Engineering Suppliers: Develop Or Offer?

In the Silicon Valley, nearly each entrepreneur's checklist consists of: get venture capital, Develop past wildest dreams, and do an IPO or Offer to Google. With much less than one% of startups finding funded and much less than ten% of individuals Corporations finding a superb exit or going IPO, you have a one in 1000 shot of meeting the ambitions on this kind of a checklist.

Of the other 999, most of them produce particularly small if any revenues and just fizzle away. Some turn out to be viable Engineering Suppliers with none or tiny outdoors funding and attain considerable development until finally they get someplace among $five and $20 million in revenue. Even though this kind of Suppliers are developing, most consider that their development path will carry on for very a bit longer than it in reality does. In general, after they get to that plateau, they get stuck and have a problematic time developing due to 1 of a number of factors:

• Their Technologies or providing begins turning out to be obsolete due to a new Engineering, service or site
• Their properly-funded rivals start to take their buyers due to additional high priced advertising and marketing campaigns, reduce expense, or a superior service
• A provider like Google begins to Sell the merchandise for zero cost

As soon as you get to this point, it is extremely problematic to reverse the injury. At this point, several Technologies Providers consider that if they just add worth to the consumer, they can In general offset the over unfavorable reasons. At times, they can carry on to Develop, but Frequently either the competitor is 1 step away or the boost in worth does not warrant the boost in price to the client. So what is the finest way to beat the plateau? Even though your enterprise is at a long-phrase plateau, the solution is to Offer the organization or take on a vast majority companion that can assistance you Develop by synergy, capital and management. If you never do 1 of individuals, you are without a doubt not having the most effective return on your investment and there is a superb opportunity you could shed your whole investment in several much more many years.

In reality, the perfect time to Offer a Technologies organization is Though you are expanding. Our rule of thumb is that Whereas the enterprise's revenues are developing superior than 20%, it is most beneficial to hold increasing the business. Even though it begins teetering close to 20% or dropping under 20%, it is most beneficial to Offer the organization. The reason is that offering a firm exhibiting developing forecasts is considerably simpler than offering a enterprise exhibiting flat or nominally rising forecasts. Clients are In general seeking at the forecasts of your provider to establish its worth, so it is a great deal far better staying in a position to Sell sturdy, expanding forecasts that a buyer can consider.

Consequently, the take-away here is that if you are self -funded or a bootstrapped Engineering corporation that saw or is seeing great development, most probably, it will come to an finish. Consequently, you have to make a choice whether or not you will carry on attempting to Develop the enterprise or no matter if you will capture the worth you have currently developed for the enterprise by means of promoting Although your business is in a solid position. If you attempt to carry on to Develop, there is a superb likelihood, you will plateau and likely decline. Suppose objectively and pick out the perfect path.

Neil Shroff is the Manging Director of Orion Capital Group, a mergers and acquisitions advisory provider. Neil is nicely-versed in mergers and acquisitions, operations, corporation growth and management consulting. Prior to founding Orion Capital Group, Neil co-founded an overseas manufacturing outsourcing corporation. While in his tenure, Neil acted as the lead for two strategic acquisitions, and finally worked closely with the board of directors to lead the sale of the business.

Already, Neil was a Managing Director for a Jefferies Capital Partners portfolio organization where he led the corporation's transition from a position of fiscal and operational distress to position of profitability. In his early occupation, Neil was a management consultant at SRI International and an additional tiny consulting business where he focused on growing strategic suggestions for several buyers in the biotech, health-related gadget, and materials Technological innovation industries.

Neil has a B.S. in Bioengineering from the University of California, San Diego. Neil has also lived in Japan and carried out comprehensive organization in India, and China.

Sporting Optics, The Actual Technologies Firms

The Corporations' men and women predominantly overlook when pondering of Technological innovation is Providers that generate sporting optics. The developments that were created in the area of hunting optics can hardly be described as anything at all but amazing over the final thirty to forty a long time.

I can even now try to remember the beneficial old days, rising up in southern Iowa, with lots of ground to hunt and lots of animals to hunt. Not that very much of that has modified because that time in the seventies when it comes to the house or the animals but the sport of hunting has evolved significantly. At that time, for me, I hunted squirrels and rabbits with a 22 caliber rifle and every thing else with a shotgun. The exceptional thing close to it was, I was often pretty productive at filling my tags, even although my weapons of selection would be regarded entirely primitive currently. Back then, compound bows had been just starting to be acknowledged and a muzzleloader resembled anything at all applied in the revolutionary war so not quite a few folks hunted with either. As for optics, I made use of the two that I was born with most of the time, since the one particular pair of binoculars I owned expected a wheelbarrow to carry close to due to the fact of their dimension. My scope, no my lack of a scope, was replaced with iron sights or the tiny metal bead at the finish of my shotgun.

