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IRS & the VT Departments of Labor & Tax Requirements:
Booth renters must have a written contract with their Salon landlord that shows specific intent and time frame.
There must have proof, that the terms of the Salon's contract are actually being followed, in order for the contract to be valid.
Booth renters must have a significant investment in their business up front.
Booth renters as independent business owners, must have an opportunity for profit and loss.
Booth renters must pay sales tax to the State of VT on the items they sell to their clients and use for their services.
The booth renter must have a fixed payment on a regular basis. Such payment can not be dependent on the amount of business performed and and can not be a percentage of the work performed.
Services must be accounted for separately from the salon.The Salon Landlord can not collect money for independent booth rental services and deduct rent from those services.
Commission, bonuses and free back bar are all considered "wages" by the State of Vermont Department of labor. "Wages" is defined as "renumeration paid for services rendered by an individual including commissions and bonuses and the cash value of all renumeration paid in any other medium other then cash (emphasis added)". (UI Bulletin No 439 2/10/98) A booth renter can not receive a wage and not be deemed an employee.
Booth renters can not “co-mingle” or share supplies (including back bar) with your fellow booth renters. Each Stylists must show that they purchased their own back bar and supplies.
If the Salon landlord fails to comply with the above terms they will be subject to the Department of Labor's "ABC Test" - By the nature of our business - Booth Rental Salons fail the "ABC test".
If a booth renter pays a Salon landlord more then $600 a year, the booth renter must provide the Salon landlord with a 1099 unless your Salon files as a S-Corp.
Conversely, if the Salon pays the booth renter more the $600 dollars a year the Salon must provide the booth renter with a 1099. That means that if a Salon landlord is paying the booth renter a commission on services and retail they must provide the renter with a 1099.
Booth renters are required to:
- Pay quarterly and yearly taxes
- Track their own business expenses
- Pay sales tax on the products sold & used
- Be sure the salon is collecting sales tax on commission sales
- Hold their own business liability insurance
- Claim all tips
Salon landlords can not:
- Require training of any kind
- Pay for benefits of any kind
- Provide back bar for general use
- Hire assistants for general use
- Tell the Booth renter how, when and where to show up
- Tell the Booth renter what to wear or how to behave
- Tell the Boother renter what tools to use or how to work
- Critique services or supervise in anyway.
Appointments can not be made for a booth renter with out the ability to accept or reject that appointment. In other words, the Salon landlord can not make an appointment in the absence of the booth renter and expect the booth renter to show up for that appointment. The booth renter must accept all appointments independently of the Salon landlord or fellow booth renters.
Why is it important to the booth renter how a Salon Landlord does business? If your Salon landlord fails an audit, and renters are deemed to be employees, the IRS will audit the renter in order to provide the Salon Landlord with a bill.
Relevant IRS & State of Vermont Websites
Vermont Board of Barbers & Cosmetologists
Vermont Today -
IRS launching Audit Project in October to Reduce Tax Evasion
Doing Business in Vermont - www.thinkvermont.org