Strange Wholesale Request

[pamielynn]

I need advice from other wholesalers - I had a request from a woman here in town to become a wholesaler of my products that I am not sure how to handle. Normally, I wouldn't even consider this request, but this woman is a "celebrity" - Ellen deGenres paid for her to get ear implants, she wrote a book about it and now has really good regional reach. However, she is a doTerra reseller (fanatic) and wants my soap to sell alongside her products out of her home. She also wants to buy my unlabeled "scratch 'n dents" but mentioned nothing about private label or anything. Here is her response to me:

"I don't have a tax ID number I don't charge tax. I buy diffusers, coconut oil, Shea butter, cocoa butter, etc. in bulk and sell it to people who take my classes. Then a friend and I started a 'co-op page' on Facebook and we buy things in bulk. The ladies on the page then buy stuff, we are small potatoes with the ideology to support local businesses and stay at home Moms that make things. I'll talk to my husband about the tax ID thing though. I met you at the Farmers Market a couple weekends ago and bought a bunch of the soap and LOVE it

Opinions?? What would you do?

 

[The Efficacious Gentleman]

If she wants to by unlabeled, I would treat it as a private label deal. If you're not happy with the other things that your soap might appear alongside, then unlabeled sounds ideal! She is giving you a wholesale price, your brand is not associated with people who seem to have sniffed one too many EOs and what she does with the soaps is essentially up to her.

The tax thing is a different matter, but that is for her to worry about

 

[shunt2011]

I don't think I would touch that one with a 10 foot pole. Something sounds really fishy. They are technically running a business from the sounds of it but not following the proper regulations to have a business. They are ultimately re-sellers. Just my 2 cents worth.

 

[tanglewood]

Isn't doterra the company that just received the huge "noncompliance" letter from the FDA & they & their resellers are under scrutiny?? There's a recent thread here somewhere. Just my humble 2 cents....I would not want my products anywhere near them. I tend to be very cautious about my business reputation.

 

[Susie]

Although I do not sell my soaps, my "spidey sense" is ringing alarm bells. The whole no tax ID is a red flag, the recent FDA warning is another red flag, and the fact that she will be claiming your soap as being from her company that is already not on the up-and-up is the third red flag. My best advice is to run, not walk, in the other direction.

 

[pamielynn]

Isn't doterra the company that just received the huge "noncompliance" letter from the FDA & they & their resellers are under scrutiny?? There's a recent thread here somewhere. Just my humble 2 cents....I would not want my products anywhere near them. I tend to be very cautious about my business reputation.

Yes. And that's actually one of my biggest concerns. Many of my soaps are made with FOs and the ones that ARE made with EOs... well, I don't want anyone being mislead that they are made with doTerra oils - which I think may be the plan.

I'm going to ask her some more questions - but I'm not sure I want my products marketed this way. But, again, she's got some amazing reach and could "spread the word" in places I can't. Gah, I hate making decisions, ha ha.

 

[pamielynn]

Normally, I like things very professional - tax ID, understands what wholesale actually is, blah blah... but is working with co-ops the NEW way to do business?? I wouldn't mind having my products sold in a co-op, but I still am very leery of this one. Plus her first question was "I'm interested in buying wholesale LOTS". This isn't Marshall's, people

Plus she's friends with some of MY friends. I am not friends with this girl - only met her when she was at the market.

 

[DeeAnna]

Yep, you're right, Tanglewood. In the "FDA warning" thread on SMF, they're near flame temperature, so that's all I'm going to say on that matter here. Leave the burning embers over there. :shifty:

As far as this woman claiming she is running a "small biz", here's my take based on my experience as a small biz owner for the past 12 years --

There are a lot of folks who want to pay wholesale prices even though they're not running a legitimate business. If you want to sell to retail customers at wholesale prices, that's your call, but it can be a whole lot of work and worry for not much return.

My policy has gradually evolved to this: If a potential customer does not have a sales tax ID or has stated clearly that SHE is not going to pay sales tax, then I will not sell to this person at wholesale. As a business owner, I am personally liable to the state for collecting sales tax unless I can show I have a reasonable assurance that the buyer is collecting said tax.

A tax ID is the surest proof, but this gal is definite that she has every intent to skirt this law, whether or not she has a tax ID. It's my bet, were I a gambling woman, that she's going to press you hard to sell to her on the promise she will apply for that ID ... but I will also bet that she'll have lots of reasons, after the sale, about why she can't get it.

"Celebrity" status or not ... this is not the behavior I want to see in a person with whom I am doing wholesale business. I'm looking for honesty and integrity, not evasions.

Since you're selling to her as a local within the state, you really need to watch this because it is your responsibility to ensure the sales tax is collected at the point of sale. If you get caught, you are going to pay the penalty -- not her. Most states are fairly vigilant about this issue, since it is a revenue source.

