# Restrictions on selling homemade woodenware?



## farmer's_wife09 (Jan 2, 2015)

Hi there,
My husband has been making woodenware for our use for a few years now. We now have a sawmill and we want to sell his homemade hives. Are there any restrictions that you know of off hand? Is filing a dba and sales tax license necessary? We're not really sure about what steps to take. We are located in Michigan. Thanks for any help!


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## Ross (Apr 30, 2003)

It should be the same as any other small business. Check with the county tax office or a local CPA.


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## Cleo C. Hogan Jr (Feb 27, 2010)

Not sure where you live, (your post just says USA), but, in Kentucky, Everything related to bees, is taxable for sales taxes, except honey, which is considered an agriculture product and is not subject to sales taxes. Bees, and bee equipment is taxable.

In some states, the sell and transfer of frames with comb is restricted, but new frames are not.

Again, if you sell in KY and the buyer is getting a cost share through the Agriculture Department, then you may need to be inspected.

I would suggest you contact your Agriculture Agency, and if your state has a State Bee Inspector, contact them to see what regs there are. Making new equipment should not be a problem.

cchoganjr


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## kilocharlie (Dec 27, 2010)

You might want to take a few business start-up lectures from the Small Business Administration's S.C.O.R.E. counselors, if they are available within a reasonable distance. It's usually better to hit the ground running with a plan than to just feel it out by the seat of the pants and get your MBA at the University of Harder Knox. The lectures should be free or fairly cheap. Time and money well-spent. Also a semester of Introduction to Accounting at the local 2-year college doesn't hurt. Its not all that difficult.

I had a buddy who has been through 6 business start-ups, and he ran through the mathematics of a business proposal that was given to me all in less than half an hour, very thorough. I went home and wrote the business plan that night. It got approved at the SBA for an angel investor, and I sold the idea for $12,000 to a guy who wanted in. He should make about $40,000 in the first year if he hustles and all goes well. I don't see great longevity in the idea, and was delighted to get so much for it, but I do wish him success.

Usually there is a Fictitious Business Name statement (probably same as a "DBA"), advertisement in an adjudicated newspaper (your county clerk will have pamphlets or sheets explaining that), a call to the IRS for an employer identification number, and a deposit into a business checking account at a bank different than your personal bank. Don't forget to save 35% for the tax man, and hang up a sign, you're in business. 

Personally, I'd opt for a bit more time looking over a similar business's books, if one will let you. You'll learn a lot. Even a Chart of Accounts will reveal something you probably didn't think of. You could also start making a habit of reading Robert Kiyosaki's Rich Dad series of books. They really help, especially Garrett Sutton's Own Your Own Corporation. A Business Start-up Kit book from Nolo Books for your state would be an excellent purchase.

Do join a business club, and/or form a "sounding board" - a business attorney, a CPA, a marketing exec, an insurance broker, a technical person like a manufacturing engineer, a lumber supply guy for when your mill is not running, and a human resources worker. These are friends to whom you bring honey, mead, and lots of questions. They keep you out of trouble.

On the positive side, demand for beehive woodenware is excellent right now. Best of luck.


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## drlonzo (Apr 15, 2014)

farmer's_wife09 said:


> Hi there,
> My husband has been making woodenware for our use for a few years now. We now have a sawmill and we want to sell his homemade hives. Are there any restrictions that you know of off hand? Is filing a dba and sales tax license necessary? We're not really sure about what steps to take. We are located in Michigan. Thanks for any help!


In most states they have a website that can lead you to the information that you seek. Do a quick search on the internet to see what your state laws are. Here in WV it is required by law to register any and all business' and get a business liscense. It can be done as a sole proprieter up to LLC corp. All depends upon the person getting the liscense. Some states require sales tax be collected on anything sold, others like WV have a heart for anything to do with Ag. and make it easier on farmers. We're lucky with no sales taxes on anything to do with honey, or livestock (which includes bees) as long as they are not being bought and resold (must be in your custody for 30 days or more). Since you're speaking directly of woodenware i'd say it will be taxable unless someone was able to produce an exemption paper for their business. 

