My question pertains to starting an internet company. A client of mine is starting an internet sales company, to resell auto parts, accessories, etc... He is currently incorporated in Delaware and already has a tax ID number. He is also currently working on opening a Merchant account and also in talks with Verisign to set-up payment systems. Here's the question...

What licenses, if any, does he need to apply for? The issue as I see it is two fold. The computer server is located in California. The company is incorporated in DE. Technically speaking, as an internet company, he is not subject to sales tax because there is no substantial presence in the states that he might be doing business. The business plan calls for him to take orders and money from customers and to submit the orders directly to the manufacturers, who will then ship them to the customers. He will never set foot in DE, DC, TX, MN, or any other state. Another question is the physical location of the server in which the site is based is in California. Does that count as enough substantial presence that he has to go get resellers licesnes, sales licenses, etc. If he does, then he will definitely be subject to California sales tax on everything he sells to customers living in CA. In addition, he'll have to file as a foreign corporation doing business in CA.

Is the fact that he is living in CA and the server is also in CA good enough for CA to try to nail him on sales tax and licenses? I'm not sure if the fact that the President of the corporation lives in CA is enough to establish substantial presence because the other directors/shareholders are scattered across the country. However, the issue of the server is up in the air.

NEW INFORMATION: The server is NOT in California but located on the east coast. My client is using a third party service provider for his internet needs. So the physical presence of the server may not even be an issue at all!

LOL. this almost sounds like a law school final huh?

Thanks for any help!

Dizzy

 

Every business needs to be registered locally and with the state it operates in, -- generally speaking.

Occupational license requirements and taxation info are readily obtained via the SBA.

The have an expert corps of business execs - SCORE - , who volunteer their expertize in setting up, running and marketing a business.

There are thousands of these SBA and SCORE offices throughout the USA and plenty of free seminars every day in every major metropolitan area.

Call your local SBA office and/or SCORE for individual counseling and/or attend any of their seminars.

SBA also provides small business loans for qualified applicants with a credible business plan and good track records.

http://www.sba.gov/transfertoscore.html

 

Just my opinion, but the fact that he lives in California, he has substantial presence to be taxed by California. It doesn't even matter the location of the server. Where he is, is where he does business. That's the way the state looks at it.

So if items are shipped to California, there's the sales tax to tack on. I operate an online book service myself on the side, and I always have to be wary about California sales tax when I sell to a customer in Calif. I don't worry about if it goes out of state.

And my servers aren't even in Calif. And even if I don't have a physical office presence (unless you call my home office that), I still am subject to Calif. sales tax.

Just my .02. ;-)

 

And as far as licenses, it's always a good idea to get a local license. That usually isn't much of a hit on the pocketbook, anyway.

 

...if he sells to anyone in California, he has a substantial presence in the state.