In the mid eighties, I bought my primary compound bow out of a product warehouse for fifty dollars. I had to assemble it when it came to me and then know how to shoot it on bales of hay in the back yard with a paper plate for a target. I as well purchased my to begin with rangefinder at all around that time. It was tiny substantially as they are these days, but it did not come equipped with the laser Engineering of currently. Rather, it consisted of five lines marked in reducing heights with the lowest line getting 50 yards. It was created for deer and the way to use it was you line up the best of the deer's back with the line that it match into and that would give you the approximate distance it was away.

I do not reminisce close to these occasions to thing out that I grew up in a far more basic existence. I do it to bring to your consideration how far the sporting optics and hunting fields have come in the final forty a long time. Just as individual computer systems have been anything at all you only saw in Star Trek back then, so as well have been the rifle scopes, the rangefinders, the trail cameras, and all of these other technological marvels. The thing that amazes me above the technological advances is the truth that I even now have to get the job done just as hard, if not more difficult, to fill my tags.

Bob Darrah, hunting and outdoors enthusiast. For a beneficial option of sporting optics and beneficial charges, stop by www.huntingforoptics.com.

Top 5 Sales Tax Nexus Issues for Technology Companies

.assuming the product/service is taxable. The issue is whether the seller has a duty to collect and remit or whether the buyer is required to self report.)

Do you have affiliate relationships (for generating sales) with out-of-state companies?

Do you have sales representatives travel outside of your home state?

Do you engage in trade shows outside of your home state?

Do you have employees or agents that perform services on your behalf outside of your home state?

If you answered "yes" to one or more of these questions, you could be creating a sales tax liability outside your home state. Also, remember income tax nexus is not equal to sales tax nexus. The rules apply differently.

Overview

Nexus is a "connection" or "link". Sales and use tax nexus refers to the connection between a person or entity and a taxing jurisdiction sufficient for that jurisdiction to require the person or entity to comply with its sales and use tax laws.

The current basis for determining when sales and use tax nexus exists is found in two Supreme Court cases; Quill Corp. vs. North Dakota [May 26, 1992], and National Bellas Hess, Inc. vs.Department of Revenue of the State of Illinois [May 8, 1967]. In both Quill Corp. and National Bellas Hess, Inc., the Supreme Court ruled in favor of the taxpayer, limiting the states' ability to impose its taxing authority over interstate commerce. The guidance derived from these two cases can be employed in today's markets to manage sales and use tax compliance responsibilities.

While most States continue to reference these cases when defining sales tax nexus thresholds, the States continue to pursue expansion of their sales and use tax authority. With nexus being the foundational element that requires a company to collect and remit sales tax, it's important to note some of the difficulties in determining whether a company has sales tax nexus or not.

As with most sales and use tax related matters, determining whether or not sales tax nexus exists requires some level of interpretation of a state's statute as it applies to the activities of the entity. With that backdrop, here are the most common issues that technology companies struggle with from a sales tax nexus perspective. Also, it should be noted that sellers do not actually "charge" sales tax. Rather, seller's "collect and remit" sales tax. This can be important. For example, as in the case of internet sales, sales tax is always "due". This issue becomes whether the seller has the obligation to collect and remit the tax or if the buyer is obligated to self report.

#1. Affiliate Nexus, "Amazon Laws", and Click-Through Nexus

The internet has resulted in a shift in our buying patterns and a decline in sales tax revenues. With our current tax system and the nexus rules as outlined above, an out-of-state retailer (translation - a retailer without nexus in the state) selling goods to a consumer or business over the internet is not required to collect sales tax. It is the buyer's responsibility to self-assess the tax and voluntarily remit use tax to the state. Most businesses are aware of this nuance but many consumers are not.

States ensure compliance with these laws through business audits; however, the states don't have the bandwidth, nor is it practical, to audit every consumer. So instead of going after the consumer, states are looking to implement taxing rules that require the out-of state business to collect the tax.