Others have said check out things with a CPA, i agree completely.


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## kilocharlie (Dec 27, 2010)

I'd avoid Sole Proprietor and simple Partnership entirely. Talk with the biz attorney and the tax person about this - there are changes to the business formats as of last year. Use a format with some form of limited liability - an LLC, LLP, an S-corporation, or a regular C-corporation if it gets big.


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## Vance G (Jan 6, 2011)

What a shame that the man can't just start selling boxes, keep track of what his expenses are and deduct that from those he sells and claim it on his taxes as income or loss. That is what I would do and see if you can make any money at it and if you can sell them at a price and quality people want to pay. What happened to a free country?


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## drlonzo (Apr 15, 2014)

Vance G said:


> What happened to a free country?


It got flushed down the drain when BIG GOV decided to start taxing it's people no matter what.


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## Mr.Beeman (May 19, 2012)

You can just sell them and keep track of profit and loss. You would place the additional income as just that on your tax forms. SOOOOO many loopholes. But, to protect yourself from a lawsuit and losing all you own, you should become a LLC. It will cost about 600.00. You own everything personally, the business owns nothing but a name.


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## sqkcrk (Dec 10, 2005)

Vance G said:


> What a shame that the man can't just start selling boxes, keep track of what his expenses are and deduct that from those he sells and claim it on his taxes as income or loss. That is what I would do and see if you can make any money at it and if you can sell them at a price and quality people want to pay. What happened to a free country?


Pretty much what I do Vance. Have done so for more than 25 years. Keep track of Income and Expenses and file a Schedule F and pay taxes accordingly. What's the problem?


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## Specialkayme (Sep 4, 2005)

Cleo C. Hogan Jr said:


> Not sure where you live, (your post just says USA), but, in Kentucky, Everything related to bees, is taxable for sales taxes, except honey, which is considered an agriculture product and is not subject to sales taxes. Bees, and bee equipment is taxable.


So, honey is considered an agriculture product, but bees are not an agriculture product? Seems odd to me.


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## Specialkayme (Sep 4, 2005)

drlonzo said:


> Others have said check out things with a CPA, i agree completely.


CPA's are great with helping you figure out the taxes, including selecting which corporate form to go with to minimize tax exposure. They can not help you set up the entity though (considered legal work), and they can't maintain the entity to ensure limited liability.



kilocharlie said:


> I'd avoid Sole Proprietor and simple Partnership entirely. Talk with the biz attorney and the tax person about this - there are changes to the business formats as of last year. Use a format with some form of limited liability - an LLC, LLP, an S-corporation, or a regular C-corporation if it gets big.


This is often a misunderstood subject area, even among some attorneys and CPA's. 

Under a normal set of circumstances, if you start a sole proprietorship or a simple partnership, yes, you individually may be liable for the "debts" of the company. And generally speaking, if you start an LLC, LLP, or Inc. the owners are not liable for the debts of the business. But that's within reason. A creditor (someone who wants to sue you) can still pierce the corporate veil if you aren't maintaining business formalities, which in my experience most closely held companies are not (including annual meetings, corporate minutes, maintaining corporate books, shareholder meetings with voting, maintaining business checking accounts, having bylaws and operating agreements, ect.). If they pierce the corporate veil, you are individually liable for the debts anyway.

Additionally, most people start an LLC/Inc. to borrow money to start a company. I don't know any bank that doesn't require a personal guarantee now a days, which means you will be individually liable anyway. 

