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US taxation and sales tax issueI started ebay business with…

Second opinion] US taxation and...
Second opinion] US taxation and sales tax issueI started ebay business with a Korean relative. We don't have a partnership agreement. The partner has an paypal and ebay account, gets a sales order, and let me dropship the orders. I ship the order items to the buyers. My entity is sole proprietorship in CA, and the partner is just an individual, not business entity. I am going to bookkeep the sales and the expense into quickbook.After sales, the partner transfers the sales amount of 75% to me. In our business, how can I set up the income and the expense? For example, a camera was sold for $100, and $75 was transferred to me, and $25 was the partner's commission. COG was $25. Should I register $100 as income or $75 as income? How about the sales tax if the sales order comes from CA? Thanks.
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Answered in 1 hour by:
11/3/2017
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 31,303
Experience: Taxes, Immigration, Labor Relations
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Indeed - the information you provided describes an agreement between you and your partner.

In-fact you are partners and do have an agreement.

A partnership is the relationship existing between two or more persons/entities who join to carry on a trade or business. Each person/entity contributes money, property, labor or skill, and expects to share in the profits and losses of the business.

You would need to account for all business activities as for the partnership - that is based on your business model.

As long as you are located in CA - the partnership will be subject to CA sales tax.

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Customer reply replied 3 months ago
We are using paypal for business transaction, and My partner is registered as non-us resident, and he is not allowed to collect the sales tax, I think. Is it correct setting? Initially, my partner set up to collect sales tax, but after PayPal requested the verification of us entity, we changed it. Should we still collect the sales tax?

Neither of you are allowed to collect sales tax without registration.

You need to register with your state authorities.- and only after that will be allowed to collect sales tax.

If you do not want to be considered as a partnership - you would need to change your business model.

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Customer reply replied 3 months ago
My partner is an individual seller on eBay, and I am registered as a sole proprietorship in CA.

When you run separate businesses - that is OK - and each of you will act as a sole proprietorship.

But when you run business TOGETHER - and share profit - that is a partnership - and that creates an additional taxing entity.

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Customer reply replied 3 months ago
After complete sales, the parter transfers the funds to me. As I said above, I said that we are completely separate as I own 100% of my business. Even in that case are we still in the partnership like LLP? I am pretty confused. Thanks.

You are correct - that you and physical person and your partner - each are separate entities for tax purposes.

These are two separate businesses and each of you own 100% of corresponding solo proprietorship.

For instance - if you sell or provide services to YOUR customers - customers pays YOU - and that amount is included into YOUR gross income.

However - when your partners pays you - that payment is different - that is not a payment from teh customer - but a payment from a partner based on your agreement to run some business activities jointly and divide profit as you both agree.

THAT agreement resulted in new entity - the partnership - regardless if you officially registered that entity - the IRS and other taxing authorities will view that agreement as a partnership and generally - you would apply for a separate EIN with the IRS.

If for instance - you will ask teh same question to your state taxing authorities - they will view this agreement as a partnership and will hold you responsible for sales tax.

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Customer reply replied 3 months ago
How can I set up a separate EIN for the partnership? Since my partner is non-us entity, can he still collect the sales tax?

How can I set up a separate EIN for the partnership?

The partnership is based on the agreement - there is no requirements to register the partnership in order to form it.

A partnership is the relationship existing between two or more persons/entities who join to carry on a trade or business.

To apply for EIN - use form SS4

https://www.irs.gov/forms-pubs/about-form-ss-4-application-for-employer-identification-number-ein

or apply online

https://sa.www4.irs.gov/modiein/individual/index.jsp

Since my partner is non-us entity, can he still collect the sales tax?

Yes - when a nonresident alien needs to collect sales tax - first step to apply for the tax ID with the IRS, and after that - register with the state taxing authorities where sales taxes will be collected.

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Customer reply replied 3 months ago
Does my partner abroad need to set up EIN number? If he needs to collect sales tax abroad, how can he pays sales tax to the tax authority?

Does my partner abroad need to set up EIN number?

If you partner will be receiving income from US sources - yes - he need to have a tax ID - that woudl be EIN if the partner is a legal entity or ITIN for a physical person.

If he needs to collect sales tax abroad, how can he pays sales tax to the tax authority?

Each state collects sales tax separately - sales taxes are paid by buyers - the seller collects all these amounts and pay either directly or by sending a check.

Lev
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