TN 10 (08-11)
RS 02101.166 Direct Sellers
Section 210(q) of the Social Security Act;
Section 3508(b)(2) of the Internal Revenue Code
A. Definition of a direct seller
A direct seller, as defined in Section 3508 of the Internal Revenue Code (IRC), is a person who performs services in any of the following trade or business:
selling (or soliciting the sale of) consumer products to any buyer on a buy-sell or deposit-commission basis for resale by the buyer or any other person in the home or in some other place that does not constitute a permanent retail establishment; or
selling (or soliciting the sale of) consumer products in the home or in some other place that is not a permanent retail establishment; or
delivering or distributing newspapers or shopping news (including any services directly related to such trade or business).
But only if:
substantially all the remuneration (whether in cash or in kind) for the performance of the services described here is directly related to sales or other output (including the performance of services) rather than to the number of hours worked; and
the person performs the services pursuant to a written contract with the business and the contract provides that the worker will not be treated as an employee for Federal tax purposes.
Direct sellers are considered self-employed.
B. Introduction to direct sellers
Direct selling provides an opportunity for individuals to earn an income and build their own business. This employment option offers an alternative for those who desire a flexible income earning opportunity to supplement their household income, or whose responsibilities or circumstances do not allow for regular part-time or full-time employment.
The start-up costs for an individual initiating an independent direct selling business are usually very low. A minimally priced sales kit is usually all that is required for someone to get started. Direct selling companies market their products through person-to-person contact away from a fixed retail location through a network of independent sellers.
Frequently, these sales presentations are in the form of one of the following:
a sales party in the home;
as part of a one-to-one get-together; or
through door-to-door solicitations.
Some examples of direct selling companies are Mary Kay, Avon, Tupperware, Pampered Chef, Longaberger, Home and Garden Party, Creative Memories, and Discovery Toys.
C. Employment status of direct sellers
To determine the employment status of direct sellers for services performed after December 31, 1982, take the following actions:
If the direct seller does not meet all of the conditions in this section, apply the common-law control test RS 02101.020.
If they are not employees under the common-law control test, consider their status as self-employed RS 01802.232.
Prior to January 1, 1983, we determined the employment status for services performed as direct sellers without regard to Section 3508 of the Internal Revenue Code.
Social Security Handbook, Section 1135 , Real Estate Agents and Direct Sellers