On top of that, if you keep it at a sole proprietor level, you get something called state exemptions. Exemptions are dollar amounts of value in things you own that no creditor can touch. In NC, Tenancy by the Entireties property is exempt (meaning property held as husband and wife) when the debt is owed by one person. Then you get house hold furnishings, wild card, car exemptions, rights to receive certain income, medically prescribed health aids, 100% of retirement funds, along with many others. If it's in that limit, no creditor can access it (unless they have a PG or a security instrument in the asset). Which means right now if someone sued me and got a $1M judgement, they wouldn't be able to get anything from me. Everything I own is within my exemption amounts. And you can't garnish wages in NC. Other states (namely FL and TX) are much more liberal on exemptions. If I keep it as a sole proprietor, I get to keep my exemptions in the event I get sued. On an LLC/Inc. level you don't get any exemptions, and the creditor can take every asset that belongs to the company. The liability for _you_ is less, but the overall liability is greater.



Mr.Beeman said:


> But, to protect yourself from a lawsuit and losing all you own, you should become a LLC. It will cost about 600.00. You own everything personally, the business owns nothing but a name.


Horrible advice and probably the fastest way to make that LLC a worthless piece of paper. 

When you start a company, you individually own assets and the company just owns a name (kinda). The company then issues you shares (inc.) or membership units (LLC). These shares/units are given to you in exchange for the assets you own that are transferred into the company. If you don't give the company anything for the shares/units, no consideration was given and it's a voidable transfer. Meaning if someone wanted to challenge the corporation they could undo your membership units being transferred to you, which would undo the formalities of the corporate formation and either pierce the veil and make you personally liable or revoke the ability of the business to transact thus turning it into a sole proprietorship and again making you liable. 

You _could_ create a lease between you and the company whereby the company rents the assets you own individually to be used for the business. You could then execute the lease in exchange for the shares/units. But the wording of that lease has to be very particular and careful. You can't do it for too little money per month, or it will be considered a fraudulent transfer. You can't do it for too much per month, because as a start up venture it won't have much in the way of monies to pay rent per month. If it fails to pay rent to you, you've failed to follow corporate formalities (pierce the veil again). At that point, since it owns no assets other than a name but it owes you money, it is insolvent. Under most state laws, once a company is involvement it is required to operate not in the best interests of it's owners or the company, but in the best interests of the creditors. Failure to do so makes the individual owners liable for the debts of the company. Meaning, if the company fails to pay you rent for your assets pursuant to the lease, and then someone sues the company, you could be personally liable. 

But the bigger question is how much liability do you think will happen from a mom and pop equipment shop? Likely none. You'd be better off spending the $600 incorporation fee on business liability insurance in my opinion. 



Vance G said:


> What a shame that the man can't just start selling boxes, keep track of what his expenses are and deduct that from those he sells and claim it on his taxes as income or loss.


You can. On Schedule F. You can even take a loss and use it to offset other income you made. And when you add in depreciation, most bee businesses and farming operations are likely to show a net negative. Meaning, if you have a normal 9-5 job and you make $30k per year, and you "lose" $8k in the same year on your bee business, you get to take the $8k off your $30k of normal income, meaning you only show taxable income equal to $22k (minus deductions and personal exemptions). But be careful, as if your business isn't profitable three years out of five, the IRS may reclassify the business venture as a hobby. If they do, they can go back up to three years and "undo" the farming losses you took to offset ordinary income. If they do, they can claim penalties and interest on those taxes. So if you showed an $8k loss for 3 years in a row, they can go back and (overall) claim you made $24k in untaxed income. At the 15% tax bracket, that would make for a federal income tax of $3,600, plus a penalty likely equal to ~$800 and interest equal to $100.


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## Mr.Beeman (May 19, 2012)

The LLC does give you more protection than not having it at all. I'm sure we can all agree on this point.


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## Barry (Dec 28, 1999)

I wouldn't form any type of company to "protect you." There's liability insurance for that. And even then, I would count more on running an honest and fair business than relying on anything else.


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## Specialkayme (Sep 4, 2005)

Mr.Beeman said:


> The LLC does give you more protection than not having it at all. I'm sure we can all agree on this point.


As a universal statement, I do not agree. See exemptions explanation above.

