Fulfillment and Incorporation

[nate]

These topics are tied together; most coops incorporate in the state where they do most of their business.  Depending on how active they are in other states they may also register as "qualified to do business" in those other states.

I have heard through the grapevine that there are a lot of quality herb producers in the Pacific Northwest, and a lot of our soon-to-be-member-owner-customers live here too.  Washington and Oregon both seem like natural choices.  I would tentatively rule out California because of the complexity of the regulations and the expense of maintaining a business presence there if we don't have to.

Washington's great benefit is no state income tax (corporate or personal).  This is very attractive to most corporations, but for a consumer coop with a deduction for patronage refunds it is less of a benefit, because in principle the coop can avoid all income tax liability simply by selling only to its members and refunding any excess profits.

Oregon's great benefit is no sales tax.  Given the volume of end-user-level transactions that Ahimsa will be processing, this could mean the Ahimsa could deliver its products to us significantly more cost-effectively in Oregon than in a state with sales tax on both ends of the transaction.  This seems like a good thing to me.

Are there other issues when considering Washington vs. Oregon for fulfillment or incorporation?  Are there other states that I have overlooked that might be good candidates?

[Ingrid Naiman]

All excellent points. 

With transport costs soaring, there are many additional factors to consider, but first a note about taxes.  At present, businesses buying for resale do not pay taxes on what they acquire from sources within the state.  They also do not have to charge tax on purchases shipping out of state so the tax benefits in Oregon apply mainly to (1) office supplies sourced locally, and (2) sales to Oregon shipping addresses.  Therefore, unlike food co-ops that rely on walk-in customers, Ahimsa would have an international membership and the sales taxes would probably not be nearly as important as transportation costs.

For precisely the reasons mentioned, there are individuals who work in Oregon and live in Washington, keeping the traffic on the bridges quite busy, I suspect. 

Shipping costs are significant and these are both incoming and outgoing.  In a worst case scenario, you have something like black cumin seeds, grown in Egypt or India, imported into the U.S., cold-pressed in one  facility, gelcaps filled in another lab, filled bottles sent to vendor, then shipped cross country to seller and then shipped to Yemen or South Africa or Florida.  The cost of the oil in the caps is probably less than a dollar but the customer pays $20 or thereabouts to get that bottle delivered where he or she wants it.

The closer to a hub, the more efficient shipping is, but this would generally mean Memphis if using FedEx, not sure where UPS and DHL route shipments, but even now, I could have an order going to British Columbia which as the crow flies is next door, but it goes down to Portland for customs clearance and then back up this way and to the other Vancouver.  I don't see a solution unless a time were to come that there would be retail outlets in major population centers.

At the moment, it would be very difficult to analyze sales by region because there is not too much consistency, but clearly, one can say there are probably more shipments to states with large populations than to those with smaller populations, but the explanation is very obvious.

Finally, for exactly the reasons you mentioned, there are not so many shipments to Oregon because many people in Oregon can find what they want locally.

[Ilsa]

Nate, Ingrid, et al,

From strictly a tax perspective, the Tax Foundation ranks all 50 states each year. See http://www.taxfoundation.org/research/show/22658.html for the 2008 ranking.

Also, this forum software makes it possible to create simple polls. We are now 70 members strong. A poll of our home states would be very easy to set up. Shall we?

Ilsa

[nate]

I don't think the results of a poll should necessarily determine the state of incorporation, but I am very curious where everyone lives.  It can't hurt to know more about our membership.

[Ilsa]

I'm curious, too. I feel like I must be the only one on the East Coast.

[cj9]

Ilsa, I thought I was the only one over here. Now there are at least two, but it seems all the good stuff comes from Wa. and  Or. area. It is the shipping that gets me every time. Sometimes it costs more than what I purchased!