Charge Sales Tax if not a business?

[pat_teeth_hurt]

Hi and sorry in advance if this has already been answered somewhere, but I can't find anything specifically addressing this.  I buy legos for investment purposes sporadically over time and plan on selling them several years later.  I am not a business.  I want to start unloading some now.  Do I have to collect sales tax?  Most articles I read talk about businesses.  And from an income tax perspective, business report the sale of legos as inventory I believe instead of as a collectibles capital gain, which I will be doing since I am not a business.  Anyone know of any links that specifically address the sale of legos and collecting sales tax if not a business?

[Zelgazra]

No idea what the laws state south of the border, but I asked a recent business school graduate friend of mine about my little hobby business and at what point I have to worry about paying my dues. Up to a certain point it's still just considered a hobby, like running a garage sale or lemonade stand. After a certain point, I believe it was 10k/year up here, you have to report your incom and pay taxes on it (at which point you could theoretically "charge sales tax" to cover it, but nobody does, it's just baked into the item's price). Once you hit 30k/year you're obligated to incorporate yourself and create a small business... which of course has its pros and cons. Not sure if this is any help whatsoever, but I don't think you've got anything to think about if you're only selling a few sets between now and Dec 31 2016. 

[charger465]

As far as I know, eBay doesn't report anything to IRS until you cross the $20k threshold in sales in one year. I sell on eBay, mainly coins and vintage toys and I don't collect sales tax. I'm also not classified as a business. Just my two cents.

[pat_teeth_hurt]

Thanks for the replies.  Maybe the fact that there is a lack of information out there means that you don't have to collect sales tax.  I also saw that if you're a business you may not have to pay sales tax on your purchases so given that I paid sales tax on all my purchases at retail stores, perhaps that helps my case more to not have to collect sales tax.

[charger465]

Unless you're going to be a high dollar and volume seller, I wouldn't worry about it.

[redcell]

4 hours ago, pat_teeth_hurt said:

Hi and sorry in advance if this has already been answered somewhere, but I can't find anything specifically addressing this.  I buy legos for investment purposes sporadically over time and plan on selling them several years later.  I am not a business.  I want to start unloading some now.  Do I have to collect sales tax?  Most articles I read talk about businesses.  And from an income tax perspective, business report the sale of legos as inventory I believe instead of as a collectibles capital gain, which I will be doing since I am not a business.  Anyone know of any links that specifically address the sale of legos and collecting sales tax if not a business?

You need to refer to the sales and use tax laws of the state in which you reside.  The fact that you haven't set up a formal legal entity through which to make your sales doesn't matter at all.  Up until this year, I have done all of my sales as a sole proprietor and have been collecting sales tax for several years.    

[donbee]

One of the main things that separates a hobby from a business is profit. Granted a business can be not profitable, but a hobby should not be profitable.

Another thing is tax credits. You can claim tax credits if you have a business, but not if you have a hobby.

If you are spending more on inventory than you're making, you're safe for a little while. But once you start making a profit, that's when Uncle Sam wants his cut. You can off set that with tax credits (deductions), and that is a common trick that the IRS looks for.

IRS will turn a blind eye the first 2 years of a new business, but after that you should start showing a profit or start considering a new business. The IRS actively looks for people who try to use their hobby as a source of tax deductions by claiming its a home business.

[Val-E]

The best thing is to seek professional advice from an inedependent financial advisor in your area as every country or even state has different rules regarding selling (and buying).

Anything that generates profit will interest the government and they will want a share - it´s logical.

[c_rpg]

2 hours ago, Val-E said:

The best thing is to seek professional advice from an inedependent financial advisor in your area as every country or even state has different rules regarding selling (and buying).

Anything that generates profit will interest the government and they will want a share - it´s logical.

Yeah there are specific laws for buying and selling. You need to find out if your total profit exceeds a certain threshold, however it is not always as simple as that. For example, you can sell a single 50k car without paying any taxes, but if you buy 10 cars and sell them for 5000$ each it's considered a business.

So the main questions are:

• what is your intent? If you are buying and selling purely with the intent of making a profit, it is logical you are going to have to pay tax.
• what is your annual profit?

As people have said it has advantages and disadvantages. One advantage is you get access to wholesale toy distributors. One of the disadvantages is you have to do a lot more paperwork. It gets very complicated if you are parting out sets.

[redcell]

One of the main things that separates a hobby from a business is profit. Granted a business can be not profitable, but a hobby should not be profitable.

Another thing is tax credits. You can claim tax credits if you have a business, but not if you have a hobby.

If you are spending more on inventory than you're making, you're safe for a little while. But once you start making a profit, that's when Uncle Sam wants his cut. You can off set that with tax credits (deductions), and that is a common trick that the IRS looks for.

IRS will turn a blind eye the first 2 years of a new business, but after that you should start showing a profit or start considering a new business. The IRS actively looks for people who try to use their hobby as a source of tax deductions by claiming its a home business.

It's important to understand that the hobby/business distinction that you're talking about has no relevance to the question of whether you have to collect sales tax. The IRS looks at whether you are a hobby or business for purposes of federal income tax. Sales tax is a matter of state law and is regulated by the taxing agency in your state. So, you could be considered a hobby by the IRS and still be required to collect sales tax by your state-level revenue agency.

[Phil B]

Amen to all the people saying you need to look into this. I looked into the Sales Tax requirements about half a year ago ("Use Tax" is the proper term) and came to the conclusion that I had 2 options:

1. Not sell to anyone in my state

2. Do it properly and register as a Reseller.

I went with 2. It was painless. Haven't had a sale yet (Ebay, BL/BO) where I had to charge tax (because I only need to charge sales tax for customers from my own state), however, setting up EBay and BL/BO to administer Sales Tax for me was a breeze. I have semi-annual reporting duties (first half year is due now) and I can just report $0. Plus, I have a nice Reseller certificate that I can use with Amazon.com and Walmart to make tax-exempt purchases (as long as they are for reselling - if I buy for myself I either need to not use the exemption or claim a sale to myself ).

My motto: If you do it, you do it right.