If you own more assets than your exemptions allow, and you are fine with exposing those used by the company and treating them as a sacrificial lamb to save other assets, the LLC protects certain assets you own individually at the expense of those assets owned by the company. Assuming the corporate form was set up correctly and you are smart enough to follow corporate formalities. 

If you run the math though, depending on your state, you have to hit the 10's of thousands of dollars of liability range before it really matters. Once you hit that level of potential liability, that's what liability insurance is for. I can't see a situation where you would incur that much liability making bee equipment, unless you hit someone with your car on the way to delivering some equipment to someone. But at that point they can sue you individually in addition to suing the company, so the corporate formality is meaningless. If you are planning on operating a company where millions of liability will be flying around, you are better off not taking the advice of an internet forum.


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## Cleo C. Hogan Jr (Feb 27, 2010)

Specialkayme said:


> So, honey is considered an agriculture product, but bees are not an agriculture product?


It is indeed odd, but, that is how it is in Kentucky.

I have to collect and report sales of bees and bee equipment, but, not honey. The legislature has tried to change this several times, but, never able to accomplish it. Bees are considered a hobby ( about the same way horses are treated by the tax laws), and you pay sales taxes on all sales and purchases, unless you have the exemption. If you have the exemption as a business, you reconcile your receipts and purchases of supplies and equipment when you file your sales tax forms. Depending on amount sold, you may pay your sales taxes quarterly or annually. I just finished last night for the period 1 Oct - 31 Dec. I pay quarterly.

cchoganjr


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## Rader Sidetrack (Nov 30, 2011)

farmer's_wife09 said:


> Is filing a dba and sales tax license necessary? ... We are located in Michigan.


Here is the place to start:

http://www.michigan.gov/taxes/0,1607,7-238-43529-154427--,00.html

My reading of that is that you are not required to use a "dba", your existing legal name is OK.

As at least some of your woodenware is likely to be sold to "consumers", at a minimum you will be required to collect sales tax from those consumers. So, yes, you do need to register with the State, and collect sales tax. 

Note that _some _of your customers may present you evidence that they qualify for an exemption from (your) collection of state sales tax, via this form. Make sure that the records you keep clearly keep track of what sales are (sales tax) taxable, and which are not. And never forget that once you have collected that sales tax, those monies belong to the state, even if you have not yet remitted those funds yet (monthly, quarterly, etc). In my experience the various states take a VERY _dim view_ of vendors holding State Tax funds that don't turn over the State monies on time. :no:


P.S. In evaluating the above discussions about LLCs or other forms of corporate entities intended to shield personal assets, consider _Specialkayme_'s comments very carefully. His 'day job' provides a wealth of experience in just that topic.


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## TalonRedding (Jul 19, 2013)

Barry said:


> I wouldn't form any type of company to "protect you." There's liability insurance for that. And even then, I would count more on running an honest and fair business than relying on anything else.


Well said.:thumbsup: 
As well as what Specialkayme said. :thumbsup:

The best advice so far this year....


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## Mr.Beeman (May 19, 2012)

I may be wrong, but last I knew you could not get liability insurance on producing and selling a product unless you were a licensed business.
Again, I may be wrong.
Even an honest and fair run business can get sued these days. Most times it's for no good reason.


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## Rader Sidetrack (Nov 30, 2011)

_Licensing _and _ownership _are different concepts. For instance, you MUST be licensed if you want to work as a dentist, but a licensed dentist is not required to form an LLC or any other legal entity. A dentist can simply operate under his own name and still be licensed (and insured too).

Here is what the SBA says on this issue:


> A sole proprietorship is the simplest and most common structure chosen to start a business. It is an unincorporated business owned and run by one individual with no distinction between the business and you, the owner. You are entitled to all profits and are responsible for all your business’s debts, losses and liabilities.
> 
> Forming a Sole Proprietorship​
> You do not have to take any formal action to form a sole proprietorship. As long as you are the only owner, this status automatically comes from your business activities. In fact, you may already own one without knowing it. If you are a freelance writer, for example, you are a sole proprietor.
> ...


