Ebay & IRS -- Force Sellers To Collect & Pay Taxes?

CC2GO

FYI! Just so you are all aware in case you don't know......

Prospective legislation for mandatory out-of-state sales taxes could impact your trading
on eBay by requiring you to collect and remit sales tax on all items sold outside your home state.

The Internal Revenue Service is considering a proposal to force “Internet auction sites” (including eBay) to collect “sales” information on their users and report it to the IRS.

As currently crafted, the proposal would only apply to online auction sites and not apply to other small business-enabling enterprises, on or off the Internet.

About IRS Internet Auciton Tax Reporting & Its Implications!


Other Relevant Information

bushmaster8

Wow! That would have a huge impact on the ma & pa ebay sellers!

RVDavis

I think forcing sellers to provide cost and sales price information for the IRS is a totally different issue than the sales tax, is it not? Sales taxes are state-based, and the IRS is interested in taxing net profits. Neither makes me very happy by the way however, under the federal tax law, we all have an absolute obligation to pay taxes due without regard to the IRS's knowledge of the income.

BobaFett72

We already pay our fair share in income, property, sales, gas and cigarette taxes. They squander and waste enough money. Hopefully this resolution is defeated.

BAJJERFAN

What does the IRS have to do with state sales taxes? In many states you are required/expected to pay your state a sales tax for items that you buy over the internet out-of-state. States would also like/expect you to collect sales tax for them from sales that you make to out of state customers.

Russ

<< <i>The Internal Revenue Service is considering a proposal to force “Internet auction sites” (including eBay) to collect “sales” information on their users and report it to the IRS. >>



So what? If the IRS wants my sales info, all they have to do is look at the Schedule C I file every year.

And, these guys are correct. Sales tax is a completely different issue.

Russ, NCNE

BAJJERFAN

<< <i>So what? If the IRS wants my sales info, all they have to do is look at the Schedule C I file every year. >>



Yes but not everyone is like you. Many don't report their eBay sales and I'd bet that most eBay seller's can't even document what they paid for the stuff they sell there.

TwoSides2aCoin

Uncle Sam is lazy. He's always looking for ways to force others to do his dirty work.

tyler267

If this goes through it will be no different than the current law that requires a business to issue form 1099 to individuals. The IRS will just load all the info into their computer sytem, then match the revenue reported by the auction site with the tax returns, and the result will be instant tax assessments, penalties and interest.

mrpaseo

That would probably stop me from doing anymore Ebay sales...

I guess consignment is the only way to go.

basestealer

This legislation, if it passed, would affect state sales taxes. Currently, eBay doesn't report sales data to the IRS, and the IRS and the individual states have no idea who is selling what or for how much. It seems to be an honor system--some sellers gladly collect sales taxes for sales to people that reside in their home state (probably a brick and mortar business). If eBay had to collect sales data and report it to the IRS for income tax purposes, you can bet your dollars that the states will demand their share of the pie--eBay will already have this information, and they'll likely send it off to the states as well. And don't forget, states also levvy their own income taxes. There is no requirement that you collect sales taxes for out of state sales, however. This may or may not ever change.

segoja

The people that should be scared are those taht don't report the sales.

I'm like Russ...check out Schdule C and you'll get the number pretty fast.

if you've been selling a lot on E-Bay but don't report it, I'd be shaking a little. This stuff is pretty easy to track if someone wanted to push E-Bay.

Maybe some of the powersellers would get powerscrewed

tyler267

<< <i>The people that should be scared are those taht don't report the sales.

I'm like Russ...check out Schdule C and you'll get the number pretty fast.

if you've been selling a lot on E-Bay but don't report it, I'd be shaking a little. This stuff is pretty easy to track if someone wanted to push E-Bay.

