© 2018 by Jeffrey A Babener
(First Published in World of Direct Selling)

The future ain’t what it used to be.

Yogi Berra

Or maybe it is. In ancient Egypt the pharaohs placed a general tax on the sale of all commodities at the rate of 5% of sale price.  The Romans obviously thought this was a good idea and, after their conquest of Egypt, the rate rose to 10%.  For the next 2,000 years, to this day, bureaucrats have found sales tax a favorite revenue raiser.

The Bombshell… Deja vu, all over again.

In South Dakota v. Wayfair, Inc. June 21, 2018. Slip Opinion 17-494, 585 U.S. ____ (2018). The U.S. Supreme Court overturned a 50 year old precedent on how states can tax sales by out-of-state retailers, holding that its earlier 1967 and 1992 decisions were wrong, and that it needed to rectify its mistake to reflect the economic reality of today’s interstate commerce to prevent discrimination against local brick and mortar retailers that favored online out-of-state retailers. Effectively, it abandoned a decades old bright line analysis that the “physical presence” nexus that justified states to impair interstate commerce, in violation of the Commerce clause of the Constitution was being replaced by a more “amorphous” standard of an “economic reality” impact of out-of-state sellers in states that sought to impose sales and use taxes.

Impact and Response to this “missile” on contact:

For most online sellers: a thermonuclear explosion…life will never be the same.

(Keep in mind that one of the largest online sellers, Amazon, recognized the future, and had already undertaken to collect sales tax in the 45 states that impose sales/use taxes, although most of its third party vendors have not.)

For direct sellers, who sell both online and offline:

More like momentary eclipse of the sun…back to business; they have already been collecting and paying sales/use tax for decades.

Actually, says direct selling, “thank you for leveling the playing field.”

And, as to all online sellers, whether direct sellers or not, “no thank you” long term for an expected flood of creative new state taxes that will develop over the next 20 years in our “virtual and gig” economy. This is just the beginning.

First, What Just Happened?

As summarized by the Court in its syllabus and majority and dissenting opinions:

Wayfair is a major online retailer of home furnishings. Although it has substantial sales into South Dakota, it has no physical presence in South Dakota. Until the Wayfair case, 50 years of court precedent prevented states from impairing interstate commerce, in violation of Commerce Clause, U.S. Const. art. I, § 8, cl. 3, by imposing a duty on out-of-state retailers who had no “nexus” with the state. And for the Supreme Court, “nexus” required physical presence. Two famous cases set the bright line mandate of physical presence: National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U.S. 753 (1967), and Quill Corp. v. North Dakota, 504 U.S. 298 (1992). Both National Bellas Hess and Quill involved interstate shipment from products ordered from catalogs.

It is estimated that these two cases caused South Dakota to miss out on $48 million to $58 million annually. And so, like many states, South Dakota sought to test the issue again, claiming that the Internet had changed things, i.e., we had a new economic reality of “nexus” that went beyond physical presence. Based on this half century standard, Wayfair refused to collect sales tax imposed by a relatively new South Dakota sales tax law that sought to impose sales tax responsibilities on out-of-state sellers who sold more than $100,000 in goods and services into the state or carried out more than 200 sales transactions.

Litigation followed, led by South Dakota requesting a declaratory judgment that its new tax was valid. Wayfair raised the long time defense of lack of “nexus” via physical presence. South Dakota lost at the trial court and State Supreme Court and requested review by the U.S. Supreme Court.

The states hit the jackpot. And it was the lucky day for the forty-one states, two Territories and the District of Columbia, all hungry for new taxes, who joined South Dakota to ask the U.S. Supreme Court to reject the test formulated in Quill. In 2017, the U.S. Government Accountability Office pegged the prospective increase to the states, if South Dakota won the Wayfair case, as being between $8 billion and $13 billion per year.

Read the full article here.

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You probably do your best to remain inconspicuous, which is a good thing. But some factors are beyond your control. It’s a fact. The more money you make, the more likely you’ll be audited. Those who are self-employed, like network marketers, have a higher statistical probability of misstating their income and deductions compared to salaried individuals. Of course you’re not going to limit your income or change your business plan in order to decrease the chances of being audited! So we’ve decided to put together a target list of 13 [unlucky] red flags that spark interest from the IRS.

