I promise this will be my last thread posted today.

Is web hosting a service or a product?

And do you need a sales tax ID if you sell web hosting accounts? Or is there no sales taxes online?

Can you count your internet access as a business expense?

Thank you very much!!! :)

Alright, from what I was told, Web Hosting is a service, provided to a customer. Therefore, to sell the service you do not need a Sales ID or even a small business permit. Now, taxes do not have to be paid on a hosting account itself, unless hardware is something you are selling along with the service, and thats only within your state lines. (i.e. you say a plan offers 2u of colo and for $500 a server).

Internet access can be counted as a business expense, but you cannot write it off as a tax deduction for various reasons.

Just what I have learned over the years.

Jim

You DO have to count the income as personal income though - it ain't tax-free! :)

Make sure you hire a good tax accountant...before its too late.


--Tina

Thank you both very much!!!

But isn't that kind of bad? I am referring to reselling...
If you become a reseller with...let's say MCHost, and you sign up for the cheapest hosting account. You receive 1000 MB of disk space and 12 GB of disk transfer for $35 a month. Then you sell hosting plans of 200 MB and 2.4 GB for $14 a month. Even if you increase the price 100% more, that brings in about $840. Then you have expenses of $420. You make profit of $420. That is great! But then you are self-employed and you make more than $400 a year. So you have to file taxes! Luckily, there is no income tax in Texas. But you still need to report your estimated taxes, your profit or loss from business, your self employment form, and business use of your home. If you file for a Doing Business As thing for about $100, you only make $320!!! Now if you hire a tax accountant for about $300, that's fabulous!!! You just accomplished a net profit of $20!!!!!! So is it that wonderful?

Originally posted by AffordableHost
You DO have to count the income as personal income though - it ain't tax-free! :)

Make sure you hire a good tax accountant...before its too late.


--Tina

Please share you experiences :)

Originally posted by TimM
But then you are self-employed and you make more than $400 a year. So you have to file taxes!

You have to pay taxes on every penny of profit even if it isn't over over $400 a year, if you have to file taxes at all. You are making over $400 without the home business right? If not, then someone is probably claiming you as a dependent, because you can't live on $400 a year.

You can only write off the cost of your internet access if you use it soley for business use. Although I think that there is some percent that qualifies, it requires that you document the usage. It's much easier to only write it off if you use it for business 100%, because no use documentation is required then.

Like tina suggested, hire an accountant. Don't take our word on it, if you are actually doing it. If you're just in the planning stage, then feel free to listen to our unqualified opinions, and good luck to you. :)

How much money must a minor make before they have to pay taxes..

If they work for an employer, I think it is somewhere around $4500.

If they are self-employed (lawn-mowing and babysitting), then they have to pay taxes if they exceed $400 in income.

For all the youth here, how did you all deal with taxes when you started your web hosting business?

So can I get a tax exemption in business if I am a dependent?

The tax treatment (for sales tax purposes) varies by state, so it is very dangerous to give blanket advice or statements. For instance, Texas is the strictest, hence Rackshack's policy of taxing 80% of your monthly charge at 8.25%. In Texas, it is considered a rental and therefore taxable. Only 20% is accepted as a service.

As to the income tax issues, even if you don't get an accountant to help you on a regular basis, you should sit down with one and learn how to manage that aspect of your business if your gross monthly income gets as high as $100 or so. There are many expenses you can deduct, but keeping proper records and structuring things properly is key. And all the income regardless of the amount is reportable.

Hello,
My suggestion is to talk to the Texas goverment. They are by far the strictest. You will probably need to charge your customers tax and get a Texas tax ID. They are one of the few states that tax internet services???

>Dear XXXXXXX
>
>You work with an out-of-state firm that sells Web hosting services.
>The firm has a computer data center in Houston, Texas. You ask about
>the application of Texas state and local tax to services sold by the
>Houston location.
>
>Web hosting falls within the definition of data processing services
>in Tax Code Section 151.0035 and Rule 3.330. Your firm is engaged in
>business in Texas by virtue of having a data center located in
>Houston. Accordingly, your firm is required to collect tax from
>individuals receiving benefit of your service in Texas regardless of
>the location of the server on which their Web page is located.
>Please refer to Subsections (e) and (f) of the enclosed Rule 3.330
>for information regarding service benefit location. I should also
>point out that 20 percent of the value of data processing services is
>exempt from Texas state and local tax.
>
>The entire text of the Tax Code, a complete set of rules, and a
>wealth of other information are available at
>http://www.window.state.tx.us/taxinfo/salestax.html through our
>website.
>
>This opinion is rendered based on the information you provided.
>Other facts, though similar, may yield different results.
>
>You may reach me toll-free at 1-800-531-5441, ext. 3-4680. The
>direct line is (512) 463-4680. You may also write to Tax Policy,
>Comptroller of Public Accounts.
>
>Sincerely,
>
>Al Van Allen
>Tax Policy Division
>
>Enclosures Rule 3.330
> Local Tax Bulletin
>

Federal law prohibits states from taxing internet services. The only tax you would have to be concerned about is the federal income tax, and depending on your age you may not have to pay that.

Go to IRS.gov and you can find the answers you are needing without having to pay all your profits for a tax accountant.

Originally posted by deltaesoluti
Federal law prohibits states from taxing internet services. The only tax you would have to be concerned about is the federal income tax, and depending on your age you may not have to pay that.

