sales tax – MLM, Network Marketing, Direct Selling News, Videos, Articles, Legal Updates, and More.

U.S. Supreme Court Sales Tax Reversal… Where To From Here? – New Article

Charity — Tue, 24 Jul 2018 15:52:31 +0000

U.S. Supreme Court Sales Tax Reversal… Where To From Here?

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.

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

New Video: Why Do I Need an Experienced Network Marketing Attorney?

Charity — Tue, 28 Apr 2015 16:41:38 +0000

At the very least, a direct sales company should not enter the marketplace without legal review of its marketing program. Hiccups caused by having to respond to regulatory agencies, consultant complaints, vendor conflicts, etc. can be bad for any MLM business and its reputation.

An experienced and seasoned direct sales attorney can be the single most valuable resource that a MLM company can ever utilize. Look for a professional who has represented leading direct selling companies as well as startup companies.

As industry experts, they commonly know more about multilevel marketing and direct selling than most of their clients. In fact, more than half of our conversations with clients involve discussions about the MLM industry, rather than the mere legal aspects of running a direct sales company. And over time, such an experienced “consigliere” (see the movie The Godfather) may become the most trusted business advisor to a company and a vital member of the business team.

Apart from tremendous insight into the business, an experienced network marketing attorney can answer in five minutes what would take a business attorney five hours to research. And, the business attorney would likely still not completely understand the issue, let alone the solution.

The direct sales industry has – for better or for worse – provoked vast amounts of legislation and regulatory control that network marketing attorneys must navigate.

A brief list of regulations, legislation and legalities that experienced MLM attorneys, such as Jeff Babener of Babener & Associates, must commonly appraise include:

– Pyramid statutes

– MLM statutes

– Business Opportunity Rule

– Securities

– FTC regulations

– Postal regulations

– FDA rules and regulations

– Distributor relationships

– Vendor relationships

– Distributor discipline

– Trademark

– IRS and tax regulations

– International expansion

– Sales tax

– Marketing

– State law and registration

– And, legal review of sales kit contents, which include:

1) Consultant agreements

2) Policies and procedures

3) Product brochures

4) Compensation plan

5) Marketing plan presentations

6) Forms, from receipts to multiple owner applications, etc.

Click here to watch the full video!

For more information, watch the video The Legal Issues of Starting and Running a MLM Company.

For more information about the importance of hiring a network marketing, visit Attorney Jeff Babener’s websites: www.mlmlegal.com and www.mlmattorney.com.

In addition, our next Starting and Running the Successful MLM Company Conference takes place October 22 and 23, 2015 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.

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

Why Do I Need an Experienced Network Marketing Attorney?

Charity — Tue, 01 Oct 2013 17:14:30 +0000

As industry experts, MLM attorneys commonly know more about multilevel marketing and direct selling than most of their clients.

As industry experts, they commonly know more about multilevel marketing and direct selling than most of their clients. In fact, more than half of the conversations with clients involve discussions about the MLM industry, rather than mere legal aspects of running a direct sales company. And over time, such an experienced “consigliore” may become the most trusted business advisor to a company and a vital member of the business team.

Apart from tremendous insight into the “business,” an experienced network marketing attorney can answer in five minutes what would take a business attorney five hours to research. And, the business attorney would likely still not completely understand the issue, let alone the solution.

The direct sales industry has – for better or for worse – provoked vast amounts of legislation and regulatory control that multilevel marketing attorneys must navigate.

A brief list of regulations, legislation, and legalities that experienced MLM attorneys, such as Jeff Babener, of Babener & Associates, must commonly appraise include:

– Pyramid statutes

– MLM statutes

– Business Opportunity Rule

– Securities

– FTC regulations

– Postal regulations

– FDA rules and regulations

– Distributor relationships

– Vendor relationships

– Distributor discipline

– Trademark

– IRS and tax regulations

– International expansion

– Sales tax

– Marketing

– State law and registration

– And, legal review of sales kit contents, which include:

1) Consultant agreements

2) Policies and Procedures

3) Product brochures

4) Compensation plan

5) Marketing plan presentations

6) Forms, from receipts to multiple owner applications, etc

For more information, watch the video The Legal Issues of Starting and Running a MLM Company.

Visit www.mlmlegal.com and www.mlmattorney.com for more information on recruiting MLM consultants.

Find us on our social networks:

Our next Starting and Running the Successful MLM Company Conference takes place October 24th & 25th, 2013 in Las Vegas. Call 503-226-6600 or 800-231-2162 to register.

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

Why do MLM Companies have to Pay Sales Tax?

Charity — Fri, 26 Jul 2013 16:44:53 +0000

This is a long complicated story and not without ongoing legal dispute. Unlike mail order firms which are immune from sales and use tax, direct selling companies are viewed by state officials as having “nexus” (sufficient contacts in a state for sales tax purposes). Their reasoning is based on the fact that distributors of direct selling companies actually promote the product and opportunity and conduct opportunity meetings and training meetings in the states in which they live.

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.

Find us on our social networks:

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.

MLM Executive FAQ: Do I have to pay sales taxes in states with sales tax laws?

Charity — Thu, 25 Jul 2013 17:06:26 +0000

Most companies will be registered to pay sales taxes throughout the country. However, most network marketing companies will only register to do business as a foreign corporation doing business in those states in which they have a physical presence, such as having manufacturing facilities, warehouses, offices, or employees. The corporate laws of most states provide that a company is not “doing business in the state” merely because it sells through independent distributors in that state.

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:

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

The Role of Taxes in the Network Marketing Industry

Charity — Fri, 04 Jan 2013 18:22:33 +0000

Our law office is often asked what the role taxes play in the direct selling, network marketing, MLM industry. There are usually two tax subcategories that seem to impact our industry the most. The first is independent contractor status and withholding. The second is sales and use tax collection by MLM companies. Until 1982, there was a real issue as to whether or not the IRS and government would recognize the independent contractor status of direct sellers or if companies were required to withhold a portion of their income, as if they were W2 employees. After long-time disagreements, and at the industry’s request, in 1982, Congress amended the Internal Revenue Code in an Act entitled “The Tax Equity Fairness Responsibility Act” (TEFRA). TEFRA specifically recognized the independent contractor status of direct sellers which saved direct selling companies from huge bureaucratic administrative costs. Companies could now issue 1099’s to their distributors rather than have to engage in an elaborate W-2-type withholding process. This legislation was very important for our industry. Many states were soon to follow.

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.