 

[froggybean37]

Yes. And that's actually one of my biggest concerns. Many of my soaps are made with FOs and the ones that ARE made with EOs... well, I don't want anyone being mislead that they are made with doTerra oils - which I think may be the plan.

I'm going to ask her some more questions - but I'm not sure I want my products marketed this way. But, again, she's got some amazing reach and could "spread the word" in places I can't. Gah, I hate making decisions, ha ha.

Another thing to keep in mind - is that because she is asking for them unlabelled, this most likely will not turn around into more sales for you, as no customers will actually know where they are coming from.

Also, if this is the first people are hearing about you, and it's in combination with some potentially shifty-doings, I'd say that's maybe not the first impression you'd like to make, nor the person you want advertising it.

I am a big believer in trusting your gut. If there is a reason you dont feel right about it, there is something to be said for that little itch saying "nu-uh".

 

[pamielynn]

Another thing to keep in mind - is that because she is asking for them unlabelled, this most likely will not turn around into more sales for you, as no customers will actually know where they are coming from.

Also, if this is the first people are hearing about you, and it's in combination with some potentially shifty-doings, I'd say that's maybe not the first impression you'd like to make, nor the person you want advertising it.

I am a big believer in trusting your gut. If there is a reason you dont feel right about it, there is something to be said for that little itch saying "nu-uh".

She has not yet said that she intends to sell unlabeled, but I sell my scratch 'n dents unlabeled and she said "I'd even take those" - I think meaning she'd love to sell my stuff SO MUCH that'd she even "take those". But I don't sell those to wholesale accounts anyway, so she's not getting them.

 

[pamielynn]

As far as this woman claiming she is running a "small biz", here's my take based on my experience as a small biz owner for the past 12 years --

There are a lot of folks who want to pay wholesale prices even though they're not running a legitimate business. If you want to sell to retail customers at wholesale prices, that's your call, but it can be a whole lot of work and worry for not much return.

My policy has gradually evolved to this: If a potential customer does not have a sales tax ID or has stated clearly that SHE is not going to pay sales tax, then I will not sell to this person at wholesale. As a business owner, I am personally liable to the state for collecting sales tax unless I can show I have a reasonable assurance that the buyer is collecting said tax.

A tax ID is the surest proof, but this gal is definite that she has every intent to skirt this law, whether or not she has a tax ID. It's my bet, were I a gambling woman, that she's going to press you hard to sell to her on the promise she will apply for that ID ... but I will also bet that she'll have lots of reasons, after the sale, about why she can't get it.

"Celebrity" status or not ... this is not the behavior I want to see in a person with whom I am doing wholesale business. I'm looking for honesty and integrity, not evasions.

Since you're selling to her as a local within the state, you really need to watch this because it is your responsibility to ensure the sales tax is collected at the point of sale. If you get caught, you are going to pay the penalty -- not her. Most states are fairly vigilant about this issue, since it is a revenue source.

This. This is my concern. I don't know a whole lot about cooperatives, but a quick glance at the IRS site says they need to be all nice and legal - Articles of inc, board, membership, etc. I highly doubt this what she means by a "co-op" because she doesn't even seem to know that.

Thank you DeeAnna. I trust your wisdom and advice. I am going back to her to discuss these details and see what she says.

 

[pamielynn]

Seriously, I've just never run up on a request like this before.

 

[DeeAnna]

Oh, Pamielynn -- I've been burned a few times by being naive and too trusting in situations very much like this -- I freely admit my diploma for running a small business is from the "learn it the hard way" school.

 

[dixiedragon]

I'm not a seller, so take my opinion for what it's worth.

I think it's a big gamble. Tax issue aside (for the moment), you are taking a risk with your business reputation. However, this risk could have a pay off. How many soap customers will actually hear about the doTerra situation? And of those, how many actually understand the issue, or care? Is the potential reward of having this well-known lady with an established client base spreading your products worth the potential risk of being associated with doTerra or this lady's iffy business practices? I don't think there's a right or wrong answer - it depends on your comfort level with risk.

Regarding the tax situation - I would insist on getting the tax ID or letter of exemption or resaler certificate. Tell her that your accountant insists that you MUST charge sales tax unless you have that letter in your files. Blame him (even if he doesn't actually exist). If you choose to do business with her and she's buying in bulk, there's no reason that I know of that can't charge her a whole sale price and add sales tax on.

 

[pamielynn]

Thank you so much for everyone's advice. I tend not to trust my gut feelings sometimes, because I worry that my gut is lying to me.

But, what I did was to reply back to her explaining the tax law and it's implications for me (and her, as well) and that I simply cannot sell anything without collecting the tax myself or having proof (ID#) that I did not need to collect it because it will be collected at point of sale. Kept it completely impersonal in regards to the doTerra (didn't mention it all) or how she runs her "business". Thanked her for the opportunity.

