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Move internet based business from US to Caribbean.

Ridgway, CO |

Home state and residence Colorado. Inventory Wisc. Now I collect sales tax in Colo. and Wi. Pay income tax - Colo and US. Due to likelihood of Marketplace Fairness Act (collecting sales tax for all 50 states) devastating my business, with accounting nightmares, I am thinking of moving to Dom Republic, Grenada, etc.

If I do so, and this is my residence, would I still have to collect sales tax, pay income tax, etc?

Inventory in Wisc needs to be maintained, would this be an issue?

What are best options for this in Caribbean?

Thank you

Attorney Answers 5

Posted

You are asking a very complicated tax and business question and also in relation an act that has not passed. First you need to understand current nexus law. I won't even begin to explain this as there are so many issues. You can get a slight idea of the complications by reading this http://www.steptoe.com/assets/attachments/1571.pdf.

This is something that needs to be determined by speaking with an experienced accountant or tax attorney after the act actually passes (assuming it does).

This answer is for informational purposes only and is not legal advice regarding your question and does not establish an attorney-client relationship.

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4 comments

Frank A. Natoli

Frank A. Natoli

Posted

I agree with Robert here, but Asker I believe you are exempt from collection if your remote sales are less than 1 million per year? If your revenues are beyond that you shouldalready have a professional tax advisor to work with. There are no easy off-shore options and as we have recently seen many are very insecure.

Asker

Posted

Okay. Go to plan B. Sales are 1.3 mil. This bill has bipartisan support. Given how lame our "leaders" are this may pass and quick. It will effectively eliminate the small internet business. Amazon loves the bill. A simple approach is a flat 6% tax. Send $ to a clearing house and 5% go to state, per population. But no, this would not harm the economy, which appears to be the agreed upon commitment of congress. Congress with an approval rating less than root canal and cockroaches. Gee, why would I ever want to leave?

Frank A. Natoli

Frank A. Natoli

Posted

Well, you may have options but obviously the area gets complicated quickly. Not to pick on you, but if you guys are boasting over 1.3 mil in annual sales, why are you on Avvo asking this question? I mean, do you really not have a tax professional or lawyer you can go to at this point? If not, perhaps you can use Avvo here to locate several lawyers in your area that handle these matters and consult with them.

Asker

Posted

My lawyer and accountant are not versed at this, so I did a search online, and Avvo popped up. Your comment "There are no easy off-shore options and as we have recently seen many are very insecure." makes sense. Had this been a doable solution then proceeding with a lawyer specialized in this area would have been an option. The off shore option seemed enticing. Warm breezes, beach, sun, etc. Plus I sell to folks in the Caribbean. A thought. The Colorado winters at 7000 ft. get long. Thank you for your time and expert advise. Be Well

Posted

PLEASE CONSULT A TAX LAWYER! Do not say anything else online!

REALLY!

Ron Cappuccio

www.TaxEsq.com

If you do not like this answer or disagree, please look at one of the other answers provided. It is not necessary for you to try prove this answer is "wrong" or something with which you do not agree. This is a free service for you based on limited facts. Nevertheless, many times you need to consult an attorney with the details to get actual advice specific to your concerns. Do not put too many details in your questions or comments because this makes the information public and could hurt you. Government Regulations contained in IRS Circular 230 regulate written communications about Federal tax matters, including e-mail, between us and our clients. This is another attempt by the government to limit your rights and to extend the control of government over individuals and businesses. Nevertheless, such communications are either opinions or other written communications. This is not an opinion. It is other written communication and was not written to be relied upon, by itself, to avoid any tax penalties. In order to receive assurances of protection from tax penalties from a written communication, you should get an opinion letter. If you would like to discuss an opinion letter relating to any matter, please contact me and I will explain what is involved and what it will cost.

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Posted

Mr. Cappuccio has given you good advice. If you are a U.S. citizen you are taxed on your worldwide income. So moving the business to the Dominican Republic will not, by itself, eliminate the need to pay income tax. I doubt that it will help with sales tax because the states will probably view you as doing business in their states. In any event, the residents of the states buying from you will probably be required to pay a use tax. This is not something for which you will be able to get a reliable answer over the internet. You are going to have to go to a tax lawyer and write a check for a couple of thousand dollars to get advice.

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Posted

As already mentioned, this is an area where you must be very cautious and must have a competent advisor. Usually, one of the main reasons companies move offshore is to eliminate or defer U.S. taxes on foreign earnings. If there is no international component to the business, you might not see many benefits. U.S. citizens are taxed on their worldwide income and renouncing citizenship to avoid taxes (if that is what you are thinking) may trigger the expatriation provisions of Internal Revenue Code Sections 877 and 877A. If you remain a U.S. citizen, your federal tax return will become more complicate because of the additional reporting requirements when you have interests in foreign entities and bank accounts. If you try to move your business offshore, Section 367 may treat the transfer as a taxable sale. You might also trigger various tax withholding obligations depending on the entity structure. These are only a few of the federal income tax issues. It is also possible that the expatriation will not reduce your exposure to sales taxes because these depends on the individual state laws, or the provisions of the Marketplace Fairness Act if it is enacted. I have not studied this proposed Act very closely, but I did not see an exemption for foreign sellers. You also need to factor in the cost of establishing your offshore legal structure. You might find that after weighing all of the costs, you would be better off developing a solution to your sales tax compliance issues. DISCLAIMER: These are just some general comments regarding issues you may wish to consider and must not be treated as legal or tax advice.

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Posted

At first blush, if your goal is to save state income tax and use tax collection responsibilities, then I would say relocating can greatly reduce those burdens on your company. As the other responders point out, there will be other tax complications with this manuever on the federal and international level that may or may not offset your savings. This is a question to pose to an international tax lawyer with good sales and use tax knowledge.

This being said, I would caution you that dropshipments from US based wholesalers may complicate your scenario greatly. If the customer's state has jurisdction over the wholesaler, then, the wholesaler may have to collect tax either on the price you pay or, believe it or not, on the prie you charge your customer.

No matter what - you need to engage a good tax attorney to review the issues.

I hope this answer helps.

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