PayPal - Legal Questions?

I recently set up a Business PayPal account. I want a convenient means to accept payment over the Internet for services I provide.

I would like to think that on most subjects I am somewhat knowledgeable. It was so easy to setup my Business PayPal account that I didn't look deeper into the many issues and questions I am now facing.

For instance, the last time I checked -- the Federal Government did not require an Internet Tax. That said, how do states handle services paid though the Internet. My business is a sole proprietorship, so a lot of the legal concerns of more formally structured businesses are not applicable to my consultancy. However, I still have to pay taxes on income generated.

On the premise, that my offerings are service related, are paid for over the Internet, and include: (1) custom software applications and (2) ad space -- an itemized list of my questions follow:

1. If doing business with an in-state client -- do I need to collect state taxes from the client for services provided?
   
2. I assume that where state tax laws are concerned, Internet sales are like mail order sales. Is this an incorrect assumption?
   
3. Is a custom software package considered a service?
   
4. Does it matter if I am selling my own software or Microsoft's?
   
5. I provide Software Consulting Services. I pay taxes on income I earn and not applications I provide. What is the difference in as far as the law is concerned between services I provide under a contractual agreement versus custom applications I may provide based on client specification?
   
6. Am I making this harder than it has to be?
   
7. When am I going to hire that attorney I keep promising myself?
   Response: When I stop needing a new PC [see my My Hardware Tools]…

Yesterday, I found an interesting legal advice site -- > Free Legal Advice which prompted me to add an new topic area to my forum: Business Legal Issues. Any free legal advice received over the Internet should be held in that light… Free Legal Advice obtained over the Internet…

With so many using this [PayPal] very useful Internet service, I can't believe that I have so many questions and finding it difficult to get answers. Many of you are going to ask -- why am I just now looking at these issues? I can answer that - because I recently signed up with PayPal's Business services to accept payment over the Internet. When I get the rest of the answers I will let you know. Don't you just hate that…

Feel free to provide any answers via comments to this post or on my forums board.