1. Business expenses are especially important to direct sellers. Did you know that IRS examiners often refer to home office, business travel, entertainment, and business use of an automobile deductions as the kiss of death? Why is this? Well, these particular deductions are often abused and the IRS knows to scrutinize them closely. Keep strict documentation and proper records and be ready to defend your claims!
2. Charitable contributions and casualty and theft losses. Taxpayers who donate property to charities, and taxpayers who have had property stolen or destroyed tend to overvalue it for tax purposes. The best defense to an IRS challenge is to get independent appraisal of higher-priced donated items.
3. Bad debts. To claim a debt loss you must show that the debt was legal obligation, such as a contract or loan note, and that

   you have tried to collect the debt. This is a suspicious deduction because many people try to claim debts of friends and relatives without satisfying the requirements.

4. Hobby losses. Any losses related to activities that appear to be more pleasure than business will attract extra IRS attention.
5. IRS blacklisted preparers. Make sure you hire an honest tax preparer. What more can we say?
6. Income from a barter-related activity. Although no money is exchanged in the bartering process, the IRS still considers it taxable.
7. Comparative size of deductions to each other. An item that is large in proportion to other deductions will draw more scrutiny.
8. Absolute size. A huge deduction, regardless of the accompanying deductions or the income shown on the return, will require a closer study.
9. Out of character deductions. If you claim a deduction that is “out of character” with the rest of the situation presented on your return, you are more likely to be audited. For instance, if you’re selling local products and are claiming extensive airfare deductions, it might raise some suspicions.
10. Mistakes, missing information, or incomplete forms also draws attention. If it seems to be a mistake, the IRS is likely to suspect you of trying to mislead them. Make sure to fill in all the blanks the forms require, even if it’s with a “0,” a “no,” or “not applicable.”
11. Misfits. Attempts to fit certain items into categories where they do not belong, in order to take advantage of more favorable provisions, will cause suspicion.
12. Linked items. If you claim one deduction, but do not claim another closely related one, the IRS will wonder why. For instance, deductions for property tax and mortgage interest are usually found together (unless your mortgage is completely paid). If one is claimed but not the other, the IRS is likely to notice.
13. Comparative to income and geographic area: If you claim more or larger deductions than other taxpayers in the general area with similar incomes, again, the IRS will wonder why and take a closer look.

The fact that these are red flag, target areas is not to say that the deductions are not perfectly legitimate. As long as you can substantiate your deductions, you should not hesitate to claim your deductions. What this target list indicates; however, is that companies and distributors involved in MLM activity should carefully document and support their deductions, write-offs, and business expenses.

And because multilevel marketers are home-oriented and social network-oriented in their businesses, many of their red flag deductions really are expenses; where for the average taxpayer, these types of deductions are usually personal and non-deductible.

If you want to be extra careful and possibly head off confrontation with the IRS, include explanations of any unusual items with your return. If the IRS system flags your return, perhaps an explanation may satisfy the IRS reviewer? It’s worth a shot!

We at MLM Legal wish all the network marketers, party planners, and direct sellers a happy and fruitful tax season!

Why stop here? Learn more about running your own MLM business by watching Attorney Jeff Babener’s videos!

How Do I Raise Capital to Start My MLM Business?

How Much Does It Cost to Start a MLM Company?

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Our last conference boasted 71 companies from 23 states and 8 countries, including Canada, United States, Ghana, Israel, Spain, Russia, China, and Germany!

(PRWEB)March 24, 2016

The Starting and Running the Successful MLM Company conference will be held May 20, 2016.

For more than 30 years, leading industry experts have educated the executives of starting and existing MLM, direct selling, network marketing, and party plan companies on how to structure their compensation plans, legalize their companies, recruit key employees and top-ranking distributors, develop business models, generate leads, fund their business, establish their website and technology platforms, better understand the direct selling industry, and so much more.

Did you miss the last MLM Startup Conference? In attendance were over 100 people, representing 71 companies from 23 states and 8 countries (Canada, United States, Ghana, Israel, Russia, Spain, China, and Germany). The companies in attendance represented the entire spectrum of company development, from startups to established companies. All attendees registered for our conference in order to learn more about the network marketing industry, grow their companies, meet experts in the industry, and educate themselves on the MLM industry.

The next MLM Startup Conference takes place May 20, 2016 in Las Vegas. View the conference flyer page at http://www.mlmlegal.com/srs2.html to learn more.

