Sunday, January 13, 2008

TAX PROCEDURES - Killer of Micro-Business

I should clarify. It's not the taxes themselves. The services we expect from our government aren't free. It's the Process Created To Pay the Taxes that's the killer. I've worked all my life as an employee, where various accounting departments dealt with "all that stuff." But as a micro-business of ONE, I'm getting a crash course in needless, confusing tax procedures that will surely produce one of these results for many like me: 1) It will force otherwise honest people to work "under the table." 2) It will force the business to hire professional help it really can't afford at all. 3) It will force business to turn out the lights on a dream rather than deal with this.

Clumsy tax procedures at every level are a killer for micro-business. But the most recent paperwork arrivals get the full brunt of this rant. I live in Bellevue, WA but sold 1 necklace for $43 in Seattle. In advance of that craft show in Seattle, I bought a Seattle business license (in addition to the State business license purchased already). Apparently the license triggered 2 sets of forms from Seattle: 2 forms about employees tax and 2 forms for the Business License Tax! After my initial dismay & frustration subsided and after wading through 4 pages of legalese, I learned that I owe nothing, but MUST still file those forms by 1/31. Total time spent ==> 2 hours.

But that's not all. We know that as sellers we are tax-collectors for the state. I understand that I'm to collect 8.9% sales tax from local WA buyers for each item sold & must turn that over to the state's coffers by 1/31 each year. But I was adventurous enough in 2007 to sell a few items in 4 different cities. So by 1/31 the state's "Combined Excise Tax Return" requires that I total up the sales in each of these cities separately so that each city gets its fair share of the sales tax I collected on WA's behalf. (I must have added each of these figures 10 times on my tiny little calculator before I got the same total twice!) Since each of these cities changed its own tax rate during the year, I had to get a total per city before 4/1 and after 4/1 -- sub-totals within sub-totals! Then wade through a complexity of topics on the tax form that I only hope don't apply to me. Honestly, it was a nightmare, and compared to most folks, I've got a little comfort with taxes & some accounting! Total time spent ==> 8 hours.

Unfortunately tax procedures will get worse in WA as of 7/1/08. New legislation is aimed at online WA state sellers who sell to WA state residents. WA state bill SSB 5089 is part of the national SSTA movement. (Ironically that stands for "The Streamlined Sales Tax Act"!) The ultimate goal of the national movement is to collect sales tax for all online sales ... even to out-of-state buyers on the Internet. The new WA state law takes the first baby step toward this national goal when its "destination sales tax" takes effect. Beginning July 1, the online seller in WA will no longer charge the sales tax rate based on his own location, but on the location where the buyer receives the merchandise! (Brick & mortar stores already do this by charging at the rate where the buyer receives the merchandise ==> the seller's store.) So online WA state sellers must know in what county & city their buyers live! However, most online sellers transact the actual payment using transaction services like PayPal or Google. When I last checked, these services were not prepared to "know" what tax rate applies to each buyer. I can only imagine that the seller will somehow need to feed the appropriate tax rates into such programs.

At this time, I confess that at least 80% of my time is spent doing overhead tasks for my micro-business, leaving 20% or less for actually making jewelry, quite a risky statistic! Do I need more paperwork or more complex tax procedures? There are 3 things that might save me as the tax situation gets worse --

1. I'm very lucky that I don't need to work. If the hassle takes the joys out of jewelry-making, I will do something else.
2. I am honest to a fault.
3. I am the most hard-headed human God ever created, especially when I must follow useless, tedious procedures.

For these reasons, I will continue to meticulously follow the law, while raising my very shrill voice to the bureaucrats so they know the impact of their policies on folks who work.

Okay, let me take a deep breath & remind myself why I started Seattle Bead Creations!


Kayce said...

Great blog Cheryl! You are way ahead of me... I'll be working on all this this week.

Anonymous said...

Taxes for Online Sellers is a book available to help one learn more about taxes for the individual - sole proprietor. Visit to learn about the book, link to state tax websites, read tax articles, etc.

LoveMeKnot Creations said...

it'll be ok!!!!
take a DEEEP breath and count to ten.. :)

And those earrings are absolutely gorgeous and should be great inspiration for you to keep your business!
*go etsyrain!*

Seattle Bead Creations (aka Classic Beadwear) said...

thanks for the moral support. well, we're all in the same pot... maybe some pots in different states. and thanks for the book reference. i will definitely look up that book when i get home. (i'm in arizona now with 4 girlfriends of 30 years. the laughs & fun we have are even better than counting to 10 with deep breaths!) meanwhile happy tax filing, folks! cherylz

soandsewcrafty said...

Great blog! Shows me what I've got to look forward to! Think I'll go look up that book now!