Business Licenses and Taxes for the eBay & Amazon Seller

The Online Seller's News, Feb 28, 2011, Volume 11, No. 4

Tips, Tools, News and Resources for eBay, Amazon and independent Online Sellers ~ Published Twice Monthly since 1999
by: Skip McGrath

In This Issue:

Musings for February 2011

1. Business Licenses and Taxes for the eBay & Amazon Seller
2. When to Make The Move From eBay to Amazon
3. Wholesale Sources for eBay & Amazon Sellers

"Success is simple. Do what's right, the right way, at the right time." ~ Arnold Glasgow

Musings for February 2011

Short newsletter this week; I am off to the ASD/AMD Wholesale Trade Show in Las Vegas. (Note to burglars – My son is house sitting with his very big black dog). The ASD is one of the largest wholesale trade shows in the country. It is held every March and August. I always do the March show as its just too darn hot in Vegas in August.

If you are at the show, I will be speaking at 10:30 AM on Monday in the seminar rooms at the convention center.

One of the things I do at the show every year is collect wholesale sources for my readers. Those will be in the next newsletter that comes out the 2^nd week of March.

We are still waiting for eBay to announce the Spring 2011 Seller Release that will contain all the new policies and site changes that go into effect in the May/June timeframe. In past years the announcement would be out by now and there have been rumors abounding (including those that I erroneously reported in my blog) that the release would be out by now. However the latest information is that it will come in early to mid-March.

One item that will probably be in the release is an eBay shopping cart. eBay has been testing this in the UK for a while and will release it in the US once they get the bugs out of it. So it could be in the Spring release –or in the Fall if they still have some work to do. The shopping cart would allow sellers to purchase a number of fixed price items from different sellers and pay for them as one transaction. (Who else does that? Oh that’s right, Amazon has been doing that for about 4 years).

Jim Cockrum and I plus a few other experts are working on a new training course entitled The Proven Amazon Course I. We hope to release it within the next couple of weeks. The course will consist of videos, audio interviews, eBook files, and a forum where students can post questions and get answers from the experts.

We hope to have it ready for the next issue where there will be a link to learn about the course and to sign up if you are interested.

The new TV show, Storage Wars has kindled a lot of interest in using storage locker auctions to find merchandise to sell. Steve Lindhorst has a great book on the topic called The Quick and Dirty Guide to Storage Locker Auctions. I highly recommend it.

Last week eBay announced they were now integrating FedEx into the platform. In addition to the carrier services already available, when you list an item with flat-cost shipping, you can now select from several FedEx services, giving your buyers even more choices. You can select these services today from the pull down menu of shipping services when you list your item.

eBay also announced changes to the My eBay Page and updating the bulk editing functionality.

There were two important items regarding Facebook sellers that appeared in AuctionBytes last week:

One-Third of Small Merchants on Facebook Use It to Sell
One-third of the online sellers responding to AuctionBytes'
latest Quick Poll say they list items for sale on Facebook - find
out what they had to say about selling there!
http://www.auctionbytes.com/cab/abn/y11/m02/i25/s02

Payvment Brings the Shopping Mall to Facebook
Payvment, which allows consumers and online sellers to list
products for sale on Facebook launched a new Shopping Mall on
Thursday offering over one million searchable, interactive
products for sale on the social networking site. http://www.auctionbytes.com/cab/abn/y11/m02/i25/s03

Lets get started with this month’s articles:

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1. Business Licenses and Taxes for the eBay & Amazon Seller

What you need to know about business licenses and taxes if you sell online from home

Before we get into taxes and business licenses, lets take a look at the various type of business you can set up.

Business Types

The most common way to start a business is called "Sole Proprietorship." When you start a business, unless you incorporate or form a partnership, then you are automatically a sole Proprietorship. This is the basic business type.

Another approach is to actually incorporate or form an LLC which can be done very inexpensively in most states. Once incorporated, you can register an unlimited number of DBA's (Doing Business As), which are company names controlled by the master corporation.

Once your income goes over $30,000 per year net, you may wish to incorporate for tax reasons. Also, small corporations are audited far less frequently than sole proprietors are. I use My Corporation at Mycorporation.com. They will incorporate your business for as little as $99 + state filing fees.