This is the original MLM Startup Conference — responsible for launching many industry-leading companies — perfected over the course of a quarter of a century to ensure the highest quality of information, most knowledgeable experts, and most practical advice from qualified experts.

Join us May 20, 2016 at our next conference! Over the course of the day, attendees will hear from a multitude of the best industry experts, and if they choose, can sign up to meet with the speakers for individual one-on-one time. A full list of speakers and their biographies/credentials can be found at http://www.mlmlegal.com/bio.html.

The educational information gained by attending this event is invaluable. Here are just a few of the testimonials from past attendees:

“We have a traditional business at the moment and we are looking to take it into the realm where it’s more personalized, it’s more about building people and an experience. It has been absolutely worth our trip. We are looking to take our business to the next level and build relationships.”

“The reason I came to the show was to learn more about how to launch my direct sales company. I’m very comfortable and accustomed to selling through more traditional networks; however, I believe that the product that I’m launching is more suitable for direct sales; to get direct-to-consumer faster and in greater sales.”

“[I’ve] been in network marking for 30 years [but] we are learning a lot of things about how to launch, how to reach the people we need to have, and again, the things that are required to make a successful company, not only for us but especially for our customers and for our affiliates.”

Each attendee will receive a free copy of the Starting and Running the Successful MLM Company Manual.

How do you find out more information?

Visit our website:
http://www.mlmlegal.com

Visit our blogs:
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http://www.mlmattorney.com/blog/

Watch the Conference Videos or many of the other educational MLM Videos!

• MLMlegal Releases New Film on MLM Startup Conference — Produced by Networkingstar.com
• The MLM Startup Conference in Las Vegas
• MLM Startup Conference — A Must for Executives of Startup and Existing MLM Companies
• Since You Are a MLM Attorney, Why Would You Host the MLM Startup Conference for the Executives of Startup and Existing Companies?

Contact Us: Register Today, 503-226-6600 or 800-231-2162

The day will begin at 9:00AM and end at 5:30PM, then from 5:30PM-8:30PM there will be one-on-one time with the speakers. For more information, visit: http://www.mlmlegal.com/srs2.html or call 800-231-2162/503-226-6600. Registrations are taken exclusively by phone and questions are always welcome.

Presented by one of the most trusted individuals in direct selling and MLM, Jeffrey Babener, Editor of MLMLegal.com.

About Attorney Jeffrey Babener: Conference Host and Chairman, Editor of MLMLegal.com, as well as the leading direct selling attorney in the United States – With over 30 years of experience as a direct selling attorney, Jeffrey Babener has advised leading companies in the MLM/Direct Selling industry, ranging from Avon to Nikken, to Herbalife, to Melaleuca, to USANA, and to Excel Communications, Nerium International, plus many more. He’s been published in national magazines such as Money, Inc., Atlantic Monthly, Entrepreneur magazine, Direct Selling News, Direct Sales Journal, Success magazine, Money Maker’s Monthly, among countless others. He’s authored several books, including his most popular Network Marketing: What you should know. Mr. Babener has chaired more than 70 national conferences on direct selling.

Lastly, learn how you can receive two free tickets to attend the October 2015 Starting and Running the Successful MLM Company Conference by visiting our Innovation Campaign page.

View the press release at PR Web.

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MLMLegal.com and Babener & Associates have had long term professional relationships with many direct selling companies, from startup to stable. We were involved in early stages of a number of leading MLM companies, including some traded on the NYSE.

We aren’t just lawyers. We often know more about the direct selling business than most of our clients. In many ways we have become partners with our clients since we’ve been in the industry for such a long time. We often take on a significant role as both a legal and business advisor for our clients.

Generally speaking, however, most of our clients try to cover all of their bases legally right at the beginning of launching. They often have their agreements in place, as well as their policies and procedures. Companies will secure a trademark early in development, which is very important. As is tax issues, regulatory compliance and relationships with their consultants. Company owners are building a living organism that is constantly changing and growing, which is why so many of the companies that we represent have been with us for five, ten, even twenty years or more. For instance, in 1990 we assisted one of the largest direct selling companies, from Japan, to establish headquarters in the U.S. Today we represent them in nearly 40 countries. We have been their key legal advisor for almost 25 years.

Successful companies have a great product, they are able to recruit and they have adequate funding. There are many factors that contribute to the early success of a company. We are simply one arrow in the quiver of that success.

