The rules for multiple state taxation are very complicated, including when your business is subject to income tax or required to collect sales tax. In California, a business can elect to base its California franchise (income) tax on only a sales factor, or on a three-factor (property, payroll and sales) formula. For service-based businesses with the single (sales) factor formula, income is sourced to the state where the customer benefits from the services. If the three-factor formula is elected, income is sourced where the cost is incurred. Obviously, there can be radically different results under the two elections.
You might have heard that internet businesses can be required to collect California sales tax if they have “affiliates” to whom they pay commissions for referral links to their web sites. The chief target of this rule is Amazon.com.
If you are selling goods or services in several states, you really should be discussing these issues with your tax advisor. To discuss your sales tax concerns, call Kenneth Hoffman at (954) 591-8290 Monday - Friday from 8:30 a.m. to 1:00 p.m. for a no cost consultation, or drop me a note.
K.R. Hoffman & Co., LLC, counsels Entrepreneurs, Professionals and Select Individuals in taking control of their taxes, and businesses. Discover how we can help you overcome your tax and business challenges. For more information or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday from 8:30 a.m. to 1:00 p.m. for a no cost consultation, or drop me a note.
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