One of the more perplexing questions facing MLM companies today is the administration of state and local sales taxes.
Every MLM company, whether new or established, must be aware of its responsibilities for sales taxes.
In recent years, state and local jurisdictions have become increasingly aggressive in the sales tax area through both legislative changes and enforcement. The likelihood of being audited has increased. MLM and Party Plan companies must know, understand and comply with the various state sales- and use-tax laws.
Currently, 45 states, the District of Columbia and more than 7,500 local jurisdictions (counties, cities, etc.) impose a sales tax.
The majority of these local taxes are collected by the respective state. But approximately 300 are “self administered,” and if an MLM company will collect the sales tax it must register with the jurisdiction itself.
Sales tax rates are subject to constant change, and vary state by state and even within most states that have local jurisdictions imposing a sales tax.
Exemptions vary from state to state; currently there is no uniform definition of exempt products, services or entities among the states. Some of the more common exemptions among the states are for food products; dietary, food and nutritional supplements; vitamins; and clothing.
With the enormous number of taxing jurisdictions, determining the correct sales tax for your MLM and the complexity of filing numerous returns and making payments, dealing with states and localities with inconsistent laws and administrative procedures, and handling audits is a substantial compliance burden. Regardless of the burden, an early decision to be a good corporate citizen as an MLM company by collecting and paying the sales tax on behalf of independent representatives will pay dividends for many years to come.