The UCC is a set of uniform laws that have been developed as kind of a recommendation for the states to apply and adopt for their states. It stands for Uniform Commercial Code and it covers different commercial matters like sales of goods, secure transactions and negotiable instruments. It is not the law but it is a recommendation of what the law should be. Some form of the UCC has been adopted in all 50 states.
A business broker agreement usually means that you have hired someone to sell your business for you. So you sign an agreement with them that will say, “I want to sell it for this amount of money and I’m going to give you a period of time to go try to sell it, and if you do sell it, then I have to pay you a commission.” You would hire a business broker just like you would hire someone to sell your house; it is very similar, but in those agreements, you really have to be careful to specify exactly what you are selling and exactly what are you paying a commission on.
Handshake agreements are another way of saying a verbal contract or an oral agreement and, generally the answer is yes, they are binding. If you and another person agree to something and exchange some kind of consideration, somebody pays money or somebody does something, then generally that is enforceable and you can make them continue. Now there are a lot of exceptions to this depending on the size of the agreement and what it’s for, but generally when you agree with somebody that you are going to do something, you have to do it.
Usually business valuation is a 2-stage proposition. In the first stage is to develop a general value for the business based upon formulas that are readily accepted. If the formula amount that you think you are willing to offer exists, you enter into a standstill agreement. At this time the real due diligence starts where you ask for copies of all material contracts and that you are involved in receiving at least 5 years of financial statements and tax returns, and following that either with an accountant or a business appraiser, you establish what you think the true value of the business is. It usually entails using formulas such as Rev. Rul. 59-60, which deals with the issues of the book value adjusted plus a return on earnings or goodwill.
Whether the business is going to be subject to tax in a state is going to be dependent on the state’s laws and, most importantly, how they define nexus for income tax purposes. Nexus will generally be determined based on a couple of factors such as whether you have income derived from a source within that state and whether you have personnel, capital equipment or physical property in the state. The more factors you have against you, the more likely it is that you are going to have nexus in that state and that you are going to be subject to income tax.
When you have employees in another state, you have to determine whether you have to pay and withhold income taxes on your employees in the other state. Many of the states have gotten very aggressive about charging for payroll taxes and claiming that if you have an employee in the state for even one day, that that employee is subject to employment taxes in that state. So it’s really important to get to know those rules so you can stay in compliance. Some states also have some specialized employment tax rules if you are sending an employee into another state for even a day. You are going to want to take a look at those rules.
If you make a sale over the Internet, generally, if sales tax apply you do have to collect the sales tax. The complication is you might be a business in the state of Nebraska and you might make one sale in the state of Louisiana. If you’re not advertising in that state and you don’t have a business location in that state, generally you wouldn’t be required to collect sales tax there. There is a legal concept called “nexus.” If you don’t have sufficient nexus, you usually don’t have to pay sales tax; however, some states are adopting laws that just require on every sale in that state you do have to pay sales tax. So it’s a very complex set of rules right now that are changing every day because of the growth of the Internet and you need to make sure you have good tax advisers to help you through that process.
As a generality, an out-of-state retailer is subject to collecting tax in another state if they have nexus with the state in which they are making a sale. The definition of nexus varies state to state so it’s really important that a business look at what nexus means in a particular state.
In addition, different states tax different types of things so you have to really understand the nature of the business to determine whether you’re going to be subject to sales tax in another state.
Nexus is simply the connection, usually considered in the business context, to another state. So what that is looked at for is that a business might be formed and do its primary operations in the state of Delaware, but it also engages in business in Colorado or sends employees into Colorado. We begin to look at what is called nexus to say how much connection that business has with the state of Colorado for purposes of being subject to Colorado laws and Colorado taxes.
Another nexus issue in the employment tax arena is when you send employees into another state, you look at their connection to that state to determine whether they are subject to that state’s payroll tax laws.
A U.S. citizen is subject to taxes in the U.S. on his or her world-wide income, so even if you move, live and work in another country, you are subject to income tax in the U.S. There are a variety of tax credits that are offered to you, so there are foreign earned income credits and a variety of other things. You are going to want to familiarize yourself with those rules. In addition, there are tax treaties that apply between the U.S. and most countries that will make specific provisions as to how the income tax rules of each country apply.