Small Business: Change location from Calif to Wash? Pros/Cons (Seattle: for sale, transfer)

[muddybrown]

Hi all,

I was recently employed by a firm in Seattle and relocated from California. That said, I have been operating a side business, primarily online sales of industrial equipment, since before I moved. I have registered the company as Sole Proprietorship at the moment in California and have not moved the location to Washington state (though I now have a mail box here for the business).

This question might have multiple parts; my apologies for a long read.
1. Is it necessary for me to move the registered company location to Wash.?
2. Tax is a major issue, especially if I get taxed on Gross Revenue like in Washington. My orders occasionally exceeds $100K to overseas, yet my commission is mere ~10% (slow enough business that I need a full time job...). I cannot possibly report $100K as my revenue, otherwise I will be paying MUCH MORE on taxes than true profit. What's the point of running a business here if that's the case??
3. If possible, I would like to continue operating my business as a California company (though I do have business mail box in Washington now), just to make things simple. What are the implications if I continue as California company? I am sure interstate rules apply.
4. (goes along w #3) I am operating online based business; however, is it ok for me to go to a customer location in WA for a demo without applying for business license here?
5. As you can see, I am confused. Any pointers, suggestions, comments are greatly appreciated. Any Pros Cons that you can share regarding small business would also be great!

Thank you

[Hemlock140]

You cannot operate in WA without a license, even home/internet based, and if you make sales calls you will need a state license plus local licenses from most cities where you call on people.

If you get caught it will be a big fine as well as back B & O taxes, despite being based in CA. CA will require that you pay them income tax on the profits if you keep it based even if you live in WA, which has no state income tax. Making 10% hardly seems worth bothering, and yes, the B & O tax is on gross sales and can wipe out any profits. With the price of your products the customers are going to report the expense and file 1099s to the IRS so you will eventually get caught. Most of the time the state catches people when they audit the books of a customer, see the expense and find no license for the seller.

[muddybrown]

Thank you for your response, Hemlock.

So once I apply for a license, that basically requires me to pay taxes in WA state, correct (and officially leave Calif on paper)?
This makes no sense in terms of small business owner that is trying to expand or business is basically a lead finding work with commission, like what I do.

So is there any way for me to be legally operating in WA (now, I do not want to be illegal at all), yet still pay CA the profit-based income tax and no WA tax? I am sure that's not possible as WA will want share of their pie... This might just means I should go back to Calif...

[isaackko]

Sorry, I'm not actually in Washington and don't know the local laws. However, I am in the equipment sales business and have a few questions that might serve as jumping off points for others to help you.

1. When you say that you have gross sales of $100K, are you buying and re-selling this equipment? Or are you just a rep who is facilitating direct sales and collecting a commission from the manufacturers?

2. If you are buying and re-selling, I think you would fall under either retailing or wholesaling, which have tax rates of 0.471% and 0.484% respectively. That would mean that you would pay about $500 in taxes.

3. If you are just collecting a commission, I would think (and I may be wrong) you'd only be taxed on the ~$10K in commissions you collect.

[muddybrown]

Originally Posted by isaackko

Sorry, I'm not actually in Washington and don't know the local laws. However, I am in the equipment sales business and have a few questions that might serve as jumping off points for others to help you.

1. When you say that you have gross sales of $100K, are you buying and re-selling this equipment? Or are you just a rep who is facilitating direct sales and collecting a commission from the manufacturers?

2. If you are buying and re-selling, I think you would fall under either retailing or wholesaling, which have tax rates of 0.471% and 0.484% respectively. That would mean that you would pay about $500 in taxes.

3. If you are just collecting a commission, I would think (and I may be wrong) you'd only be taxed on the ~$10K in commissions you collect.

Thank you for your inputs, isaackko.

To clarify things, I do have both channels for sales: 1. Direct sales for the manufacturer and 2. retail (online) and wholesale to customers, small and large (this is ~10% of business at the moment). At most direct sales (me as a rep), I will require customer to pay in full prior to transferring the money to the manufacturer, then the manufacturer will continue with shipment, etc. To be clear, for large orders, like $100K+, none of the goods will arrive at my location ever; thus the manufacturer will directly ship from California. So, to answer your question #1, for 90+% of my business, I collect commission as a rep.

Thanks for the inputs #2 and #3. I also realized that the amount of B&O tax is fairly small, as compared to income tax in Calif. I must check deeper into this.

[Hemlock140]

Most states do want their pieces of the pie and will require a license and taxes to be paid in every state (and city) where you do business. My business was based in Bellevue, WA, and was registered with the state for B & O taxes, but I had to also have licenses to be able to operate there and also in Seattle, Issaquah, Sammamish, and Redmond. I did work in other cities but not frequently enough to worry about it. That's a lot of paperwork and money every year, plus some cities have their own taxes such as a "head tax" based on the number of employees.

[Xanathos]

Since my time is tight, I'll keep this one short and sweet:

Washington, for its positives, is one of the worst environments anywhere in the world by which to operate a small business. Usually transferring anything out of California is a good idea, but in this one instance to this one locale, don't do it.

Set up a brass plate C-Corp in Nevada if you're looking to transfer. Any intermediary can do it for you for a few hundred dollars. You don't have to have licenses in Washington if you have no physical presence in Washington - and your mere existence within the state lines is not a physical presence. The fact that your sales are all online gives you something of a work-around to Washington's attempts to triple-tax your ass.

[muddybrown]

Originally Posted by Hemlock140

Most states do want their pieces of the pie and will require a license and taxes to be paid in every state (and city) where you do business. My business was based in Bellevue, WA, and was registered with the state for B & O taxes, but I had to also have licenses to be able to operate there and also in Seattle, Issaquah, Sammamish, and Redmond. I did work in other cities but not frequently enough to worry about it. That's a lot of paperwork and money every year, plus some cities have their own taxes such as a "head tax" based on the number of employees.

Thank you for your input.

If I give demo at customer location within WA, do I must have individual city licenses where I perform? I do not have a storefront, I do not have service I provide (other than demo). I was hoping I could go to customer location for discussion regarding the products I sell, which may be anywhere in WA (or even OR, CA, etc).

Basically, what is considered "running a business" within a city limits?

[muddybrown]

Originally Posted by Xanathos

Since my time is tight, I'll keep this one short and sweet:

Washington, for its positives, is one of the worst environments anywhere in the world by which to operate a small business. Usually transferring anything out of California is a good idea, but in this one instance to this one locale, don't do it.

Set up a brass plate C-Corp in Nevada if you're looking to transfer. Any intermediary can do it for you for a few hundred dollars. You don't have to have licenses in Washington if you have no physical presence in Washington - and your mere existence within the state lines is not a physical presence. The fact that your sales are all online gives you something of a work-around to Washington's attempts to triple-tax your ass.

Thanks Xanathos.

So if I register a Corp in NV, am saved from WA, even if I operate out of here? I know about tax advantages in NV for Corps, but where is the line drawn for when to register in WA. Again, I would like to go sell the products at customer locations (demos), though actual products will be shipped from Calif via mfg. Mostly, I stay online, but I would like to expand locally as well. I want to be legal, though do not want to be stupid (and WA tax laws appears non-sense for a small biz).

Thanks

[mrsincredible]

This looks like more of a question for a qualified CPA rather than an internet message board.