Invoicing - Brokerage/Service Fees

[jyoung8847]

Good Evening,

This question has been answered by many accountants in my area as well as corporate tax attorneys with different results. Maybe I can get a fresh set of eyes on this issue and get some positive feedback. Here's my issue.

I own a fuel company in Florida. We deliver fuel to jobsites all over the Tampa area. Occasionally one of my customers leaves the state or needs fuel delivered to a jobsite outside of my service area. Instead of reffering them to another fuel company, I now "broker" the fuel by calling the closest fuel supplier and arranging the delivery. Currently I am setting up a credit account with the nearest fuel supplier, billing my customer for "FUEL SERVICE PROVIDED" and hopefully getting paid by my customer before paying the supplier. It's a nice way for me to add some additional revenue so I need to figure out how to do this legally.

I always make sure the supplier in the other state bills me for all applicable fuel taxes, sales taxes etc so I don't have that obligaton. But my question is, am I allowed to pay a bill for $2000 for fuel on behalf of my customer, then bill my customer for $2100 for a "SERVICE"? My ultimate goal is to have the customer and suppliers sign a contract that states I am simply a bill paying service and eventually order fuel "in care of" of the customer or whatever legal way I need to do it to ensure 1. I am not in possession nor ever owned the fuel, 2. I am not reselling the fuel, simply billing the customer for an amount they owe someone else and my service fee. In a perfect world I would like to bill in one line item so the customer doesn't see my "fee" separate, or worst case scenario maybe send the customer one invoice, and keep an itemized invoice in my records for audit/accounting purposes.

In summary, can I bill my customer for "fuel service provided" (tax free) and use the money to pay a bill for product on behalf of the customer, keeping the extra money as my fee? At no point RESELLING the product.

My goal would be to separate this "brokering company" from my current fuel delivery business if that matters.

Sorry if this is confusing, any help would be greatly appreciated.

[vangogh]

I have no idea if there are laws saying you can or can't do what you want, but from your description it sounds like business as usual with you placing yourself in the middle of the transaction and collecting a fee. You mentioned taxes a couple of times so I would trust what an accountant or tax attorney says over what some random person of a business forum says.

Something I'd add based on my experience is when someone continues to consult others to make sure what they're doing is ok to do, it usually isn't. It usually means that someone is looking for permission to do something they know isn't allowed.

[jamesray50]

I agree with Steve, trust what a tax accountant or attorney says, not those of us in this forum that don't deal with this.

But, I don't know anything about how a brokerage business works but what you are describing seems, to me, like dropshipping. You are selling a product to a customer, ordering the product from a supplier and having it delivered by someone other than you. It seems to me like you would charge, collect and remit applicable taxes. But, I am no expert in this and may be way off base.

[Evan]

Honestly this is a bit more of a legal question than tax as you're involving different states, and even though we have some attorneys here, they aren't going to likely provide you such specific advice relating to this matter.

There is nothing wrong with being a middle man. I'm not sure though you can pay applicable taxes on a $2000 transaction (we'll see $1800 for whatever, plus $200 in taxes) and then bill $2100 and make $100 on the transaction. With sales taxes, it's usually always charged to the "end user" and tax-exempt in the middle. First, I'm not sure whether the services you're providing are taxable, or if they'd be added to the cost of the transaction that is ultimately taxable to your customer.

For a different example, think of buying a computer. Apple may sell wholesale a device for $1000 and it retails for $1300 to a retail store. The retailer here can't say "let me pay the sales tax on $1000, sell it for $1300 inclusive of taxes and be done with it". Sales tax in this instance is based on the $1300, not $1000, so you may be have a tax liability for the difference plus penalties and interest if the state determines you understated the taxable amount of the transaction. I'm not familiar with how the fuel taxes work, but I'd assume similarly. You're definitely going to want to make sure your tax professional has experience in the energy industry.

[Harold Mansfield]

I agree that you need a professional to advise you on this. You're dealing with both interstate commerce and fuel. I'm sure there is an agency or 2 that has a few rules on how this has to be done and probably some additional tax in there somewhere.