This is why "affiliate nexus", and the "Amazon Law" or "click through nexus" have evolved. These are ways in which states have tried to use the existing nexus standards to require out-of state retailers to collect the tax that otherwise would not have been collected. The typical scenario occurs when an out-of-state business forms a relationship with an in-state business (often referred to as an affiliate) for the sole purpose of customer referrals via a connection to the out-of-state business's website. For this referral, the in-state business receives some type of commission or other consideration. The relationship established through the affiliate programs creates nexus for the out-of-state business, creating an obligation to collect and remit local sales tax. Multiple states including Illinois and California have introduced recent affiliated nexus legislation mainly targeting large internet retailers such as Amazon, hence the title "Amazon Law". In reaction to this legislation, Amazon has dropped their affiliate programs in most of these states. By dropping the affiliate programs, the company intends to terminate its nexus with the state and avoid prospective sales tax collection responsibility. However, this can be problematic as most states deem nexus to exist for a period of at least twelve months subsequent to the activity that created nexus.

The State of New York has passed legislation, called the "commission-agreement provision," that creates a rebuttable presumption that a person (seller) making sales of tangible personal property or services is soliciting business through an independent contractor or other representative if the seller enters into an agreement with a New York resident under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an internet website or otherwise, to the seller (click through nexus). The presumption applies if the cumulative gross receipts from sales by the seller to customers in the state who are referred to the seller by all residents with this type of agreement with the seller is in excess of $10,000 during the preceding four quarterly periods ending on the last day of February, May, August and November. The presumption may be rebutted by proof that the resident with whom the seller has an agreement did not engage in any solicitation in New York on behalf of the seller that satisfies the nexus requirement of the U.S. Constitution during the four preceding quarterly periods. N.Y. Tax Law 1101(b)(8)(vi).

Technology companies should review their affiliate programs and understand which states, specifically, have "Amazon Laws", "affiliate nexus" rules, or "Click-Through Nexus" rules. This is a constantly changing area that requires close monitoring. At the time of publication, California passed a 1-year repeal of their "Amazon Law".

#2. Traveling Sales Representatives

The idea of a sales representative sitting in a home office in a state other than where corporate headquarters is located is a clear example of an activity which establishes sales tax nexus in the state where the sales representative is based. However, what happens when that sales representative travels into other states to meet with prospects or customers? This type of activity frequently occurs with technology businesses as the sales representative meets with the prospect to demonstrate their product. Whether or not this type of activity creates sales tax nexus will depend on the state and the frequency of the activity. Each state's rules are slightly different in terms of the threshold that needs to be met to create nexus. However, for some states, a sales representative traveling into the state for a single day will create sales tax nexus. While other states have more lenient thresholds, a general rule-of-thumb is that three days of activity of this type will create nexus for sales and use tax purposes.

Texas prescribes that out-of-state sellers engaged in selling, leasing, or renting taxable items for storage, use, or other consumption in Texas must collect use tax from the purchaser. "Retailer engaged in business in this state" can include, in addition to other activities, any retailer: Having any representative, agent, salesman, canvasser or solicitor operating in Texas under the authority of the retailer or its subsidiary to sell, deliver or take orders for any taxable items. Texas Tax Code Ann. 151.107(a)(2); Texas Tax Publication 94-108, Engaged in Business (Sales and Use Tax), 11/01/2006.

Nexus Strategy: Instead of face to face customer presentations, technology businesses may consider conducting product demonstrations via the Internet through Webex, GoToMeeting, or another similar application.

#3. Trade shows

Technology companies are frequent participants in trade shows. Typically, companies attend trade shows to promote their products and services. A company may promote its products and services via representative employees or agents and/or display its wares via a kiosk or booth. In either of these scenarios, the company is performing a type of solicitation.

It is the solicitation activity that determines whether or not nexus has been created. However, a number of states have established specific thresholds (number of days in attendance at a trade show) in order to establish when a company attending a trade show has created nexus in the state. For example, California has set a standard of more than fifteen (15) days - i.e. if you attend trade shows in California for fifteen days or less, you have not created nexus in the state of California (assuming this is your only activity within the state). Cal. Rev. & Tax. Cd. 6203(d); Cal. Code Regs. 18 1684(b).

