Dealing with Small Business Situations that Get Complicated Because You’re Too Big and Too Small at the Same Time.
This is a rough draft describing an issue that has come up a few times in my consulting practice at Nectar Bridge.
Country Time Lemonade made the USA Today this summer with an offer to pay fines for kids running lemonade stands. In the manner of HOA presidents and other kill-joys everywhere, it seems that “unlicensed” (in quotes because, by definition, lemonade stands are unlicensed, ad-hoc efforts) lemonade stands attract more scrutiny than in the past. Trying to figure out what this says about us as a society is outside the scope of this article. My focus is on how this stands in for a problem that small businesses face each day. I’m not sure that I have a solution, but I do have some opinions.
Let’s start with a couple of scenarios:
- You meet a friend for lunch and he or she notices that you have a copy of a book they’ve been meaning to read in the back seat of your car. “Hey, are you reading that?” they ask. You reply that you have found John Grisham’s latest to be tougher going than you realized, but are trying to finish it because you paid $32.95 for it at the bookstore. They offer you $10 plus they’ll pick up the tab for lunch. No problem – they haven’t outlawed casual sales between friends yet. The only bookkeeping that may be required is if you decide to deposit the $10 bill at the bank. More likely you’ll spend it on parking and gum.
- You are Amazon, and you’re thinking of opening bookstores at airports. You will task your legal, retail, and tax teams with plugging in whatever resources you need to legally sell books in these venues, knowing that if you miss a single step you’ll be in the news, and not in a good way. No problem – your legal, retail and tax teams deal with this every day. They will ensure that your cash registers are set up with the right local tax rate for the state, county, city, and perhaps the “Airport Economic (dis)Incentive Opportunity Zone Franchise and Concession Surcharge” for each separate store. You’ll probably start by piloting the program (no pun intended) at the airport in Houston, TX.
Stuck in the Middle
Now for a third scenario – you are a self-published author who sells a paperback book at events where you are invited to speak. You might sell 100 books at events, or you might sell 5. And you are a business with one employee – you.
Depending on the location of the venue, you may have a difficult time being in perfect compliance with all of the laws. The speaking engagement itself was a service, so you don’t have to deal with sales taxes. Licensing, i.e. the question of whether you needed a business license to physically appear in the venue, probably depends on who you ask, truthfully.
Your exposure goes up considerably based on the size of the venue (not necessarily the size of your small operation within the venue). So if you are the aforementioned incidental bookseller at a widely promoted event, the chances that some enterprising agent of the city, county, or state you’re appearing in will “catch” you doing this go up substantially. On the other hand, if you’re invited by a private company for an in-house meeting that will take place in a Hampton Inn meeting room, you’re probably going to fly under the radar.
Disclaimers So Far
I will be adding to this article and/or writing some additional posts on this subject. I am aware that I’ve raised a question without providing a satisfactory answer. Some thoughts in closing:
- This is not legal advice (so far it’s not advice at all).
- I do not advocate willfully violating the law, and in fact I’m sympathetic to the perceived need of local governments to charge taxes.
- I don’t think most small businesses are trying to violate the law either; I think they’re somewhere between ignorant of the laws and struggling to get adequate information to ensure compliance.
- There is a perception that if you contact local authorities, the answer is always going to be “yes, you need a license/permit/fill out returns until the end of time,” and this perception is somewhat true to my own experience. I’ve had many a conversation with a local authority when contemplating some sort of remote work/sales/hiring that has gone this way. You are not typically able to lobby for a “common sense” streamlining or avoidance of the issues.
- One of the problems is that the aforementioned public servant’s “template” for these transactions never fits the scope of what you’re actually trying to do. If you want to sell books at a meeting, they pull out the paperwork for opening a bookstore. If you want to hire a remote developer, they approach it like you’re starting an IT firm. Not always, but there is that risk.
- Even if you talk to a representative who is highly sympathetic, they themselves will sometimes couch their advice in terms like “I didn’t tell you this but…” or “We probably won’t catch you, but there’s always that risk…”
- Finally, my opinion is that you unfortunately cannot resolve these issues “in general.” You will need to do a little research for each situation you are considering.
Signing off for now; more as I do some additional research. Just for the lulz and for my own future reference, I leave you with the Alabama Sales Tax Code. Read it and get back to me…Read More