Recording - August 2010 - 52

By Todd Gascon and Bruce Kaphan

Chapter 5: The Business End—Part 2
Last month we laid out how the federal government impacts what you can and cannot do as you go about your business—mostly this involves the IRS. Your taxes—how much you pay and how you pay—will largely depend on the type of business entity you operate. Last month Todd described the following, with advantages and potential pitfalls: Sole Proprietorship; Partnership; Corporation; Limited Liability Company. After a quick revisit of the business entities I (Bruce) will proceed to the ways your state and county and city/town all have an impact on what you can and cannot do as you go about your business. Which business entity to choose? In my humble opinion, it’s best to get professional guidance either from a tax advisor or attorney or both. Each entity has its strengths and weaknesses. Partnership? For example, let’s say you’re in a band that earns money. Unless otherwise documented, if you split up the money after a gig, it’s almost certainly a de facto partnership. This means that when your alcoholic, penniless bandmate drives his car through the farmer’s market, killing 5 people, your home will be considered one of his assets when restitution is sought. As for corporations, I’ve been told by attorneys that “piercing the veil” (the phrase used to describe the ability of a litigant to find a way to attack your personal assets by finding faults in a corporation’s structure) is often easily done. In other words, the formation of a corporation might seem like good protection, but beware—unless meticulously administered, for a very small company, a corporation can be more vulnerable than the word might lead you to believe. State requirements Not all states collect income tax. California does, so in addition to filing a federal tax return (Form 1040), as a California resident, I’m also required to file a state tax return with the California Franchise Tax Board (Form 540).
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RECORDING AUGUST 2010

Most states require that a sales tax be levied on any goods sold within the state. In California, the government entity in charge of overseeing this is known as The California State Board of Equalization (www.boe.ca.gov). As a Californian, any time I sell a CD to another resident of California, I must record that sale, and annually I must fill out a form indicating how many dollars worth of product I’ve sold to Californians. A percentage of that amount must be paid with the filing. The actual percentage is determined by the county in which you live, and it changes frequently based on surcharges that are voted on by the residents of that county. In recent years, in Alameda County (where I reside) this has been somewhere between 8% to 10%; it doesn’t take a rocket scientist to see that the prudent thing for me to do is to charge that sales tax to the buyer at the time of purchase, because whether or not I charge the buyer, I’m legally obligated to pay that much to the BOE! One very annoying feature of doing business in the internet age is that most internet retailers do not participate in collecting or paying sales tax, but if I sell product to another Californian through, say, Amazon.com or CDBaby, I’m obligated to track that sale and pay the sales tax indicated by it! It takes hours to track all of this information, and the forms are confusing, but technically speaking, if you do not comply with the rules, you’ll be evading paying tax. Sounds kind of serious, doesn’t it? I, for one, am not interested in finding out what the penalties are for non-compliance. Local (County and/or City) requirements If you plan on doing business under a company name (that’s other than your given proper name), you’ll need to file for a fictitious business name, aka DBA (also known as a Doing Business As).You may not think you need to do this and indeed maybe you don’t actually need to do this, but for instance, if you plan on registering your material with a PRO (publishing rights organization, such as ASCAP or BMI), you’ll need to have a publishing company name. Of course, this probably leads to the need for a business bank account, because most banks won’t allow you to use a personal account for business....

http://www.boe.ca.gov http://www.Amazon.com

Recording - August 2010

Table of Contents for the Digital Edition of Recording - August 2010