Now I sit back and wait to see if she slams me in public

 

[pamielynn]

But here's a question - what if somebody offers to pay the sales tax, but then wants to resell it? Is that just a personal preference of the wholesaler or are there tax implications of that type of transaction? Because isn't that what direct sales people do? I don't know how they collect taxes?

Edited for spelling.

 

[Cindy2428]

Just my 2 cents worth - a). If she has a legitimate business, she must be registered somehow in the state. Somewhere her business name should be registered. In Indiana it is thru the Sec of State. b). If she is selling things she must have a retail merchant certificate, or whatever your state equivalent is. - c). If she is asking you for wholesale pricing it would be very reasonable to ask her for a copy, because as a re-seller she probably does not want to pay you State sales tax. If you get audited you have to show these for customers you don't charge sales tax for, or you get in trouble. If she provides you with one then you are covered. Since she told you she is not charging tax she is already in trouble. Most states do not charge sales tax for labor, so her "classes" may not require sales tax but her products do. d). I think this lady has already gone beyond "fishy". Now whether it is intentional or not, who knows. The IRS does not care. e). If she really wants to buy your products, great! Since she has basically told you she is legally ineligible to buy products wholesale, you could potentially offer her a volume discount as well as deducting your packaging expenses. If she buys your soap by the loaf, you only have to provide your legal ingredients/packaging listing 1x. If she chooses to remove it and re-package, again that's on her. That would be the same thing as if I bought your product at a market and then later re-sold it as my own. All of the secondary liability is on me. f). I don't know what type of re-seller contracts doTerra has with their distributors, but I would pretty much bet that they cover their butts legally. In our avionics business we have dealership/re-seller agreements with over 20 vendors and with every application they require a copy of our retail merchant certificate proving we collect sales tax as appropriate. We also have to re-send annually. So she either pays sales tax for her products she buys from doTerra, or they have a system I am not aware of. - Could be very possible, we are a specialized industry. g). While her intentions of showcasing local "Mom-based" home businesses may possibly be admirable, she is not going about it legally. From what you've posted, it seems more like she and her friends have pooled some money together to try to cash in on her "fame". Personally, I wouldn't have anything to do with her on any contractual record. If and when she gets busted by the State tax authority, everyone she deals with will also be looked at. If she mails her products across State lines, then it becomes a Federal matter. IMO the only way you can stay completely clean is to take a verbal order from her and complete the transaction at your Farmer's Market. That way she is no different from any of your other customers.

 

[DeeAnna]

"...what if somebody offers to pay the sales tax, but then wants to resell it?..."

At that point, that is their problem to worry about, but this is how it works in Iowa according to my understanding:

If a person has paid the sales tax when buying an item from you, then you collect the sales tax on that transaction and later pay that to the state. If this person then sells the item later, there would be no sales tax on that transaction, at least in the state of Iowa. Basically, the state only gets one bite of the apple. (The rules for cars and such might be different -- I'm thinking more of normal everyday items like soap and such.)

If I was doing business on those terms, I'd want to keep good records of the sales tax I paid -- the state might not accept my word about having paid the sales tax up front.

It's like selling a used chair to an in-state person, say, on Craigslist. You paid sales tax for the chair when you bought it, so you don't also collect it from your buyer.

 

[pamielynn]

Cindy - that is basically what I already thought - thank you for confirming my thought process - makes me feel a little less ignorant . The stores that buy my wholesale line have never had a problem furnishing me with their number/certificate, they charge sales tax at the register and we've never had a problem. I"m trying to think what happens when I've bought, say Pampered Chef, and I think I paid sales tax on my order at the party. So they must just remit the whole thing to the company and the company pays the collected tax. I guess??

I called the State about the co-op thing and the guy said that unless what they are doing is going in together - say for diapers - and all paying the exact amount of the cost, (and no more - nobody's making a profit) then the coop needs a reseller certificate, as well.

I appreciate you sharing what you do in your company; thank you!

DeeAnna - your comparison to Craigslist is perfect for me to understand. I really wouldn't want someone doing that, though - I lose complete control of everything to do with my product at that point, yes? I've not even looked at "private label" yet and don't have the time right now - I can only have one or two thoughts in my head at any given time, these days, LOL! So that's off the table for the moment.

 

[claudep]

In Canada, sale tax are different. If the person paid sale tax and is reselling, she would have to charge the tax to final customer and ask for a tax credit for the taxes she paid when purchasing bulk.

The difference is the price which is taxed. Wholesale price is not the same has final sale, so revenue agency makes more to charge final tax.

I would simply right a contract with the person and charge tax. The contract would be to ensure that the product are sold has being manufactured by you. And to exclude any responsibility about any claims she could be doing surrounding your soap. It could also include a final list price.

I am more a legalistic person, so i would enter into almost any situation, but get a good contract in place. As a lawyer i would draft it myself making no additional fee for doing so. My philosophy is "a sale is a sale", as long as you do not encounter any damage to your reputation or increased liability, why not have more dollars in your business vault!