New Sales Tax Relief for Amazon Third Party Sellers: Marketplace Facilitator Laws

If you’re an Amazon FBA eCommerce business — or you sell through other third-party platforms such as Walmart or eBay Global Shipping — you’re all too aware of what a complicated mess sales tax has become.

How We Got in This Mess

Beginning a few years ago, most states have made efforts to cash in on the online shopping boom with revised tax laws that terminate out-of-state shipping exceptions. These moves were supported by the United States Supreme Court with its June 2018 ruling in favor of South Dakota in the case of South Dakota v. Wayfair.

Previously, physical presence in a state was one of the criteria for sellers’ tax nexus. The Supreme Court judgment disallows the necessity for physical presence, opening the way for states to require that all sellers — wherever they’re located — register, collect and remit sales tax on purchases shipped to the state.

Because each state’s tax code has its own variations — for example, the minimum dollar amount of sales or number of orders required for sellers to be subject to the law — compliance became a headache multiplied times however many states you have customers in.

The State of California, in particular, has been aggressively pursuing Amazon FBA sellers. After Amazon released its third-party seller data to the state, letters were sent directly from the California tax authority to the sellers, demanding that they register to collect sales tax. (Other states, such as Massachusetts, North Carolina, New York, Pennsylvania, and Rhode Island, have also obtained Amazon seller info. But they seem to be using the info only to verify that registered sellers are actually remitting all the tax they collect.)

The Good News

Recognizing that they have put an onerous burden on small businesses (thus possibly reducing their own tax revenues), more than 30 states have now passed Marketplace Facilitator Laws; and additional states have similar bills in the works.

Simply put, the Marketplace Facilitator Law throws the responsibility back on the platform that “facilitates” sales (Amazon, Walmart, eBay, etc.) to collect and remit sales tax on transactions that take place on their platform. According to the letter of the law, sellers are not required to register with the tax authority in those states.

As of October 2019, the states that DON’T has a Marketplace Facilitator Law are Florida, Georgia, Kansas, Louisiana, Massachusetts, Michigan, Mississippi, Missouri, North Carolina, Ohio, Tennessee, and Wisconsin.

The Not-So-Good News

Unfortunately, platforms may be able to “opt-out” of complying with the Marketplace Facilitator Law if they meet the state’s non-collecting seller use tax reporting requirements.

Amazon, for example, only recognizes its collection requirements in these states (less than half of those that have a Marketplace Facilitator Law): District of Columbia, Alabama, Connecticut, Idaho, Iowa, Minnesota, Nebraska, New Jersey, New York, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont, and Washington.

Note that California is not on that list. We understand they’re still sending out letters to Amazon third-party sellers — without mentioning that the state does have a Marketplace Facilitator Law.

Stay Tuned

This is obviously a very fluid and evolving situation. Some states are already in the process of revising their Marketplace Facilitator Law to eliminate the “opt-out” for Amazon and other platforms.

We strongly suggest that you keep in touch with your sales tax consultant, as your responsibilities could be changing faster than the weather. Better yet, let Xendoo handle all the sales tax compliance hassles for you, from registering to reporting to remitting. You’ve got better things to think about — like growing your business!

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

Announcing The Cohort: Finance Forward US 2019

Working Overseas? 2019 Tax Update on Foreign Earned Income

Now that Trump’s tax reform is in effect, ex-pats — like the rest of us American citizens or resident aliens — can expect to see changes in their tax liability. Here’s a quick rundown of what you need to know.

Changes to Foreign Earned Income Rules?

  • The maximum exclusion amount
  • The elimination of Form 2555-EZ

What Is the Foreign Income Exclusion (FEIE)?

It’s a big tax break for workers who are paid by employers in countries other than the U.S. You can deduct all the money earned from this foreign-source from your U.S. income tax return, which means you could owe little or nothing in U.S. taxes. (Of course, you still have to pay income tax to the country of your employment.)

If you’re self-employed, you may qualify for the FEIE; however, you will still pay self-employment tax (social security and Medicare) calculated on the full amount you earned, before the FEIE is subtracted.

What’s the Maximum You Can Deduct?

For the 2019 tax year, you can exclude the first $105,900 of your foreign earned income from taxation. That’s an increase from $103,900 in 2018.

In addition, you may be entitled to:

  • Exclude or deduct certain foreign housing amounts, such as rent, utilities, and repairs
  • Exclude the value of meals and lodging provided to you by your employer

Who Can’t Claim the FEIE?

