Many process servers work as independent contractors (ICs) for other, usually larger, companies. Whether you are an IC or a company of some size, the same license and tax structure will apply to your operations. This lesson will discuss business structure possibilities and provide an overview of what you need to do in terms of being licensed by various governmental agencies and the taxes associated with doing business in the state of Washington.
You may operate your business under any one of several organizational structures. Each type of business structure has certain advantages and disadvantages that should be considered.
Business Structure
You should contact an attorney, accountant, financial advisor, banker, or other business or legal advisor to determine which structure is most suitable for your business. There are a number of possibilities. Each offers its own advantages and disadvantages.
A Sole Proprietorship is one individual or married couple in business alone. Sole proprietorships are the most common form of business structure. This type of business is simple to form and operate, and may enjoy greater flexibility of management, less legal regulation, and fewer taxes. However, the business owner is personally liable for all debts incurred by the business.
A General Partnership is composed of two or more persons (usually not a married couple) who agree to contribute money, labor, and/or skill to a business. Each partner shares the profits, losses, and management of the business and each partner is personally and equally liable for debts of the partnership. Formal terms of the partnership are usually contained in a written partnership agreement.
A Joint Venture is formed for a limited length of time to carry out a business transaction or operation.
A Tenants in Common is formed by two or more persons to occupy the same business, while retaining separate identities in regard to assets or liabilities resulting from business activities.
A Limited Partnership is composed of one or more general partners and one or more limited partners. The general partners manage the business and share fully in its profits and losses. Limited partners share in the profits of the business, but their losses are limited to the extent of their investment. Limited partners are usually not involved in the day-to-day operations of the business. Filing with the Office of the Secretary of State is required.
A Limited Liability Partnership (LLP) is similar to a General Partnership except that normally a partner does not have personal liability for the negligence of another partner. Filing with the Office of the Secretary of State is required. Professionals such as accountants and lawyers commonly use this business structure.
A Corporation is a more complex business structure. As a chartered legal entity, a corporation has certain rights, privileges, and liabilities similar to those of an independent individual person. Doing business as a corporation may yield tax or financial benefits, but these can be offset by other considerations, such as increased licensing fees or decreased personal control. Corporations may be formed for profit or nonprofit purposes. Filing with the Office of the Secretary of State is required.
A Limited Liability Company (LLC) is composed of one or more individuals or entities through a special written agreement. The agreement includes provisions for management, ability to assign interests, and distribution of profits and losses. Limited liability companies are permitted to engage in any lawful, for profit business or activity other than banking or insurance. Filing with the Office of the Secretary of State is required.
A Trust (Massachusetts Trust) is an unincorporated business with the property being held and managed by the trustees for the shareholders. The trustees are considered employees since they work for the trust. Filing with the Office of the Secretary of State is required.
Municipal Business Licensing and Taxes
Many Washington cities tax private businesses operating within their boundaries. Contact each city in which business will be conducted. This normally only applies to those cities in which a business has an office or other establishment. However, there has been an attempt by some cities to tax business which operate in any way within their city limits. For instance, a furniture store may be located in city A but sells and delivers furniture to customers in city B. City B may attempt to collect taxes from the furniture store. Thus far this has not applied to process servers.
Property and Personal Property
You must report your business property, furniture, equipment, supplies, etc., to the assessor of the county in which your business is located.
Business Licensing Service
Every business must complete a Business License Application. This is the primary method by which the state tracks businesses.
Unified Business Identifier (UBI) Number
A UBI number is a nine-digit number that registers you with several state agencies and allows you to do business in Washington State. A UBI number is sometimes called a tax registration number, a business registration number, and a business license number. Use the Master Business Application to apply for the UBI number.
Unemployment Insurance and Industrial Insurance
You must have Unemployment Insurance and Industrial Insurance prior to the actual hiring of employees. You may apply for these registrations on the Master Business Application. If you do not have any employees you may not need either one. However, even if you don’t have any employees it may be beneficial to register with these agencies. Contact the agencies for specific information.
Process Server Registration
As discussed elsewhere in this course you must register with the Auditor’s Office in the county in which you reside or in which you have your principal place of business.
Division of Child Support
All employers are required to report all newly hired and rehired employees to the Division of Child Support (DCS) which is part of the Department of Social and Health Services.
Sales Tax Information
If you sell any kind of product to your clients you must collect sales tax and remit it to the Department of Revenue. This is also true for businesses which provide services but only for certain types of services. Most services provided by business, including service of process, do not need to collect sales tax. However, do not assume the service you are offering is not subject to sales tax. For example, some process servers also provide document retrieval services by obtaining copies of documents from the courts or other government offices. This involves a product (the copies) and is subject to sales tax. For specific information contact the Department of Revenue.
U.S. Citizenship and Immigration Services
A Federal I-9 form must be completed and kept on file for each employees.
Federal Tax Number
You need to obtain an Employer Identification Number (EIN) also known as a federal Tax Identification Number (TIN) from the Internal Revenue Service. Even if you don’t have any employees you must have an EIN. If you are a sole proprietor then your SSN is your EIN.
Name Usage
To avoid possible infringement on a reserved name, do a thorough search on all business names you will use. This can be done through the Department of Licensing and through the Secretary of State’s office.
The Department of Revenue (DoR) and the Business and Occupations Tax (B&O)
This is an income tax on gross business income. If your business does any of the following then you are required to register with DoR:
- You do anything which requires the collection of sales tax.
- Your gross income is $12,000 per year or more.
- Your business is required to pay a specific tax or fee to DoR.
- You are a buyer or processor of specialty wood products.
The only criteria which applies to process servers is #2. If your GROSS INCOME meets or exceeds $12,000 then you must register with DoR and pay B&O tax. The term “gross income” is emphasized and you must have an understanding of the difference between gross income and net income.
Gross Income (Gross)
Total business income before any taxes or expenses are deducted.
Net Income (Net)
Business income remaining after taxes and expenses are deducted.
If your gross income is greater than $12,000 in a given year then you must register and you must pay B&O tax. It is surprisingly easy to exceed this amount. Keep good records of your income and do not attempt to work “under the table” in an attempt to avoid paying taxes. The DoR regularly audits even small operations and the penalties for failing to register or pay taxes are quite burdensome.
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This is a rough diagram of a typical courtroom in the state of Washington. Courtrooms vary a great deal from city to city and county to county but they all have the same basic structure.
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