If you are interested in attending the Starting and Running the Successful MLM Company conference visit our conference page, view our speaker list, or get more details. All executives/owners of direct selling companies are welcome to attend. Call 800-231-2162 to register.

Our next Starting and Running the Successful MLM Company Conference takes place May 20, 2016 in Las Vegas. View our conference flyer and speaker list online. Participate in our Innovation Campaign for your chance to receive TWO FREE TICKETS to attend our next conference.

If you’re reading this blog post and the conference dates above have passed, check our website for the current conference dates.

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Jeff Babener speaking at the MLM Startup Conference in Las Vegas.

You wouldn’t believe the turnout we had for the October 2014 MLM Startup Conference! Entrepreneurs, executives, founders, and CEOs from 98 direct selling companies registered for the event! Over 160 entrepreneurs registered for the conference! These innovative entrepreneurs represented 31 states and six countries from around the world! Our turnout was fantastic! Thank you to all of our attendees!

Were you able to make it to the best MLM conference in the United States? Do worry! Our next conference will take place February 26th & 27th, 2015. Any executive of a startup or existing direct selling, MLM, network marketing company is welcome to attend. Simply call our office and register by phone: 800-231-2162. Visit our website for additional information: www.mlmlegal.com.

For additional information, visit MLMLegal.com or read about our Innovation Campaign. You can also watch conference videos, read testimonials, find links to more information, and view the next dates at the Innovation Campaign page.

Visit us at www.mlmlegal.com to learn more.

There are many factors that contribute to the early success of a company.

MLMLegal.com and Babener & Associates have been with many network marketing companies from the very beginning, from startup to stable. We were involved in early stages of a number of leading MLM companies, including some traded on the New York Stock Exchange (NYSE).

We aren’t just lawyers. We often know more about the direct selling business than most of our MLM clients. In many ways we have become partners with our clients since we’ve been in the industry for such a long time. We often take on a significant role as both a legal and business advisor for our clients.

Generally speaking, however, most of our clients try to cover all of their bases legally right at the beginning of launching. They often have their agreements in place, as well as their policies and procedures. Companies will secure a trademark early in development, which is very important. As is tax issues, regulatory compliance and relationships with their consultants. Multilevel marketing company owners are building a living organism that is constantly changing and growing, which is why so many of the companies that we represent have been with us for five, ten, even twenty years or more. For instance, in 1990 we assisted one of the largest direct selling companies, from Japan, to establish headquarters in the U.S. Today we represent them in nearly 40 countries. We have been their key legal advisor for almost 25 years.

Successful direct selling companies have a great product, they are able to recruit and they have adequate funding. There are many factors that contribute to the early success of a network marketing company. We are simply one arrow in the quiver of that success.

Watch the video MLM Startup Tips, Educational Resources, Answers to Network Marketing Questions attorney Jeffrey Babener offers quick MLM startup tips, answers, and resources, as well as access to additional educational resources for startup network marketing companies.

For more information on the network marketing industry visit www.mlmlegal.com and www.mlmattorney.com.

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Our next Starting and Running the Successful MLM Company Conference takes place May 15th & 16th, 2014 in Las Vegas. Call 503-226-6600 or 800-231-2162 to register. If you’d like to see how you can get free tickets to the next MLM Startup Conference, visit our Innovation Campaign page.

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There are many good aspects to the network marketing industry. Just remember to have realistic expectations

In some circles, network marketing has a bad reputation. Those who had bad experiences in the industry, or are contributors to the industry’s bad reputation, or who misunderstand how the industry works, have all contributed to the association of the word “bad” and “network marketing.” Direct selling, otherwise known as MLM, network marketing, party plan, etc. has been a proven and successful business model in the United States for more than a century. It is true that many people have exploited the business model, yet hundreds of thousands of others have made a living and supported their families by working in the direct selling industry. There are many reasons why network marketing remains a successful and proven business model in the United States:

–          One of the longest-running and proven business models in the United States is network marketing.

–          Most established MLM companies have an existing, robust infrastructure in place.

–          Many network marketing companies provide great training and support for their consultants.

–          Most consultants are empowered by companies to be successful entrepreneurs.

–          Many direct selling companies provide new and innovative products/services – such as wickless candles – at affordable prices.

–          Most companies enable the development of entrepreneurial experience at a low startup cost.

–          Many products are good for specifically selling in the network marketing business model, such as products that need demonstration.

–          Most credible direct selling companies encourage long-term dedication and success.