According to the IRS instructions, you cannot exclude income received from these sources:

  • Pay received as a military or civilian employee of the U.S. Government or any of its agencies
  • Pay for services conducted in international waters (not a foreign country)
  • Pay in specific combat zones, as designated by an Executive Order from the President, that is excludable from income
  • Payments received after the end of the tax year following the year in which the services that earned the income were performed
  • The value of meals and lodging that are excluded from income because it was furnished for the convenience of the employer
  • Pension or annuity payments, including social security benefits

How Do You Qualify for the FEIE?

You must establish that you are either a bona fide resident or have a physical presence in the country where you’re earning your income.

  • Bonafide residence: You must have been living in a foreign country for a full calendar year
  • Physical presence: You must have been in the foreign country for 330 days in a consecutive 12-month period — but you can designate which 12-month period

Insider tip: If you don’t quite meet these requirements prior to tax time, filing for an extension can help maximize your FEIE savings.

How Do You Claim the FEIE?

Fill out and attach Form 2555 to your U.S. income tax return.

With the end of the tax year drawing near, it’s time to make your tax-saving moves. Xendoo tax experts will be with you every step of the way, from business investment planning to file your return. Act now, and enjoy peace of mind all through tax season!

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

The Puerto Rico Tax Haven: Will Act 20 Work for You?

Looking to cut your business income tax rate by up to 90%? Locating in Puerto Rico might be your answer — if you’re willing to play by their rules.

What Is Act 20?

It’s no secret that Puerto Rico needs to boost its economy. And because it enjoys a special status within the United States, it can offer tax incentives similar to offshore tax havens, without the possible risks of location in a foreign country.

Thus, in 2012 was born Act 20, the Export Services Act. Its goal is to attract employers to the island, who will invest their capital there and hire Puerto Rican workers. If your corporation qualifies, you will be exempt from U.S. income tax; instead, you will pay Puerto Rican tax at a rate of only 4% on your Puerto Rican-sourced income.

Who Qualifies?

Only service-based companies are eligible to receive Act 20 tax rates and credits. Some types of business that qualify are:

• Consulting

• Call centers

• Voice and data telecommunications (between persons located outside of Puerto Rico)

• Electronic data processing centers

• Shared service centers

• Software development

• Information systems and other technological services

• Research and development

• Scientific or environmental services

• Medical, hospital and laboratory services

• Engineering and architectural services

• Economic services

• Investment banking and other financial services

• Legal, tax and accounting services

• Auditing services

• Managerial and human resource services

• Advertising, public relations, and marketing

• Commercial art and graphic design

Who Can You Provide Services to?

Your business must provide services FROM Puerto Rico TO outside markets. If you do business with residents, businesses, or government entities within Puerto Rico, you will not be eligible. This includes real estate sales, legal advice on Puerto Rican laws, and lobbying the Puerto Rican government.

Also, e-commerce businesses probably won’t qualify, unless they can prove that they are working entirely from Puerto Rico. For example, an Amazon FBA seller won’t qualify because even though the company’s office is in Puerto Rico, the delivery service is being provided by warehouses in the U.S. The same is true of services sold from a personal website, drop-shipping, SaaS, app sellers, online ad arbitrage, affiliate marketing, and niche websites — all very difficult to prove the source of the service.

How Do You Establish the Company?

Your business must be incorporated in Puerto Rico. You may choose to sell your business assets to the new Puerto Rican corporation. An easier option is to reorganize the company as a Puerto Rican corporation (tax-free).

Next, you must hire Puerto Rican workers. In general, the minimum number of workers is five, although there are exceptions as low as one. These employees must receive full social security benefits and other mandated employee coverage (such as employment tax). And these must be real jobs, not just paper ones to meet the regulations. When the Puerto Rican government audits you, they will demand proof of actual work being done.

What Is Bona Fide Residence?

Originally, Act 20 allowed you to qualify your company for the 4% corporate income tax, yet qualify yourself (the company owner) as a non-resident in order to be exempt from Puerto Rico’s personal income tax.

That changed with Trump’s tax reform. Now, if you remain a U.S. resident while your corporation is getting the Puerto Rico tax break, the U.S. will tax the company an additional 6.5%.

The only way to avoid this is to become a bona fide resident of Puerto Rico. This will involve moving your “center of life” to the island and spend at least 183 days of the year there. You will have to build a case that your financial activity, family home, and possessions, social, professional, and cultural ties are all in Puerto Rico. You will also need a Puerto Rican voter’s registration and driver’s license.

How Do You Get the 4% Tax Rate?

Apply to the Puerto Rico tax authority for a tax concession and tax exemption decree. The decree is good for 20 years and may be extended another 10 years after that.