Go to IRS.gov and you can find the answers you are needing without having to pay all your profits for a tax accountant.

Can you share a link where you found this on the IRS site, I can't seem to find it.

Originally posted by deltaesoluti
Federal law prohibits states from taxing internet services. The only tax you would have to be concerned about is the federal income tax, and depending on your age you may not have to pay that.

Go to IRS.gov and you can find the answers you are needing without having to pay all your profits for a tax accountant.

That is incorrect. I have read the laws and they do not pertain to internet services in general. What is not taxable is Internet Service Access (ie dial up or dsl internet access). Virtual Web Hosting and Dedicated servers leasing do not fall under the protected umbrella. All other forms of internet commerce are taxable per state laws like they were mail order.

http://www.findarticles.com/cf_dls/m4PRN/1998_Nov_9/53191598/p1/article.jhtml

The Internet Tax Freedom Act applies to internet service providers as well as anything sold over the internet.

Originally posted by deltaesoluti
Federal law prohibits states from taxing internet services. The only tax you would have to be concerned about is the federal income tax, and depending on your age you may not have to pay that.
The article you posted to back this up doesn't seem to support your conclusion. If I've misunderstood what you've said, please correct me...


Article published Nov 9, 1998
The passage by Congress and signing by the President of the Internet Tax Freedom Act put the brakes on new taxes in cyberspace for the next three years...
Has it been three years since 1998?
"For example, even with the passage of the Internet Tax Freedom Act, certain Internet transactions still may require that the seller or purchaser of property be subject to the sales and use tax. Additionally, most state and local taxes enacted prior to the recent federal legislation still apply. The Act does not address the nexus question which has been a source of significant conflict between states and businesses and states do have differing views."

Texas, for example, has issued a letter ruling stating that having a Web site housed on a server in the state will create taxable "nexus" for a retailer. In other words, Texas would require the retailer to collect and remit the Texas sales and use tax in such cases. California, on the other hand, has amended its sales and use tax regulations to specifically state that housing a Web site on a server located in the state will not create taxable nexus. Other states are applying sales tax to Internet access charges, information provided to subscribers by Internet content providers/sellers, and fees charged by Internet companies for building and maintaining Web sites.

Originally posted by Chicken
Article published Nov 9, 1998


They extended it this past fall.

Originally posted by deltaesoluti
Federal law prohibits states from taxing internet services. The only tax you would have to be concerned about is the federal income tax, and depending on your age you may not have to pay that.
Ok, but I don't think this statement is correct (for reasons outlined above in your quoted article). I've not dug deeper than what was posted, so I'm just commenting on that, nothing else. If this concerns you (you being any forum member) personally, I'd consult a CPA and/or read up on your state's tax laws.

Well, I have never seen a web host company that collects sales tax and I have seen a lot of them.

I know those selling merchandise over the internet are required to collect sales tax if they sale to customers from the state(s) they are located in.

Originally posted by deltaesoluti
Well, I have never seen a web host company that collects sales tax and I have seen a lot of them.

I know those selling merchandise over the internet are required to collect sales tax if they sale to customers from the state(s) they are located in.

Well Texas feels that I have to charge my customers sales tax because their site is on a server in Texas, a server I a leasing and already paid sales tax on.

I lease my server from my vendor, what I do with that server is my business. My customers pay money to me, a business that is not in Texas, so I feel my customers paying me don't owe Texas sales tax.

I think it is a joke. I am seeking an attorney for legal advise.

Originally posted by ljprevo


Well Texas feels that I have to charge my customers sales tax because their site is on a server in Texas, a server I a leasing and already paid sales tax on.

I would or either stop using servers in Texas. In my state if a business buys something for the purpose of selling it retail, they do not pay sales taxes. They only have to remit it on retail sales.

Texas is taxing you twice and if it is not illegal, it is at least wrong.

I might be wrong, but it was passed by the people representing you and your state (not *your* state necessarily, but *their* state). Double taxes happens all the time.

First, let's start at the beginning. You work for Bob's Widgets, you get money. As soon as you get paid, you freak out at how much of it has been removed by the state and federal gov. before you even got it. Ok, so you take your meager paycheck and cash it and go to the store to actually use that money to buy something. To get to the store you fill up with gas, which the fed, state, and local get a whopping chunk per gallon. You then go to buy something and get charged sales tax (here another 8%-ish). Even without going on, you've been taxed by the Feds 2x on your money, the state twice, and local once. I won't even go into fees (another word for tax really) on your license and car registration.

There is a difference though in paying different types of taxes on your money and paying the same tax twice on the same product.

<<I know, it was a bit of a tangent. It just annoys me heh :D>>

If your a host in TX, then wouldn't you only pay sales taxes on clients that signup that live in TX ? Do the rules change if your place of business in TX but your servers are not?

<<Already posted once, please email directly from now on>>

What sucks is when you work for the government and are paying part of your own salary in taxes. I have no problem paying other people's salary with my taxes, but not my own.

Sort of like when I sued my condominium association and had to pay 1/64th of the defense's attorney fees and my own damages, because I'm a member of the association.

Anyway, as the owner of a reseller's license, I'll tell you that in Michigan at least, not all of the 6% sales tax that we collect from customers actually gets paid to the state. We get to keep a portion.