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Arthur Rubin
Arthur Rubin, Tax Preparer
Category: Tax
Satisfied Customers: 1236
Experience:  22 years of tax preparation experience, including individual, trust, and estate returns.
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Situation: Three individuals, two IL residents and one CA resident

Resolved Question:

Situation: Three individuals, two IL residents and one CA resident formed a start-up reselling cellphone accessories.

We have incorated in WY, will be using amazon fulfillment to ship the products we are reselling.

How amazon fulfillment works is: our corp buys goods from wholesaler/distributor, we leave them on pallets, tag them with an identifier, then ship them en masse to an amazon distribution center. Amazon warehouses them on consignment.

When an amazon shopper buys a product from our link (we simply put links on amazon site under product descriptions), amazon then packages our product and ships it, keeping a % of the price for amazon and paying us the rest.

We intend to do our middleman work from California, but can also ship goods out of IL.

WY Sec of State would like us to give them a physical address for where we are conducting business. At the same time, as part of our formation consideration, we need to get a reseller permit and related state tax resale number.

Which state will minimize our need to collect taxes from purchasers, as well as our income tax burden. Corp is LLC (I understand pass through entities, more a question of any state adding additional tax)
Submitted: 2 years ago.
Category: Tax
Expert:  Arthur Rubin replied 2 years ago.

Arthur Rubin :

Thank you for using Just Answer. You'll need to collect sales tax in (at least) CA and IL, so you'll need resale numbers in both states.

Arthur Rubin :

Whether you or Amazon would need to collect sales tax for customers in the same state as their distribution centers in unclear. I would say, probably not, but I'm sure any such state with a sales tax would insist.

Arthur Rubin :

The address you give WY will have no effect on CA or IL sales or income taxes.

Arthur Rubin :

Sorry, that last sentence was incomplete; the address you give WY will have no effect on CA or IL sales or income taxes; the fact that your middleman activity is being held in CA will not significantly affect your CA income taxes, and may reduce your IL income taxes. CA does have an LLC tax, but it depends on where the goods are shipped from, rather than where the management was done.

Customer:

Do you have any code citation for any (or all) of your answer? If not, no biggee...but would appreciate a point in the right direction so I can have my guys find exact section. Also, do you happen to know which states (aside from the ones we reside and do business in) expect us to collect/report/pay sales tax for purchases made by their residents?

Customer:

If you want to cause these to be different questions w/ additional fee, I'm fine w/ that...just don't know how to do it and would rather work iteratively w/ you than post a brand new inquiry and cause someone else to have to catch-up!

Customer:

And I will 'accept'...just don't want to do that now b/c I don't want to close the thread.

Customer:

Arthur, I can also post a different question, you can have me pay there and just continue this thread...if the interface allows us to work that way. Let me know. Thanks, Joe

Arthur Rubin :

No code citations at the moment; I'm working from the state tax forms, rather than the code.

Arthur Rubin :

In order for a state to require you to collect sales tax, you have to have a "nexus" with that state. I cannot guarantee that other states won't "require" to collect sales tax, but it wouldn't be legal. In general, states where you have a warehouse, states where salesmen are based (a salesman traveling into a state on a one-time basis doesn't necessarily count), places where your business is operated (in your case, CA and IL) all count. Some states have claimed that states to which you direct advertising count, but the courts are divided.

Arthur Rubin :

As for multiple questions, you have the following options:
If you Accept, and then ask another question in the thread, it goes into "Q&A" mode, and you can accept further answers.
If you want to open up another thread, you can say "For Arthur Rubin", and I will probably be informed. Please indicate how long you want the question reserved for me in the text, as well as in any Just Answer prompt, as sometimes things drop out.

Arthur Rubin, Tax Preparer
Category: Tax
Satisfied Customers: 1236
Experience: 22 years of tax preparation experience, including individual, trust, and estate returns.
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