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New online business -- US federal and state licensing regulations, taxes, Alibaba import duties...

by itunesguy
3 replies
Hello all,

I started a new online business earlier this year. I import my products mostly from China via Alibaba. Because the business is extremely small scale at present (sales of just $100-$200 or so per month, each item I sell is around $10), I have ignored looking into government regulations for online businesses. However, I expect sales to grow extremely rapidly as I get more website traffic in the coming year. Around 5 percent of my few current daily website visitors seem to buy the product.

1) For those who have an online business based in the US, do you need to license it with the federal government and/or the state government?

2) I do not charge any sales taxes to my customers (partly because my software is a bit complicated and this keeps it simple, and partly because I feel that by advertising free shipping and no sales tax, I attract more customers that I need to start off the business). Do I need to calculate the sales tax myself at the end of the year and pay it to the federal government or state (WA in my case) government?

3) Because my imports are small-scale, I get everything sent to me from China in a large box (maybe 3 feet by 3 feet?) or two at most every few months. The box arrives at my apartment leasing office via UPS or FedEx, and I do not think twice about the legality of it all. However, I have read that you need to pay fees for customs and clearing/forwarding or something like that for international orders/imports. Does that only apply for large quantity orders? Why am I not paying these? The current way seems too simple since I order from China and the box is here in 5 days and I pick it up from my apartment leasing office.

4) In the future, when I need to order 5-10 boxes at a time, my apartment leasing office will refuse to accept delivery. They already find 2 boxes a lot. How do you guys handle larger orders? Can you pick them up at a port yourself or are they delivered in another way besides UPS or FedEx or DHL? Can you get a delivery as part of a privately owned ship container without using UPS or FedEx or DHL? Is it often cheaper or are the prices comparable? At the moment, my largest expense per item is shipping from China. But I only order 300-600 items in one go, so am hoping that when I order a few thousand items, I can save on shipping cost per item.

5) On my product packaging, it says made in China. I am considering removing that label and just having nothing there instead. Is that legal?

Thanks a lot for those who answer.
#alibaba #business #customs duties #duties #e-commerce #federal #import #licensing #online #online business #regulations #sales tax #state #taxes
  • Profile picture of the author Steve B
    Regardless of what you sell or where it comes from . . . if you reside in the U.S. . . . yes, you need to register your business with the state and (almost always) with the city where you reside. But first, you need to set up a business structure for U.S. federal income tax purposes (a corporation, Subchapter S corp, partnership, sole proprietorship, etc).

    Regarding your other questions about importing, paying duties, etc, I would recommend you begin here:

    eCommerce, Wholesaling & Drop Shipping section of the WF.

    The best to you in your business,

    Steve
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  • Profile picture of the author iAmNameLess
    First off, it's very important you talk to an attorney about some of your questions, since your situation could be different from someone elses situation in a different state.

    As for your business, you may not have to register it with the state if you're a sole proprietor and it's likely a business that can't be licensed. You may want to eventually incorporate or form an LLC though.

    The way sales tax works for most states if that if someone from YOUR state makes a purchase you have to charge a sales tax, but people in other states don't have to pay. This varies state by state so you will want to check the laws, or a lawyer can tell you.

    No you can not remove made in china... you can not falsely advertise made in USA if it was made somewhere else.

    Really... get an attorney familiar with the space. Sometimes the answer is simple and you don't need an attorney to know what to do, but as things continue to get more complex in your business, you need to find an attorney to go to when you need it.
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  • Profile picture of the author OnlineStoreHelp
    1) For those who have an online business based in the US, do you need to license it with the federal government and/or the state government?
    You normally need to register with your state and/or local municipality, depending on the laws where you are. Curious how you were able to get a merchant account without showing proof of a business?

    2) I do not charge any sales taxes to my customers (partly because my software is a bit complicated and this keeps it simple, and partly because I feel that by advertising free shipping and no sales tax, I attract more customers that I need to start off the business). Do I need to calculate the sales tax myself at the end of the year and pay it to the federal government or state (WA in my case) government?
    Yes you need to collect and remit any sales and/or use and/or VAT and/or Excise taxes, normally to your state tax collector. Each state has different rules and depending on volume depends on how quickly you have to remit. It could be as short as quarterly or even monthly. Sales tax is only normally calculated on the shipping address and for locations you have nexus, a complicated term that for the most part for you, will mean charging tax on any residents in the state of Washington
    3) Because my imports are small-scale, I get everything sent to me from China in a large box (maybe 3 feet by 3 feet?) or two at most every few months. The box arrives at my apartment leasing office via UPS or FedEx, and I do not think twice about the legality of it all. However, I have read that you need to pay fees for customs and clearing/forwarding or something like that for international orders/imports. Does that only apply for large quantity orders? Why am I not paying these? The current way seems too simple since I order from China and the box is here in 5 days and I pick it up from my apartment leasing office.
    Import duties and fees are a complicated subject. Normally, most people use a freight forwarding company to handle all of that for them. Most likely, your shipments, because they are small are being bypassed by customs but if they ever get flagged, they can be held up or worse case, sent back to china. As your business grows, you might want to consider working with a freight forwarding company to handle it
    4) In the future, when I need to order 5-10 boxes at a time, my apartment leasing office will refuse to accept delivery. They already find 2 boxes a lot. How do you guys handle larger orders? Can you pick them up at a port yourself or are they delivered in another way besides UPS or FedEx or DHL? Can you get a delivery as part of a privately owned ship container without using UPS or FedEx or DHL? Is it often cheaper or are the prices comparable? At the moment, my largest expense per item is shipping from China. But I only order 300-600 items in one go, so am hoping that when I order a few thousand items, I can save on shipping cost per item.
    Go rent a box at UPS for right now and they will accept shipment. Here in Hawaii you can go and pick things up at the port, just need to show the bill of lading from the mainland. But of course, nothing ships directly into Hawaii from China (thank you Jones act). Again, if you start doing volume, having it shipped via water will be much cheaper. A freight forwarding company can help you with that.
    5) On my product packaging, it says made in China. I am considering removing that label and just having nothing there instead. Is that legal?

    Thanks a lot for those who answer.
    I know to get past customs a country of origin sticker needs to be applied. Now, that doesn't mean it doesn't need to be hidden, but if customs looks for it and doesn't find it, they will reject the package. As for sales in the USA, I do not know the legalities of country of origin. From a trust factor though, hiding things from your customers is never a good thing. And the only reason you would want to remove that sticker is if you wanted to push a Made in the USA theme which would then be lying, which is both unethical and may be illegal.
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