Starting a Small Business Makes Me Wish I Hadn’t Started It

Reprinted with permission from The Nerve at thenerve.org

Original publication

By NICHOLA RUSSELL

small business

If this is ‘business-friendly,’ we’re in trouble

If you want to open a typical online business – let’s say, monogramming things for friends and family and selling items online – be prepared get a crash course in taxes, zoning regulations.

Recently I tried to do just this. The paperwork has been a nightmare. At times, I wished I had decided to do it all under the table. But I decided I’d rather suffer the pain of doing this on the front end than worry about a letter from the Department of Revenue or the Internal Revenue Service asking about unpaid taxes.

Below is the process to start a business that – being highly optimistic – might gross $12,000 a year. Bear in mind, this is not a venture that’s going to have a physical storefront, serve food, or employ anyone other than me.

The first of many steps is to register your business with the Secretary of State’s office. This, thankfully, can now be done online. After filling out a few pages’ worth of information, printing and signing a form, and paying $110 – assuming your paperwork is approved – the Secretary of State greenlights your business name and registration.

Next, you need to apply for an Employee Identification Number, or EIN, from the IRS. Surprisingly this was the easiest and quickest step in the process. Which makes sense: The government wants taxes from your business and it can collect them much easier if you have an EIN. This process can all be done online and within in about 10 minutes of starting the process you have the EIN form in your email inbox.

So far, things were bearable. That changed quickly, though. If you want to sell anything you have to get a retail license from the Department of Revenue. Even if 1 percent of your income is from retail you must get a retail license for each location. The application requires a $50 fee and three pages of instructions.

Then there’s the business personal property tax. If there was ever a tax that needed to be abolished, surely it’s this one. This is the point where doubts started to surface about the importance of filing all this paperwork and running the business off the books. According to DOR’s website, the business personal property tax is for “the furniture, fixtures, and equipment that are owned and used in a business. Any assets that are claimed on the business’ income taxes should be reported on the Business Personal Property Tax return.”

Taxes are part of a civilized society and they are necessary to fund government – I get it. But come on. A business buys the necessary equipment and furniture to operate. That means the monogram machine, computer, desk, chair, and so on. Sales taxes (and any other taxes) are paid on all of these items at the initial time of purchase. Then every year I will have to pay additional taxes on these items. So in other words it’s a yearly sales tax on items I’ve already purchased and paid taxes on. (By the way, the computer and desk I already owned before starting the business. But I still must pay the business personal property tax on them. Why? Because I use them for the business. Okay.)

After that, you have to get approval from the city or town and in some cases county to operate a business. In my case, neither of these applications can be completed and submitted online. The city application isn’t even online. It can only be filled out in the city’s office.

Where I live, your business license fee is not based on net income but on gross income. You are charged based on what you bring in – not what you take home. I anticipate spending about $7,000 on a monogram machine and bringing in maybe $12,000 in a typical year. But I’ll be charged for the $12,000 I brought in, not for the $5,000 I’ll make before taxes.

Businesses that serve various municipalities or counties – florists, say – must track where their customers live. They have to get the appropriate licenses and permits to pay the correct taxes to every city, town, and county they do business in.

All this headache is for a simple home-based business making way less than $12,000 a year before taxes. That’s for a business with no employees but me. What incentive do I have to expand and make the multiply the headaches and paperwork? Not much of one.

The state Department of Commerce proudly claims that “South Carolina is consistently ranked among the most business-friendly states in the U.S.” If that’s the case, the U.S. is worse off than I thought.

Nichola Russell lives in South Carolina’s Upstate 

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