Are There Nexus Issues for MLMs?


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This past Saturday, Megan and I did a webinar “IRS Tax Secrets for Online Businesses.” You can listen to a replay at http://www.OnlineBizTaxSecrets.com if you missed it.

We couldn’t get to all of the questions during the webinar, and so, as promised here is one of the questions and the response.

Q: On “nexus” what if you are working with and MLM, who is responsible for the tax? me, as an independent distributor or the MLM company?

Answer: Without a doubt, nexus will be one of the biggest issues for all businesses, and especially Internet-based businesses. In the case of MLM (aka multi-level marketing companies, direct selling companies and independent business opportunities) companies, at this point, there is no nexus issue. However, California has recently asked all California (CA) residents in an MLM to provide the name and addresses of their “uplines” (people who had signed them up). Amway is fighting this.

There is a concern that CA may intend to use this information to then claim nexus on residents in other states. Since these other state’s residents make money because some of their downline is in CA, then CA will make a claim that they owe CA income tax. Or at least that’s the reason we think CA is trying to collect this information.

At least so far, though, no state has been able to successfully claim nexus due to MLM downlines in another state. If there is a product that is sold that should have sales tax attaching, the main company will probably be withholding sales tax. This is something you do need to check directly with your company, though.



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