US tax reporting for Adsense Revenue

Shoudn't we be reporting sales to Google?

[MikeNoLastName]

Just playing devils advocate here (as usual.) I was just filling out my client USA tax form 1099 MISC's (after procrastinating as usual) and noticed a paragraph in the instruction booklet which I had never noticed or needed before. It's on the first page of the instructions and says in general that you need to report, using a 1099-MISC, "direct sales of at least $5000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment." Sooo, as a publisher, shouldn't this include ad space (a consumer product?) which we "sell" to Google (without charging sales tax) for "resale" to advertisers if it exceeds $5000/yr? That would mean getting G to fill out a form W-9 in order to obtain their EIN and then all publishers (over $5000/yr) inundating them with 1099-MISCs. :). It could get more compliicated if say site-targeted, or PPA ads were reported and not referral ads, in which case we would need to have a breakdown from G and how much we were paid for each. Has anyone seriously had an accountant say they needed to do this? I don't get to talk to mine again for a couple weeks.

[LifeinAsia]

You're not making direct sales (i.e., collecting money directly from the advertiser)- Google is. It's just like other affiliate programs- you're not making direct sales.

[MikeNoLastName]

I AM however "selling" my ad space to Google for resell to others.

[ronin]

Hmmm. Kinda. But I think what you are actually doing is lending them the advertising estate for free. Then, if they make any money out of the space, they give you a percentage commission.

Imagine you put adsense on ten of your pages and all that showed up were PSAs. You haven't sold anything to anyone, have you? You've lent the advertising space to Google for free and they've failed to do anything commercially productive with it. (That's not to say they haven't done a lot of good by putting PSAs to good use).

[LifeinAsia]

I AM however "selling" my ad space to Google for resell to others.

Nope- Google is "reselling" (or "re-leasing") it. You are not selling it to the end user, so therefore not "direct" sales. It's more nuanced than that, but that's the basic idea.

[jomaxx]

Are you really going to try to keep this thread alive? There's no stretch by which ad space on a website can be considered a "consumer product", period. It's neither for consumers nor a product.

[MikeNoLastName]

A "consumer" is generally considered any "end user of a product". If a manufacturer uses electrioity, steel and paint to make a car he is consuming the electricity steel and paint in the manufacturing process. he does not re-sell steel and paint to another customer, he sells a new product: a car. Thus any advertiser should be considered a consumer of ad space (unless somehow he is reselling that ad space itself), and Adsense would be considered a true reseller (as specified in the paragraph). We don't KNOW where G is reselling the ad space and nor does it really matter which in fact makes them MORE of a reseller than anything else (see last paragraph).

Just like if you were a brush salesman and as a brush franchise operator I sell you $5K of inventory to go out and resell to 100 consumers (who could conceivably even be Adwords advertisers too) for a 50% markup. I'm pretty sure in that case this tax paragraph would apply.

>"what you are actually doing is lending them the advertising estate for free. Then, if they make any money out of the space, they give you a percentage commission."

Not in the case of targeted or PPI ads. In that case you are getting a set price for a set item and all are guaranteed a price. Thus my mention of perhaps needing to break it down by ad type.

One, MIGHT argue that G is operating strictly as a "broker" or "go-between", similar to a real estate agent or ebay, but that would generally entail a contract specifically detailing a set sales commission, a named buyer, seller, terms of sale and, and most importantly the opportunity for the seller to have a say about and to decline and approve offers, etc. all of which we do not have with G (i.e. we do not know to whom or for how much our product is being sold and we have no SAY in that matter and a per item basis whatsoever), thus they are definitely leaning much further to being a reseller than a broker or agent.

BTW, the Google EIN is shown on your 1099-MISC which they send you each year.

[LifeinAsia]

As Jomaxx pointed out, ad space is not a product.

Look, the original idea was cute, but the flaws in the logic have been pointed out. You've been told that it doesn't work that way by someone who used to be an Enrolled Agent and prepared tax returns for a number of years and has been a business owner and issued his own 1099s for an even longer period of time.

[gibbergibber]

I can't comment on American tax law, but here in Europe affiliate programs like Adsense or Amazon generally aren't considered to be selling direct products.

If you start saying that anything you get paid for is a sale, then all income could be considered to be from sales. Waiters in restaurants are "selling" their services as catering professionals, but I don't think they are required to count their wages as sales or charge their employers sales tax.