By Stacie Clifford Kitts, CPA
This is a multipart series about a girl enticed into the indentured life of a door-to-door seller of magazine subscriptions. Her recount of industry practices and the resulting tax consequence is truly shocking.
This story also illustrates the importance of understanding your worker status for employment tax purposes, understanding contracts your employer asks you to sign, the need to research industry practices particularly in door to door sales, accounting and tax issues associated with cash transactions, tax consequences of self employment and Form 1099, the importance of having a Plan B and consulting with the right advisors before making life decisions, oh and gee a bunch of other scandalous stuff.
This story also makes me question why our lawmakers continue to allow this industry to persist in its abuses against America’s youth!
Need to catch-up? Start with Part One – How The Nightmare Started
Part Two – Life on the Road with Nick
A slick salesman and successful motivator, Nick was the guy in charge of the crew. Abigail described him as an unattractive slightly older guy – but still in his twenties – who drove a creepy white company van. “You know,” Abigail explained, “it was the kind of van that makes you want to bring your kids back into the house when you see it coming down your street.”
Creepy van guy had an agenda Abigale explained. His first task was to make sure she signed an Independent Contractor Agreement.
Now Abigail had never seen a contract like the one she was given. Fact was, Abigail had never seen any type of contract before. She didn’t really understand what many of the terms meant – like what the heck was a supplemental addendum – a nondisclosure agreement – there was something about taxes (This meant nothing. She had never filed a tax return before) – a saving provision – and huh – injunctive relief??? Is this written in English, she thought. Oh hang on – there were some things that seemed to make sense, like the compensation section. At least Abigail thought she could understand that part.
Here was how it was suppose to work: If she sold magazines, the money she collected went to Sales Company and she would receive a portion as a commission. This to Abigail was the most important part – who really cared about the rest. According to the contract, Sales Company would track her commissions account and she would receive draws against her earnings. Other parts of the contract indicated that she could sell magazines in the neighborhoods she wanted, she could choose any accommodations that suited her (as long as she paid for them of course), and she could provide her own transportation. To Abigail, these terms sounded fair. (More on THAT later)
But wait, there was a catch. It appeared that the contract was just a formality, something Sales Company needed in order to comply with its Federal tax requirements (more on this later.) Although Abigail did not realize it at the time, Sales Company had no intentions of honoring all the terms of the contract.
In fact, Nick began violating the agreement almost immediately. “You can’t take your car.” He commanded. “Leave it here. It causes an insurance problem for Sales Company.” Really, she thought – but it says…..oh well, she didn’t want to make trouble on the first day of her great new job.
The next day, the crew was on the road and Abigail began to have a very uneasy feeling. What if life wasn’t as great as she had been told? With little money and no transportation, she found that she was at the mercy of Sales Company. She was isolated from her friends and family, removed from her familiar surroundings, and instantly financially dependent.
An average day on the road
Getting up and out as early as possible was necessary for survival when you lived in a hotel room shared by several crewmembers. Late risers found themselves clashing with each other over bathroom privileges and ultimately missed out on meals.
Hurry – push – fight became the early morning routine
The first item on the day’s agenda was a motivational sales meeting. Here Abigail learned many tricks of the trade. This was also the time when crewmembers who had little or no money tried to coax others into buying them a meal. Abigail was thankful that Nick gave her a daily food allowance. Poor performing crewmembers were not as lucky.
After the sales meeting, crew members piled into the creepy white van so they could be driven to a “target” area. This was the area that Nick chose
for the crew to walk around soliciting door to door. Now was also the time for Abigail to pray – pray that the area was safe and pray that she wouldn’t be left there alone. During her time with the crew, Abigail was convinced that Nick never thought of her safety. He freely abandoned her in one neighborhood after another. Abigail tearfully described how she often felt stranded, scared, and alone while canvassing the neighborhoods that Nick chose.
At the end of an average twelve-hour workday, Nick would pick her up and transport her back to a low-end motel where even more unbelievable stuff took place. This was when Nick made the preparations to comply with Sales Company’s bonus program. First Nick would evaluate crewmember performance. Then he would dole out the bonuses. But the thing was – the crew didn’t get bonuses in cash. No. Sales Company gave bonuses in illegal drugs and alcohol. These bonuses Nick fed freely to his underage crew. Hit your target Nick told the crew, and you will get a bonus. For many crewmembers, this either was or became a highly motivating technique.
If you would like to learn more about the abuses of this industry – Stay tuned for Part Three – Nonexistent Commissions and other Revelations – I promise, the tax consequence is coming.
Note: This story is based on true events and is told with the permission of the taxpayer. Names and some events are changed at the taxpayer’s request.