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Old 01-05-2013, 11:40 PM   #27 (permalink)
HoustonCPA
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Join Date: Aug 2012
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HoustonCPA, once somebody establishes themselves as an unincorporated business on their federal taxes, won't the state soon find out and then ask the seller for sales tax from in-state sales? I am a registered sole proprietor in the state of Ohio so I collect and remit sales tax on all Ohio sales from eBay. I'd imagine though that many eBayers have not taken this step. Will the state ever catch up with these people and ask for back taxes from local sales where sales tax should have been collected?
The answer is that most likely they can and will. If the seller has a presence in a state, either registered as an incorporated business or just operating as a sole proprietorship, the seller should be collecting sales tax on in-state sales. Each state's rules are slightly different on when to collect sales tax, how to collect the taxes, and when to remit the taxes to the state; some states don't even have a sales tax. It is worth your time, if you have substantial sales, to Google your state along with the words "sales tax" and look for a link that takes you either to that state's Department of Taxation or Comptroller's Office. There is usually a registration required and a sales tax permit number to obtain before you can begin collecting sales tax. By living in a state and keeping your inventory in the state, that creates what states refer to as Nexus meaning that the state has the authority to tax your business and require you to meet other obligations such as collection of sales tax.

As more and more states face budget restrictions, they will look to ways to limit the amount of uncollected and unreported revenues that they have a legal right to. As everything becomes more streamlined and connected through technology, catching up to these liabilities should become easier.

It might be worth your while to contact one of the information hotlines on the sales tax website you look at to see if you may be required to collect sales tax. You can probably get away with asking generic questions so as not to have your name on file with the state.

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wouldn't another possible deduction be gas money driving to post office to ship items, driving to store to get shipping supplies, etc. ?
In a way, yes. The IRS will allow you to take a mileage deduction for business trips. For 2012, the mileage deduction was 55.5 cents per mile. If you elect to take this deduction, you forego all other expenses associated with the vehicle such as gas, insurance, maintenance, etc. It is far easier to take this deduction than to keep track of your business miles vs. total miles and factor in the total cost of the vehicle (excluding your car payments) based on the percentage. The business mileage deduction for 2013 is 56.5 cents.

You can document your trips by keeping a travel log. The log should contain the date of the trip, the beginning and ending mileage from your odometer, and the business purpose of the trip. If you commingled your business trip along with a stop at the grocery store or to pick up your kids, the full trip doesn't technically count as a business trip.
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