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Chris Freeman
Chris Freeman, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2
Experience:  Over 25 years experience in individual and small business taxation and small business consulting.
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re: 1099 misc direct sales of $5000 of consumer products we

Customer Question

re: 1099 misc direct sales of $5000 of consumer products

we are a wholesale/retail distributon companyselling natural/cultured stone, stucco & accessories, commercial roofing, brick and block. we sell to retail distributors, contractors, and homeowners.

contractors purchase material to be installed on jobs in progress. do i still need to report on the 1099 misc.
Submitted: 4 years ago.
Category: Tax
Expert:  CGCPA replied 4 years ago.

Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.

Since sales to a contractor do not generate payments from you to the contractor, the contractors should not be issued 1099 forms. Therefore, you not only do not need to issue 1099 forms to them but need not be concerned about the Misc direct sales box. However, if you have sales people who are paid on a commission and receive 1099 forms for their payments you are required to issue the 1099 forms to them for their commissions. Then you will also need to complete this box. I agree that the phrase "consumer products" is a vague one at best but recommend completion of the box rather than get into a legal battle with the IRS. The reason you have had varying answers is this lack of specific definition. It will be much easier to comply than to fight this since the box entries do not reflect on the payees tax returns.

Customer: replied 4 years ago.

these products are an incidental part of a trade that consists of rendering services per section 31.3508-1 (f)

does this need to be reported in line 7 with box 9 checked

this is what i need answered....

Expert:  CGCPA replied 4 years ago.
Yes, it does IF you made sales to purchasers for resale purposes. A contractor buying for installation at a customer's location fits this exactly. Check box 9.
Customer: replied 4 years ago.

we are like lowes.....they are not issuing 1099's per th general manager here...why would we have to?

Expert:  CGCPA replied 4 years ago.
The law has specific requirements and 1099 forms must be issued to parties (except corporations and government agencies) to whom YOU paid more than $600 in a calendar year. Lowes may be following this requirement to their contractors. Remember you only issue the forms to those YOU paid more than $600 not those who paid you. Failure to follow the rules (if Lowes is doing that) does not except you from those rules and will never be an acceptable excuse.
Customer: replied 4 years ago.

this is not helping me....i know about payments of $600+ to contractors. i'm talking about the new law regarding direct sales of at least $5000 of consumer products to a buyer for resale anywhere other than a retail establishment box 9 on 1099. page 7 on 2012 1099 instructions

Expert:  Chris Freeman replied 4 years ago.

Hi, this is a different expert replying to your question. I think there is some confusion about "direct sales" as in direct marketing. If you are selling your inventory supplies to other contractors for resale, and the amounts of the sales are greater than $ 600 in a year, report the total amounts as non-employee compensation in box 7.

Customer: replied 4 years ago.

i'm running into the same problem that i started with.

this so i'm done here.

no questions were answered that provided any new info.


Expert:  Chris Freeman replied 4 years ago.
Perhaps you should try asking the question in a different manner. Based upon the information you have provided, my professional recommendation stays the same. The direct sales reporting is not a new law, but came about roughly 10 years ago when MLM became more widespread. I have been preparing 1099s for over 20 years without any issue.
Expert:  Chris Freeman replied 4 years ago.
If you are selling your inventory to others for resale, then record the sale as with any other buyer. If the buyer is not performing work for your customers or your under your business, then it would simply be a wholesale sale. This is a confusing area with a lot of gray - it doesn't surprise me that you have had some trouble getting a straight answer. Much of tax law is that way.
If your contractors are performing work for YOUR clients or under your company name then I would definitely report it as non employee compensation.
I have been compelting 1099s for over 20 years without issue. I hope that settles your concerns.