If you meet the qualifications above, you’ll enjoy a 4% fixed corporate income tax rate; and it could even be as low as 3% if your services are deemed strategic to Puerto Rico. You could also receive:

• 100% tax exemption on distributions and dividends from earnings and profits

• 100% tax exemption from personal and real property taxes for the first five years and 90% thereafter

• 60% tax exemption on municipal taxes

Bottom Line: Is It a Good Idea?

Act 20 may be a great choice for your business. However, we have two major caveats to keep in mind when making your decision.

The first is that tax laws are subject to change; we’ve already seen it with the Trump tax reform. And ultimately, Puerto Rico will not be able to stand up to U.S. demands for change. You could move your whole life there, only to see your reason for doing so evaporate.

The second is that many people seem to be trying to use Act 20 to their advantage without fully abiding by its requirements. Whether they’re just cutting a few corners or outright cheating, it’s getting the attention of the authorities. This again could lead to unwelcome changes, excessive audits, and other annoyances.

 

Xendoo tax experts can help you sort out your options and determine which are the most financially rewarding. Give us a call today!

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

Income Tax Basics: Common Tax Schedules Explained

What do you do when Form 1040 (federal income tax return) doesn’t give you the opportunity to fill in your particular type of income or deductions? The answer is, you attach the appropriate schedule.

What’s a Schedule?

It’s a separate form that’s designed to meet your circumstances, allowing you to report or claim items that aren’t on the standard return form. The following are some of the schedules most commonly used.

Schedule A Tax Form

This is for itemized deductions rather than taking the standard deduction. These deductions include medical/dental expenses, mortgage interest, and charitable contributions. Unless the total amount of those deductions is quite high, it’s more advantageous to take the standard deduction.

Thanks to the Trump tax reform, there’s now a standard deduction for business income and expenses as well. Even for the multiple deductions, a home-based business can claim, the standard deduction usually saves you more. Your tax preparer can do the calculations and tell you which option will benefit you the most.

Schedule B Tax Form

The purpose of this schedule is to list sources of taxable interest and ordinary dividends if your total income from those sources exceeds $1,500. If it’s less than that, you can just list it on Form 1040.

Schedule C and Schedule C-EZ Tax Forms

On these forms, you report self-employment income from your sole proprietorship or qualified joint venture. Business earnings and deductions are used to calculate your net profit or loss, which is then added to Form 1040. Schedule C-EZ is a shorter form for those who own a single business with simple accounting.

Schedule D Tax Form

Capital asset sales are reported on this schedule (unless they’ve already been reported on another form or schedule). Types of assets include stocks, your home, and your car. The gain or loss on the sale will contribute to your final taxable income. Short-term capital gains — on items you owned for less than one year — are taxed at the same rate as other income, but long-term gains have a lower tax rate.

Schedule EIC Tax Form

If you’re entitled to claim earned income credit, this schedule provides information about your qualified children. You must fill this out if you want to get a refund.

Schedule SE Tax Form

For self-employed taxpayers, Schedule SE computes the amount of employment tax (Social Security and Medicare) you owe, since you don’t have an employer paying it for you. You must pay this tax even if you’re receiving Social Security and Medicare benefits.

Still confused about which schedules you need to complete your small business tax return? An expertly prepared return is part of your Xendoo accounting and bookkeeping service. And if you have any questions or are facing an audit, we’re always just a click or phone call away!

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

What Products and Services Do You Charge Sales Tax For?

The first time you set up a business, the issue of collecting, reporting, and remitting sales tax may be completely unfamiliar territory. And if you do business in more than one state, it gets even more complicated as each state (and some municipalities) has its own tax laws.

Before anything else, though, you need to determine whether those laws even apply to your business Here are the basic steps to making that determination — bearing in mind that tax laws are constantly changing.

Step 1: Does Your State and/or City Have Sales Tax?

 

All except five U.S. states collect sales tax on products and services. The five that don’t are Alaska, Delaware, Montana, New Hampshire and Oregon. However, Alaska and Montana do allow localities to collect sales tax, so you might not be completely off the hook if you’re in those states. Check with your state’s sales tax agency for details.

Step 2: Is Your State’s Tax Origin- or Destination-Based?

Origin-based tax means that you must charge tax at the point where the sale is completed — usually your business location. Destination-based tax is applied at the point the product/service is received or used — the customer’s location. Most states use the destination-based system, meaning that if you have customers in multiple states, you’ll be responsible for collecting the tax in every one of those states.

Step 3: Are You Selling a Product, a Service or a Hybrid?

Tangible personal property is subject to sales tax everywhere tax is collected. “Tangible” means property you can touch: consumer goods, gasoline, restaurant food, etc. Although digital downloads (music, books, movies, etc.) are not really tangible, many states are aiming to cash in on this booming market by requiring sales tax.

