Direct Sales - I need some direction.

[safetysue]

I have a customer who is interested in selling my products. I am looking for some direction on where to start. She does not have a tax ID and is not interested in obtaining one. She was previously a consultant for Pampered Chef and is familiar with direct sale programs. I’m sure there are members here who have experience with direct sales. Is anyone willing to share/mentor me? Here’s how I THINK it works. I charge sales tax on the order for the retail amount of the product. However she’s not paying full retail price so the invoice would reflect what her cost actually are. Something like this:

Retail Price $100.00

IL Sales Tax $6.25

Invoice amount $79.69 (cost of product less 25%)

Am I headed in the right direction? For the record - the search feature is not working. I went through the 38 pages of the Business section yesterday and tried the Google/craftserver search and did not find any answers to my question. I’ll continue through the Business section when I have more time.

Any and all help would be appreciated.

[CaftCandles]

The only way I know to eliviate your tax liability is to treat her like an employee. I too have a couple of people that just cannot handle having a business license so I carry them as an employee. I gave them a salesman contract which basically says that monies earned is based on items sold and a predetermined commission will be paid to them every 2 weeks. Here is an example: If you retail your candles for $15 and wholesale for $10 and it cost you $5 to make them then you can offer her an agreement that she will get $4 or $5 (whatever works for you) for each candle that she sells but you will have to issue that payment in a (weekly or bi-weekly) paycheck. If she works for your company then she falls under your license but you will still have to collect any applicable sales taxes and you will have to give her a 1099 Tax Form at the end of the year, by doing this she will be responsible for her own "employment" taxes. Most states allow you to pay "Salesmen" by commission only and because it is only considered part time work you do not have to offer insurance or any other employee benefits including unemployment or workers compensaton. Simply put, she sells for you and gets a commission without you having any more operational cost. If you regularly use a CPA you can consult with them and they can give you your best options. HTH

[001]

I agree you should go to an accountant but from what I understand the above is sort of right, they would not be considered your employee, if that were the case you'd need to provide workers comp insurance for them, but instead they would be an independent contractor. The 1099 would be because of this and the money paid to them would be filed under commissions expense. They would also only need the 1099 if they made over 599.49 They would still legally have to claim that money but you wouldn't have to tell the IRS where that money went. (keep track of it though for audits) Again, best to go to an accountant because each state/municipality treats it differently.

[safetysue]

Thanks, I appreciate you taking your time to reply to provide me some direction. I did check with my accountant and want to post what she told me. Maybe it’ll benefit someone else someday.

My business would tax the sales and pay the sales tax on these sales to the Great (heavily in debt) State of Illinois just like every other order. Regarding her commission and how it’s paid my accountant said it doesn’t matter how we handle it but we need get something in writing with an “either party” cancellation clause.

The accountant also advised me to have the “direct salesperson” fill out a W-9 at the time of signing so it’s on file in the event we need to issue a 1099.

Also, she made a point of telling me not call her or refer to her as an employee. Use “Direct Sales Representative”, “Direct Sales Associate” or “Consultant” or any combination thereof.

Now here’s my next question. Anyone have a simple “consultant/direct sales” agreement they want to share?

Thanks