There are two types of corporations: Corporation and Limited Liability Corporation. Both of these work fine for a small business. If you are going to raise money from investors, or give or sell stock to friends or family members, then a basic corporation is best. If it is just you or you and your spouse, then an LLC gives you all the benefits of a corporation and is a lot less paperwork and hassle.

The third type of business ownership is a Partnership. I personally would avoid this as it leads to more lawsuits than any other type of business.

Business Licenses

There are two types of business licenses and people are often confused about the difference:

• Local or City/County Business license
• State Sales Tax or Resale Number

Let's look at each one.

Local Business License

The city or town you live in issues a local business license. These are usually only required if you have a retail location, or if you have a business where customers are coming and going. I have heard of a few cities or towns that require a local business license for home-based businesses, but these are rare.

In general you will not need a local business license if you are operating out of your home, or if you rent office space where you are just working on the computer, storing merchandise –and you have no employees –and most importantly no customers going in or out of the business.

State Sales Tax Number

If you are serious about buying goods from true wholesale companies, you will need a sales tax number for your state (or a State Business License number if your state does not have sales tax). Almost every state has a website that gives information about how to obtain a sales tax number. The state's websites are usually www.WA.gov. (This example is for Washington. Put the two-letter abbreviation of your state in the URL to access). There are some exceptions (such as www.myflorida.com for Florida). If you want to link directly to your state website, or learn more about state sales tax, read my free article How and Why to Get a State Sales Tax Number.

Many states will let you apply over the web or download the forms to apply. All states charge a fee (usually less than $50). Some states require a deposit based on your annual estimated sales. The minimum deposit is usually $200-400. A few states do not charge sales tax. These states will still give you a resale license number that will serve the same purpose.

If you live in a state that charges sales tax, you must charge (or pay) sales tax on all transactions shipped to buyers in your state. Not doing so can result in fines and eventually loss of your sales tax license. When you ship to a buyer in another state, generally you do not have to collect or pay sales tax.

When you get a sales tax number, ask your state authority for a pamphlet or instructions that specify exactly what products and services are taxable. In many states, food, vitamins, periodicals, books, etc. are exempt from sales tax. If you are selling one of these items, you need to know if they are taxable or not.

You will need to create a Resale Certificate to purchase from most wholesale distributors. Most states have a certificate you can simply download and print out. If not, you can create one on your computer.

Simply draft a document with the words: "Resale Certificate" at the top. Now put the following information on the page:

• The Business name and address
• Sales Tax ID number
• A description of the type of goods you normally purchase (i.e. gifts, clothing, jewelry, electronics, etc.)
• A statement that says: "This property is being purchased for resale."
• A line for your signature and the date.

Many companies will just ask for your resale number before selling to you tax-free. Others will ask you to mail or fax a copy of the Resale Certificate for their files. If you ever sell to anyone else free of sales tax, then you should ask them for their resale certificate so you can keep it on file.

Employer Identification Number (EIN)

This is not a license, but some people confuse it with one. An Employer Identification Number is nothing more than a number the IRS uses to identify your business (You do not need employees to get one). Most people just use their social security number. As a business owner (even if you just started yesterday) you can also get a Taxpayer Identification Number (EIN) to use in place of your social security number. If you are a sole proprietor, this is not mandatory and you can just use your SS number. However, I strongly recommend getting an EIN. This way you are not sharing your social security number with strangers.

If you are incorporated, or you have any employees, you are required to get an EIN number. EINs are provided by the IRS. Go to the IRS website (www.irs.gov) and you can download the form and mail it in (IRS Form: W-9). A better way is to call the IRS at 800-829-4933. This is the fastest way to get a number because they give it to you immediately while you are on the phone.

Even if you don't need an EIN number it is a good idea to get one. Besides keeping you from having to share you social security number with strangers, a lot of wholesale companies will take you more seriously if you have one. But remember, you will still need a sales tax or resale number to do business.

Once you have a sales tax number in your own name you can register a DBA (doing business as) business name. You can use almost any name that isn't already taken in your state. Once you have a DBA registered, take this to a bank and open a business checking account.

When you select your checks, pick one of the large business-type checkbooks with room for more information than just the name and amount of the check. You can also get checks printed to use with Quicken or Quick Books if you use those programs.

