Kevin Thompson explains sales tax rules for MLM distributors. You need nexus, a connection to the state where you're selling. States often tax you on the suggested retail price, not what you actually charged, which can mean paying tax on $75 when you only sold for $50.
Kevin Thompson
Phuket, Thailand
Wholesale $50; suggested retail $75
Hi, everyone out there. Kevin thompson here from themlmatorney.com and I'm in Thailand, of all places. I was very fortunate to be invited to a rewards trip for a client of mine. And I brought my wife along and it's been just an amazing experience to hang out with company leadership and field leadership, and it just makes me fall in love with this space all over again. And as I've been here for the past few days, which, by the way, it's a gorgeous place, we're in Phuket, Thailand, and if you ever get the chance to come, I suggest you try it out because it's a really, really neat experience. But as I'm talking to people, people are asking about sales taxes. It's a big question in the space. And, you know, with an Internet company, do you charge sales taxes? If you sell juice, do you charge sales taxes? So understand, I'm not a tax attorney or a cpa, but I've had conversations with both. And my understanding is this, when it comes to sales tax, a state needs to have a connection with the business. There needs to be what's called nexus. Nexus is the key word. Nexus is a fancy word that means there's a strong connection between a business and a particular state. Now, let's take Amazon.com for example. I'm in Tennessee. I go to Amazon.com, i buy a product, the product gets shipped to my home. I don't pay any sales tax because technically Amazon does not have a presence in the state of Tennessee. Therefore, there's no nexus. Now, suppose that Amazon.com had sales tax associates in the state of Tennessee that were representing the Amazon brand. They were making sales, they were recruiting other sales reps. That would be sufficient activity that would trigger nexus, giving Tennessee jurisdiction over that business, which means a sales tax needs to be collected and remitted. So that sort of sales tax 101, if you're selling a tangible product in an MLM, there's really no way around it. Now, Internet companies, when there's really no transfer of product, there's. There's even no digital download. Even when it's just a subscription service, there's no sales tax issue. Another thing that people oftentimes ask about is why am I taxed at the suggested retail price? So if you're a distributor and you buy juice at wholesale price of $50, let's say, and there's a suggested retail price of $75, whereas you could sell it to a customer for $75, you are going to be taxed on the suggested retail price even though you paid wholesale price of 50 do, even if you're buying it for personal consumption. It's just sort of a weird issue in the law, and here's why it's sort of confusing. I'm going to do my best to explain it. The state assumes that you, as a distributor, you're buying with the intent to resell at retail. And so when you resell an item at retail price, you're going to recover the money that you spend when you pay the tax at the suggested retail price. Hope that makes sense. It's sort of confusing. A lot of distributors don't like it because distributors get on auto ship for personal consumption thinking, well, I'm buying it for myself, I'm paying $50, I should be taxed at $50. And all I can say is write your local legislature. So anyway, that's sort of the issues with sales tax 101. I wanted to get it out there while it's fresh on my mind. And again, my wife and I are having a lovely time. I hope you're doing wonderful and feel free to leave me some comments. And if you love the post, hit the one button or the like button. So you all take care and have a wonderful day.
