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Becoming a distributor can boost income and offer wholesale prices, but do your homework before taking the plunge
My online company sells dietary products, and I'm looking to buy shipping products wholesale. Some companies online offer wholesale pricing if I become a distributor for them, which would bring in an additional income stream for my company. Is this a good idea? Do I have to collect tax on the items I resell for them and use myself? —S.A., New York
Treat this as you would any other business proposition, beginning by evaluating whether it makes sense for your company and its sales mission. What do you know about the company making this offer? Do some research to see whether their value and quality match your firm's level. Will they expect you to act as a drop-shipper for their products, or simply provide a link on your Web site to their catalog? Will offering their supplies detract from your product line or complement your dietary product line?
Don't be coerced into doing this just so you can get a wholesale price on supplies, says Stephanie Chandler, a small business author and speaker. "There are plenty of reputable companies that offer discounted shipping supplies without requiring you to be a vendor for them," she says.
If your business is too small to get you wholesale pricing from an Internet supplier, consider approaching a local, independent stationer with a proposition to buy a certain volume of shipping goods each month. "The stationer would likely be sufficiently thrilled to have such a steady customer that good discounts might be allowed," says David E. Ross, a retired Internet entrepreneur.
Affiliate or Reseller?
If your research turns up positive input about the company's history reputation and viability, and you want the additional revenue, consider becoming an affiliate rather than a reseller of the shipping goods, says Bill Bartmann, author and president of BillionaireU.com in Tulsa.
As a reseller or distributor, you might be required to take orders, collect revenues, and withhold taxes on the sales you make. You might also be asked to purchase their products, store them, and drop-ship them to customers, which could get time-consuming. If the products are not up to par, you'd be the first line on customer complaints.
Ask the company if it will allow you to take a less active role and become an affiliate, an increasingly popular program particularly with online firms. In this scenario, Bartmann says, you put the shipping company's ad on your marketing materials, Web site, and customer communications. If your customers respond to those ads and buy from the shipping company, those sales are tracked and you get paid commission.
"This new approach trades on your relationships with your customers," Bartmann says. "Your endorsement or testimonial, implicit or explicit, adds great value to their ads." Affiliate programs typically do not require you to process transactions or collect tax, because customers are buying directly from the shipping company, not from you.
If you decide to become a distributor for this firm and you're handling their sales transactions, then you would indeed have to collect New York State sales tax on the sales made through your site, says Alan E. Weiner, partner emeritus at Holtz Rubenstein Reminick, an accounting firm based in Melville, N.Y. You would remit that tax to the state on a regular schedule, much as you likely do already for your own company's sales.
However, you would not have to pay sales tax to the shipping goods company if you're purchasing products from them to resell. And if you're using them to ship products for your dietary business, no tax would be collected at all on that transaction. That's because New York State tax law 1115(a)(19) exempts packaging materials from sales or use tax if they're used to package and ship your products to an end user, Weiner says.