There are many good aspects to the network marketing industry. Just remember to have realistic expectations. Choose a reputable company to join. Take advantage of the mentorship, sponsoring and training tools that your company provides. Keep track of your business expenses and make sure to claim the tax advantages. Learn about the industry from industry-experienced people, not simply those who’ve abused the system or have had a bad experience. Read about the industry from websites that come from a non-biased viewpoint. Above all, make sure that you understand, realistically, what is reasonably expected of you of you want to be successful.

For more information on the network marketing industry visit www.mlmlegal.com and www.mlmattorney.com.

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Our next Starting and Running the Successful MLM Company Conference takes place May 15th & 16th, 2014 in Las Vegas. Call 503-226-6600 or 800-231-2162 to register.

Visit us at www.mlmlegal.com to learn more.

Consequently, their sales are not considered to be in the same category as mail order sales. Distributors must either obtain resale tax licenses or take care of the taxes themselves; or, the company will collect and remit sales and use taxes.

Visit MLMLegal.com and MLMAttorney.com for much more information about the direct selling industry.

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Our next Starting and Running the Successful MLM Company Conference takes place October 24th & 25th, 2013 in Las Vegas. Call Charity before September 1st to receive a discount! 503-226-6600 or 800-231-2162.

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MLM companies with tangible personal property sales register to collect and remit sales and use tax. Services are generally not taxed, but more states are proceeding in this area. Your CPA will be able to track rates, classifications, and applicability, as well as handle registrations. He/she can also advise similarly on a few states that have been more aggressive, such Washington with its business and occupation tax, or Texas and Pennsylvania with their franchise tax.

For additional information about sales tax, please consult a MLM attorney, such as Jeff Babener.

Visit MLMLegal.com and MLMAttorney.com for much more information about the direct selling industry.

Find us on our social networks:

Google+

LinkedIn

Twitter

Myspace

Facebook

Our next Starting and Running the Successful MLM Company Conference takes place October 24th & 25th, 2013 in Las Vegas. Call Charity before September 1st to receive a discount! 503-226-6600 or 800-231-2162.

Visit us at www.mlmlegal.com to learn more.

The second tax category that has impacted our industry is the sales and use tax. State governments – all governments – of course are in dire need of more revenue and have sought to increase taxing. Companies that market strictly on the internet, on TV and across state lines are shielded from having to collect sales and use taxes because of the Commerce Clause of the U.S. Constitution, which prohibits states from placing a restriction on the flow of interstate commerce unless there is some type of a nexus or connection in state. It has long been a consensus in our industry that, by having distributors in a state, by having them recruit, drive customer traffic to websites, recruit and conduct training, and promote sales,  that direct selling companies do have a nexus in the states where they have distributors. Therefore, almost all leading direct selling companies register to collect sales and use tax in states and they do so on behalf of their distributors, because if they don’t then they are concerned that they will be held legal liable.

In addition, as a practical reason for collecting and remitting sales and use tax,  companies realize  that if they ask their distributors to be responsible for their own sales and use tax collection and filings, companies are then merely creating another obstacle for distributors who should instead spend their precious time getting out there to promote, recruit and sell. Virtually every direct selling company, including the ones that market on the internet, collect, and remit sales and use taxes.  There are potentially thousands of state and local taxing authorities…..at a minimum, companies comply with sales and use tax laws at the state level. Larger companies than can afford the administrative costs also track and file at the local levels.

Additional information about taxes is available by clicking the links below:

Why do I have to pay sales tax? Article

Taxes and the Network Marketer Article

MLM and Sales Taxes Article

Internal Revenue Service (IRS) Advises Direct Sellers Webpage

What are the Central Tax Issues for MLM? Companion Video to this Blog Post

The Tax Guide for MLM/Direct Selling Distributors Book

As always, be sure to visit www.mlmlegal.com and www.mlmattorney.com for information and updates on the MLM industry.

The next MLM conference will be held February 21st and 22nd, 2013 in Las Vegas (keep a look out for the October and May conferences as well). Each day will begin at 9:00AM and end at 4:00PM, when the one-on-time will begin and end around 7:00PM. For more information visit: http://www.mlmlegal.com/srs2.html or call 800-231-2162/503-226-6600. Registrations are taken by phone and questions are always welcome.

Each attendee will receive a FREE copy of the Starting and Running the Successful MLM Company Manual.

Visit us at www.mlmlegal.com to learn more.