Common exemptions to taxation are food bought for personal use (not resale) and prescription drugs. Also, “tangible property “does not include intangible personal property such as stocks and bonds; or intellectual property such as patents and trademarks.

Many services are also subject to sales tax. Often, professional services such as doctors, lawyers, and accountants are not taxed, but personal services such as hair salons are.

A use tax for such businesses as hotels, car rentals, admission to amusement or sports venues, and selling service warranty contracts is usually applied.

Hybrid means you are selling both goods and services. For example, you install or repair computers, which is a service, but you also sell the hardware, software or replacement parts, which are products. Another example of a hybrid is a veterinarian who provides medical services (not taxable) and sells pet products (taxable).

Step 4: What Goods and Services Does Your State Collect Sales Tax on?

As we mentioned above, it’s imperative that you find out exactly what your state and municipality require with regard to your business. Here’s the website page for the Florida Department of Revenue as an example.

Step 5: Should You Collect Tax on Internet Sales?

This area of tax law is changing at the speed of the internet. Ever since Wayfair lost their case with the Supreme Court in 2018, the door has been opened for states to require sales tax on goods and services you sell from your e-commerce website to customers residing in their state. At the moment, most states only go after sellers who have more than 200 transactions or $100,000 in sales per year; but that could change soon.

Sales tax collection is becoming more complex every day. If this is one headache you’d rather not deal with, Xendoo can handle it all for you. Our tax experts will ensure that you’re registered, reported, and remitted — without you lifting a finger. After all, your time is better spent bringing in those sales in the first place!

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

Make New Customers But Keep the Old

One is silver, but the other is gold! The old song is talking about friends, but it’s equally true of your existing customers — they are your most valuable asset.

Long-term, loyal customers put money in your pocket with repeat business, new customer referrals, and positive social media reviews. Here are eight tips to increase the LTV (lifetime value) of your customers.

Exceed Their Expectations

Giving customers more than you promised is a strategy that’s been proven successful time and time again. Throw in a bonus item with their order, offer a discount coupon for their next purchase, or deliver their package in two days instead of the five you promised.

Provide Outstanding Customer Service

Don’t make it hard for customers to get their problems resolved. You can convert complainers into satisfied customers with full warranty coverage, no-question return policies, multiple ways to reach customer service (email, phone, live chat), and prompt response.

Ask What They Want

Do you really know what your customers think of you? If not, you won’t be able to address problem areas in your business that are impacting your ability to retain customers. Start by frequently monitoring online reviews and reports from your customer service team. Take your information gathering to the next level with customer surveys; this data will also be useful for your marketing plan.

Become a Trusted Advisor

Not every contact with customers should be about making a sale. Position yourself as the go-to authority with communications about your field of expertise — blogs, email newsletters, Instagram or Facebook posts, and so on. This not only shows customers how much you have to offer to the relationship, it helps keep your business at the top of their mind when they are ready to buy again.

Personalize Your Communications

Marketing data shows that using the customer’s name significantly increases response rates. And in this day and age of digital customization, it’s perfectly easy to include not only their name but all sorts of relevant information in your email, direct mail piece or website sidebars/pop-ups. Consider showing similar items to the ones they looked at, complimentary items to go with their purchase, a special offer for their birthday or anniversary, or a reminder that it’s time to renew their subscription or restock their favorite item.

Incentivize Their Loyalty

Reward your best customers for their repeat business with a frequent shoppers program, discounts for referring new customers, and discounts or freebies for sharing the word about your business on their social media pages. (Of course, all these activities benefit your business as well as the customers!)

Show the Inactives Some Love

Don’t just give up on customers you haven’t heard from in a year or more. A “we want you back” special offer may be all it takes to get them back on board. Your CRM software should be able to track and sort customers by their last active date, giving you an instant list to pursue.

Make the Sales Process More Convenient

Consider some advanced digital features that make it faster and easier for customers to shop and buy. Amazon, for example, stores existing customer information so that they can place an order with just one click. Many e-commerce websites allow customers to save their favorites as they browse, so they can find them again quickly when they’re ready to order. Fitness and beauty businesses email automatic reminders when it’s time for the next class or haircut. Grocery and drugstores offer scannable store cards that instantly access and process paperless coupons at checkout.

The LTV of your customers is much greater than the cost of the goods and services they buy. They can also act as partners in promoting your brand and bringing in new customers. That’s why a customer retention plan is important to any business. Keep them happy, and you’ll be reaping the rewards for years to come!

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.