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## BeeCurious (Aug 7, 2007)

farmer's_wife09 said:


> Hi there,
> My husband has been making woodenware for our use for a few years now. We now have a sawmill and we want to sell his homemade hives.


Just curious, what liabilities are associated with selling woodenware? 

Splinters?


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## Barry (Dec 28, 1999)

Mr.Beeman said:


> I may be wrong, but last I knew you could not get liability insurance on producing and selling a product unless you were a licensed business.


In Illinois, I'm not licensed yet am covered in what I do with insurance. We have limited licensing for construction work, like roofing.


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## kilocharlie (Dec 27, 2010)

Be cautious with business advice here on the internet. Get it from your SCORE counselors , your attorney, your CPA, your insurance agent or broker, etc.

Special Kayme - Thanks for chiming in. I avoid Sole Proprietor and simple Partnership on a basis of lawsuit protection. Yes, the entity should own everything and you need to keep records and minutes of meetings to keep corporate veil intact. Talk to your attorney!

Vance - your insurance guy is your friend, but still document everything - that changes when you file a claim.


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## Specialkayme (Sep 4, 2005)

kilocharlie said:


> Be cautious with business advice here on the internet. Get it from your SCORE counselors , your attorney, your CPA, your insurance agent or broker, etc.


Agreed.

Spend a good amount of time finding the right attorney, agent, and accountant. When you do, I suggest you take their advice. It's a crying shame to see someone spend alot of money on a good attorney, then not take their advice and have to spend three times more money to get them out of their problems. 

If you disagree with their advice, either you think you know more than they do, you think they are inexperienced, or you think they lied to you. In either event, you need to find another attorney, not blindly choose which piece of advice to take and which one to ignore.

My two cents at least.



kilocharlie said:


> I avoid Sole Proprietor and simple Partnership on a basis of lawsuit protection.


If by lawsuit protection, you mean loss mitigation after a failed lawsuit, for most businesses I would agree with you. But not for all and not for most small businesses.


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## Barry (Dec 28, 1999)

Specialkayme said:


> If you disagree with their advice, either you think you know more than they do, you think they are inexperienced, or you think they lied to you.


Or they actually gave you bad advice. That's another real option. Wish real life was simple, but it's not. I've paid attorneys for services that ended up costing me more down the road. It's no different than beekeepers. You'll find 10 different answers from 10 different attorneys to the same question. Spend time researching it yourself first before involving the "professionals."


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## Specialkayme (Sep 4, 2005)

Barry said:


> Or they actually gave you bad advice. That's another real option.


That isn't a stand alone reason. The advice isn't bad just because it's bad. The advice is bad because the attorney is bad. If the attorney is bad, it's because he's either stupid (you know more than he does, I'll also throw lazy in here), they are inexperienced, or they lied to you.



Barry said:


> Spend time researching it yourself first before involving the "professionals."


You can learn alot from yahoo answers. Usually not more than they teach through a 4 year degree program followed by 90+ credits of post graduate education through an ABA approved educational facility though. I spend a significant portion of my time notifying people that they can't do what their "friend" told them to do, or what they read on some website wasn't really accurate. No different for most professionals though. I'm sure the medical community wishes webMD was never created. Plenty of people go in thinking they have an ruptured spleen only to find out it's bad gas.

Research all you want. Visit with a professional. If they give you advice you don't like, find another one. If you have to go to 5 or 6 professionals before you find someone who gives you the same advice as your research, it could be you had a run in with 4 or 5 bad professionals. Or maybe it took you a while to find the bad one. Who knows.


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## kilocharlie (Dec 27, 2010)

I'd very strongly recommend reading Nolo Press's business Startup kit book for your state. Some things have changed recently regarding business format, and asset protection resulting from it. If you do this before talking to an attorney, you will likely be able to ask better questions for your time and money.


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