Wednesday, October 13, 2004

A Taxing Question?

I have come up with a solution to my tax question?
I am a software consultant. Do I collect taxes for custom software programs I sell to in-state clients?

My options included:
  1. return to corporate life
  2. find more contracting gigs
  3. hire an accountant or attorney
  4. simply not sell products to in-state clients?
I opted for the latter position of not selling to in-state clients for the time being.

In my research on this issue I found many articles -- including a Small Business Primer - Part 1: What Business Are You In? that I thought rather interesting. The following excerpt defines 4 categories that prospective small business owners, should consider when trying to determine "What Business They Are In"?
What Type of Business Do You Want?
The next step in your business definition phase is to define the type of business you want. There are four main types of business:

1. those that create products,
2. those that supply products,
3. those that supply services and
4. those that consult.

A product-based company will typically require factory/production facilities, a supply chain, a larger work force, etc.

A supply company will need products to supply, as well as customers to supply the products to. Often they’ll need to constantly seek out new areas of demand in order to stay ahead of the game.

A services company, like most Web companies, will be extremely vulnerable to market interest which, as we all know, can shrivel up rather quickly. These businesses must constantly be on the lookout for new markets and clients.

A consulting company is perhaps the easiest business model, because it involves no product creation cycle. There is simply knowledge, and the search for clients who require that knowledge.

As example - the article further contends [I being the article's author]:
# I could program software for people to use (a product-based company)
# I could set up an online store to supply programming tools to others, along with witty and insightful reviews (a supply company)
# I could offer my hand to complete custom Web development for clients large and small, the world over (a services company)
# Or I could found Penguin Consulting, a company which specializes in pinpointing the mistakes of others without providing real solutions

I reference this article in particular, because it touched upon the professional categories of those considering the computing industry for their small business. According to the above excerpts -- consulting has no tangible products. I am more than a programmer so computer or software consultant is what I normally use, and yes I do provide custom software tools. Is a custom software program a tangible product? This is important because tangible products and services may require taxing if sold in-state.

A search of the State's Tax Code and several calls to state comptroller and tax agencies yielded no clearer picture, so I was left with the options I enumerated above.

I found the article on a site called SitePoint. This site has a lot of interesting articles and other offerings for those trying to establish e-commerce businesses or other web related endeavors.


At 6:38 PM, BD said...

Nice calendar demo!


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