Nexus with Michigan is not created if the only contacts a person has with Michigan consists of: (1) attending a trade show at which no orders for goods are taken and no sales are made or (2) participating in a trade show at which no orders for goods are taken and no sales are made for less than 10 days cumulatively on an annual basis. However, this rule does not apply if a person also conducts the following activities: soliciting sales; making repairs or providing maintenance or service to property sold or to be sold; collecting current or delinquent accounts, through assignment or otherwise, related to sales of tangible personal property or services; delivering property sold to customers; installing or supervising installation at or after shipment or delivery; conducting training for employees, agents, representatives, independent contractors, brokers or others acting on the out-of-state seller's behalf, or for customers or potential customers; providing customers any kind of technical assistance or service including, but not limited to, engineering assistance, design service, quality control, product inspections, or similar services; investigating, handling, or otherwise assisting in resolving customer complaints; providing consulting services; or soliciting, negotiating, or entering into franchising, licensing, or similar agreements. Michigan Revenue Administrative Bulletin 1999-1, 05/12/1999.

Technology businesses should carefully plan where they will attend trade shows and understand the sales tax nexus thresholds associated with each state for this type of activity.

#4. Employees or Agents Performing Services

Technology businesses that send employees into a state to provide implementation, installation or repair services are creating nexus for sales and use tax purposes. The fact that this is a non-selling or non-solicitation activity does not mean this activity does not create sales tax nexus. On the contrary, these activities are more likely to create nexus for sales and use tax purposes.

The Washington State Supreme Court, in a recent ruling, asserted that a manufacturer whose employees traveled into the State with the sole purpose of meeting with customers simply to manage the relationship was sufficient to create nexus. This activity was seen as a mechanism that created a market in the State and as a result created nexus for the manufacturer. R W R MANAGEMENT, INC., Appellant, vs. STATE OF WASHINGTON DEPARTMENT OF REVENUE, Respondent, 10-332, 06/27/2011.

Using non-employees to support clients can have a similar effect. For example, a technology hardware business that uses a local resource to repair or perform other maintenance for its customer is providing the service via an affiliate and is deemed to have created nexus for sales and use tax purposes. Whether the person providing the service to the customer is an employee of the business or not is immaterial to the states. The fact that the person is present in their state and performing a service on behalf of the out-of-state business is sufficient to create nexus for the out-of-state business.

Technology businesses should evaluate non-selling related activities they perform in each state including installation and maintenance/support services as well as services provided via a third-party representative when assessing their sales and use tax nexus foot print.

#5. Income tax nexus does not equal sales tax nexus

There's often an assumption that where a company has income tax nexus, they also have sales tax nexus. End of story. This is true, but only partially true. The second half is that a company can have sales tax nexus without having income tax nexus. The threshold for sales tax is much lower than that of income tax. For example, the solicitation of sales is generally considered a sales tax nexus creating activity whereas this same activity will not, by itself, create income tax nexus (See P. L. 86-272). The most well-intentioned CPA firms are prone to assuming that because nexus has not been created for income tax purposes, sales and use tax nexus doesn't exist. This is certainly not intended but is the result of limited knowledge of sales and use tax laws.

In Pennsylvania, out-of-state vendors/sellers who maintain a place of business in Pennsylvania and sell or lease taxable tangible personal property or taxable services must register and collect Pennsylvania sales and use taxes. Pa. Stat. Ann. 72 7202; Pa.Stat. Ann. 72 7237(b); Pa. Code 61 56.1(a) "Maintaining a place of business" in Pennsylvania includes, in addition to other activities: Regularly or substantially soliciting orders within Pennsylvania through a solicitor, salesman, agent or representative regardless of whether the orders are accepted in Pennsylvania; Pa. Stat. Ann. 72 7201(b); Pa. Code 61 56.1(b).

Technology companies should be aware of the specific expertise their CPA firms have in providing sales tax advice. Sales tax is a unique discipline with differing rules from state to state.

Conclusion

Establishing sales tax nexus is often the culmination of multiple nexus creating activities. For example, a technology business may spend three days in a state, soliciting orders, two days at a trade show, and a day or two implementing their products. Each of these activities can create sales tax nexus by itself but should also be viewed in relation to other nexus creating activities.

An important note is that once sales tax nexus has been created, the need to collect and remit sales tax is triggered (assuming what you are selling is taxable in the particular state). Sales tax nexus is associated with the legal entity and spans all sales channels. For example, if you have a direct sales channel and an internet sales channel, once nexus is established in a state both channels are subject to the sales and use tax laws of that state.

Brian Greer is a Partner at TaxConnex, LLC ( http://www.taxconnex.com ). TaxConnex is a sales and use tax specific consulting, advisory, and outsourcing firm focused on small and medium-sized businesses. TaxConnex delivers our service through a network of CPA and CPA-trained Tax Practitioners. For additional information about TaxConnex and our sales tax nexus services please visit our website.