Maybe some of the powersellers would get powerscrewed >>




Even without this reporting it's easy for the IRS to get this type of info(paypal records, ect) in an audit. I'm always ammazed at how freely certain people talk about not reporting all their income. I was at a show in Ohio last year and two dealers were openly discussing (loudly) unreported transactions.

basestealer

Well you know what they say, income taxes are "voluntary"!

puritan9

I am a power-seller on e-Bay, and I pay every dime I owe to the IRS. I have receipts for everything I buy to sell, and all the mailing receipts from the post office. I also keep records of everyone I sell to, their addresses, what they buy, and what it cost to ship to them.

BAJJERFAN

If people had to report their eBay profits and collect sales taxes for all 50 states eBay would be dead in a heartbeat. It would be very easy for eBay to send to you a sum total of your gross sales for the year and it would be up to you to come up with the appropriate expenses. If that would happen it would likely be more of a from now on instead of retroactive thing.

fishcooker

IRS announced they would go after Ebay sellers years ago.

There was quite a buzz here.... although I don't know why because all the big eaby dealers pay the correct taxes on all transactions.

Longacre

Sales subject to state and federal taxes should be properly reported, no matter how small or "mom and pop-ish" the internet retailer is. The SSTP has been around for a long time, and if you want to be in the business of making interstate sales, you should be willing to comply with the laws of all jurisidictions, even if they are burdensome. Internet sales are a grey economy, in my opinion, especially when it comes to small retailers (although most people, I think, try to do the right thing).

techeff

IRS announced they would go after Ebay sellers years ago.


With the donks in control you can bet your bottom "Morgan" dollar that this is as real as Russ bragging about his Schedule C a few dozen times during tax season ever year...

TwoSides2aCoin

<< <i>The people that should be scared are those taht don't report the sales.

I'm like Russ...check out Schdule C and you'll get the number pretty fast.

if you've been selling a lot on E-Bay but don't report it, I'd be shaking a little. This stuff is pretty easy to track if someone wanted to push E-Bay.

Maybe some of the powersellers would get powerscrewed >>



No offense but the powerseller/powerscrewed doesn't make sense.
Neither is checkout Schedule C.

I am a power seller and am hardly power screwed and I fill out my own schedule C. The tax in question would just be an additional burden to sellers to collect the tax and pay Uncle Sam. When in fact, a fairer way would be to assess the tax against ebay and let it be derived from the fees they charge SELLERS, but in actuality, it can be a reverse charge against the BUYER, since he is the one who will pay the tax. But we have a very complex tax code, soooooooo nevermind.

Coxe

Underreported income will present some challenges to the IRS. (Just using eBay as an example here.) They would require eBay to correlate SSN or other tax numbers to sellers. That would put an unprecedented burden on them and one that should not be required as they are a conduit for sales not a party to the sales themselves. That is outside their business model. If the did this by only relating names and left the correlation to taxpayer identities to the IRS, good luck. Then the IRS would have to recognize a tax burden. Nonbusiness taxpayers might be selling used items at losses from their cost bases all the time. How does the IRS know the cost basis of an item? The burden ultimately comes down to an audit between the taxpayer and the IRS. The best they could do here is target sellers and have exact sales information in case there is an audit dispute. Will it affect Ma and Pa? No freaking way. This is the government.....the hopelessly inefficient government. They cannot conduct enough audits as it stands. This is completely about access to information. Warehousing information can be handy if you can find the right tidbits when you need them.

lilbear8

That would probably stop me from doing anymore Ebay sales...

Me too. With Ebay fees and Paypal Fees and now taxes, there wouldn't be anything left.

fuzzball

We are talking about two totally different taxes being 1) state sales tax, and 2) federal income tax.

As an individual (not a store or professional seller), it would be impossible for me to actually compute sales taxes for a substantial portion of the country. I don't know about your state but here the sales tax is not the same for everyone, rather it depends on what city and county you live in as each locality can add to the state sales tax. So basically for anyone who does not live in my same area, I would have no clue what their proper tax is. For that matter, even if I could compute the tax, I wouldn't know who to send the taxes to. I can promise you that if I had to fill out 50 sales tax forms each year (or more often as required by some states), there is no way I would keep selling on ebay. The only workable way to do it is that ebay would have to compute it, collect it (either directly as a portion of pay pal payments or add it on to my seller invoice and presume that I got it when paid directly), and of course submit it. Sounds like quite the hassle.

