Q: Are you required to add state taxes to online business?

A: Even though online businesses don’t have the same physical “presence” as their bricks-and-mortar counterparts, they are still required to charge sales tax (and remit it to the local authorities) on all sales within their state. Generally, you’re not required to charge sales tax for sales made to out-of-state residents. But all that can change in a heartbeat, especially in a tough economy where legislatures are looking for ways to fill the public treasury (in other words, raise taxes). Because the rules and the tax rates can change, make sure to stay in touch with your accountant to get set up properly and stay apprised of new developments.

There are subtle nuances between an independent contractor and a part-time employee, largely centering around the issue of “control.” How much control do you have over how the work gets done, when and by whom? Getting on the wrong side of that balance could cost thousands of dollars in unpaid employment taxes, plus interest and penalties.

Bill Bischoff’s article in the Wall Street Journal online sets out some handy distinctions, in addition to suggesting you look at IRS Form SS-8, which lets you know the factors the IRS considers in making its determination.  For more on the issue of control, check out my article, “Walking The Employee-Independent Contractor Tightrope,” available at GreatBusinessLawTips.com.

Q: We separated from our former business partner in the 3rd quarter 2008, at which time he took over the entire company. Earlier this year he told us he would need to file an ‘08 tax extension for the company because he wasn’t able to pay any amount owed at filing time AND he still owed the CPA from the last year’s services. We also found out that he has not provided the CPA with any of the company’s tax documents from ‘08 and has missed the corporate extension deadlines. 

Even though we filed for an extension, paid an estimated amount and have submitted all our personal tax documents to the CPA (we all use the same guy), our personal tax filing is in limbo pending information from the company’s filings.

How can we move forward and what can we do to force our ex-partner to get the paperwork in?

A: Assuming you have the right provisions in your business separation agreement, your former partner is in breach of contract. The next step is to send a lawyer’s letter demanding copies of the company’s financial statements and possibly threatening a lawsuit to compel him to turn over the documents. There’s no reason he can’t run basic P&Ls, balance sheets, etc., to at least give you a baseline (unless, of course, he hasn’t done any bookkeeping since you left him). That said, you may have the ability to amend your tax returns once you get this information, so all is not lost–but it is inconvenient. It might be worth exploring with your accountants whether you can “extrapolate” the company’s earnings (bearing in mind that you were only present for three quarters of the year) from what you knew of the company’s financial situation as of the date you parted company. Ideally, the ex-partner should be held liable for any costs and fees you may have to incur if he didn’t meet his contractual obligations.

You may also want to reach out to an independent accountant for guidance, just to be sure that your CPA is giving you fair and unbiased advice, and isn’t tainted by any conflict of interest.

Think about it: You’re humming merrily along with your business partner, thinking you’re covered (because of COURSE, you hired an attorney and worked out an agreement), and your partner gets hit by a bus and dies. Your partner’s spouse (whom you’ve never really gotten along well with) looks at the agreement, and sees that it’s invalid because you signed it 12 years ago. Brings a lawsuit to get hold of the “dearly departed’s” share of the business. All of the careful buyout formulas and procedures you’ve thought through go down the toilet.

Your state might not have this law on the books . . . but maybe it does. Have you checked?  Have you dusted off that agreement to make sure that it still meets your needs after time has passed? Are the same owners involved in the business? Does the valuation formula make sense in light of changes to your business? These are issues you should revisit periodically with counsel.

And there are a number of other legal issues that may be due for a checkup.  To have a good sense of what they are, get your copy of my Legal Health Checklist, available at GreatBusinessLawResources.com–and make sure that your business records and practices are fortified against potential claims and lawsuits.

A: If the card is in your name along with a company name and the credit card statements are addressed to the company, that c-o-u-l-d be an indication that the account is in the company name alone. But that still wouldn’t answer the question of whether there’s a personal guaranty underlying it.

The best way to check is just to call the credit card company and ask. And see if it will provide you with a copy of the initial credit agreement that you signed. In the future, make sure you keep a copy of all credit card applications so that you know for sure.

A: Generally, yes, a corporation will protect the business owner’s personal assets.  The “S” in “S Corp” is merely a way of designating the way in which the corporation will be taxed.

However, there are circumstances where people can come after the business owner personally, despite operating as an S Corp.  They include:

• Payment of payroll taxes
• Payment of sales taxes
• Failing to maintain certain corporate formalities–for example, not having a separate bank account for the business, not preparing annual minutes for the corporation, not issuing stock certificates, inadequate capitalization or siphoning the assets from the corporation in a way that leaves it unable to pay its debts.

There are other entities (like an LLC) that can protect your assets, too–again, provided you follow the formalities. But asset protection is not the only reason to choose an entity.  Speak with your attorney and your accountant to figure out which form would best meet your needs.

Because angel investors are being far more cautious than in years past, entrepreneurs need to put far more thought into how they attract angels.  You need to:

• Have experienced people on your management team, preferably ones who have weathered economic volatility
• Revise your game plan to reflect the changed economic realities
• Do some soul-searching to see if you’re really passionate about your business idea
• Demonstrate an expert knowledge of your market and the discipline to follow thought

For more information on where to find these angels, check out Inc.’s guide to angel-investor networks, available in the hard copy of the magazine (sorry, folks), where you’ll also get more tips (like the ones above) from Kasey Wehrum about choosing the right angel . . . and getting chosen .