Don't forget to use your resale number to avoid paying tax when purchasing shipping supplies. Most eBay sellers add a shipping and handling surcharge to the amount they charge for shipping. Since shipping is technically part of your product cost you do not have to pay sales tax on shipping supplies.

Lastly, once your business starts to make money, you will need to keep good business records for the purpose of paying taxes. Yes if you make money (more than $600 year profit) then you must claim the income and pay taxes to the IRS.

Record Keeping

You will want to keep a record of your sales and income and your product costs, shipping supplies & expenses, office supplies, hosting fees, charges for DSL, telephone and so on. All of these expenses can be deducted from your profit and you only pay tax on the remainder. I really advise using a CPA or a professional tax preparer such as H&R Block. If you use H&R Block, each office usually has one small business specialist. Be sure and ask for that person when you walk in.

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2. When to Make The Move From eBay to Amazon

There is no question that Amazon is the new destination for small in-home online sellers. Note – I am not suggesting you leave eBay, rather do what thousands of eBay sellers are doing which is using Amazon as an additional sales channel. And if you are new to online selling, then I still recommend starting out with eBay. Almost everything you learn on eBay will translate to Amazon, and it is far easier to generate income quickly on eBay whereas Amazon has a definite learning curve.

Once you gain some experience, Amazon has several advantages over eBay:

• eBay used to be king of the online shopping world, but Amazon has now overtaken them.
• Amazon is known as the most trusted online shopping site
• Amazon now has more traffic than eBay
• Amazon has no listing fees. It is completely free to list an item on Amazon
• Amazon’s fulfillment program. FBA – Fulfillment By Amazon is hugely successful. Essentially Amazon becomes your personal dropshipper. This is ideal for those of you who still work. While you are at work, if something sells on Amazon, they collect the money and pack and ship it for you.
• Amazon has excellent seller support. You can reach them by telephone, chat board or email within minutes.
• Unlike eBay, Amazon actually wants small sellers and treats them really well.

There are a few downsides to Amazon that bear mentioning:

• Although Amazon has no listing fees, their selling fees are higher than eBay
• If you sell used or vintage items, eBay is still the best place. Except for books and media, there are very few vintage or collectible items sold on Amazon
• If anything, Amazon’s regulations are stricter than eBay and they enforce them
• Everything on Amazon is geared to the lowest price. If your item is not the lowest price it will not do well on Amazon
• Search visibility is better on eBay

So how do you decide when to make the move? First of all make sure your products would do well on Amazon. Look up your products and see what they are being sold for. If the price is too low to make a profit then it doesn’t make sense.

In general I think you should have about 3 months experience on eBay. You should have some experience with automation tools or services such as Turbo Lister, Auctiva or Vendio. You will need a good source of supply for your goods at a price that allows you to make money at the price point they are selling for on Amazon. (Amazon’s fees run about 15%, so you need to factor that in).

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3. Wholesale Sources for eBay & Amazon Sellers

Just a few wholesale sources in this issue. I am off to the big wholesale trade show in Las Vegas and the next issue will be a major wholesale issue.

If you are a crafter or jewelry maker, check out Rings & Things. They have a large supply of various craft and jewelry making supplies. This is also a good source to buy wholesale supplies to sell to crafters on eBay.

Hannahdonline is a family owned and operated wholesaler of fashion handbags, jewelry, & accessories.

EDM Wholesale has a free dropshipping service for large items. They are the Midwest's largest variety direct master importer with over 1,000 different SKUs in following categories: - Musical - Tools - Arts and Crafts - Sporting Goods - Airsoft Guns and Knifes - Toys - Pet Supplies - Home and Garden.

Amscowear, Inc, carries wholesale AS SEEN ON TV-PVA MOP. Chamois, Kitchen Plus 2000, Quick Chopper, Super Slicer, Sushi Master, Quick Chop, Microfiber Mop, and more.

ABCToyFourMe wholesales Anime toys and collectibles

Siskiyou Gifts is a leading manufacturer of licensed sports merchandise and originally designed gifts. They have over 10,000 products in their extensive catalog.

That’s it for now. See you in two weeks with our Spring Wholesale sourcing issue.

Skip McGrath
The Online Seller's News

P.S. If you missed the last issue, click here to read it.

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