it.

Steve

[Lance K]

If your friend was an independent commissioned sales person for an offline business, would it be their responsibility to collect the sales tax?

I'm not sure, so ask a CPA and/or attorney, but I'd think that the merchant would be responsible for the tax. Beacuse as an affiliate, they're really just delivering traffic to the offer. The merchant and affiliate (CJ, etc.) company are the only ones who would have any idea which state the customers are in.