About the income tax... it is true that we are supposed to pay taxes on profits however profit can be somewhat troublesome to compute. For starters, the vast majority of sales I have had on ebay have been items which I lost money on. Such as selling a school text book for $70 used when I paid $150 for at the start of the prior semester, or selling my son's clothes which I paid retail for but he grew too fast and never wore them so they are sill new with tags but of course go for less than retail. While I have sold some coins on ebay, I am not a dealer so basically selling on ebay is just a hobby and one which loses money. It is my understanding that you only have to pay taxes if you make a profit and that you can actually write off losses, but only to a limited extent. (I am not an expert in tax law but I understand that you would have to call it a business of some sort and that after a couple of years in a row of losses, the IRS will disallow the deduction as being a hobby. Besides, for the majority of items I have sold, I do not know the exact price paid and it would be impossible to compute an exact amount. (How many of you who are not dealers know what you paid for the stuff you are selling?)

The bottom line is that for me, if any effect, my taxes would go down. However some people who are making a lot of money off the books would have to pay tax. My personal opinion is that the bulk of dealers and store owners are in fact reporting the ebay income on their taxes already (have to explain what happened to the inventory some how) and that the net effect would be a lot of hassle for little income to the IRS.

Just what ebay needs, one more reason to not use them. As it is, I haven't placed a single bid on anything since they started that Bidder 1, Bidder 2 crap. Despite the "statistics", I still feel like I'm being shilled.

-Fuzz

BAJJERFAN

<< <i> How does the IRS know the cost basis of an item? >>



They don't and they don't need to know. eBay would send you a 1099 or whatever saying that your gross sales were x dollars for the year and that you paid y dollars in listing and final value and maybe PayPal fees as well. It would be up to you to keep tabs on shipping, insurance and other costs. If you sold a coin for $900 and you had no proof of cost then the IRS would assume your basis to be 0$ and your tax liability would be on $900 less eBay fees.

Coxe

<< <i>

<< <i> How does the IRS know the cost basis of an item? >>



They don't and they don't need to know. eBay would send you a 1099 or whatever saying that your gross sales were x dollars for the year and that you paid y dollars in listing and final value and maybe PayPal fees as well. It would be up to you to keep tabs on shipping, insurance and other costs. If you sold a coin for $900 and you had no proof of cost then the IRS would assume your basis to be 0$ and your tax liability would be on $900 less eBay fees. >>



That is not the point. You may very well have the documented cost of the item. But if you are not a business and your net sales for the tax year were not in the black, you have no reporting requirement. The point I am making is that the IRS would need to figure out who to target for audits and not knowing cost information (or if the seller has it documented) puts the IRS as a system at a disadvantage. For little ticket lots, it would hardly be worth it. The bigger fish fit into a case similar to the $10K cash transaction reporting requirements and all those connect the dot exercises that can be worthwhile to them. The psychological effect is like that of the random audit though and will deter folks from selling at venues like eBay. The biggest impact will be to the eBay shareholder if this ever gets traction.

fishcooker

If everyone already paid their taxes, no one would be concerned. All they'll do is search eaby's data based for revenue and number of auctions. There's the list of folks to audit and get the most tax revenues for the least effort. These folks will be on paypal most likely, so the electronic trail is already there. If the IRS would pay me 5% of the tax cheats I find, I think I'd get rich.

BAJJERFAN

<< <i>The point I am making is that the IRS would need to figure out who to target for audits and not knowing cost information (or if the seller has it documented) puts the IRS as a system at a disadvantage. >>



In all probability the IRS would not do audits; how would they even know that you sell on eBay. What would likely happen is that the IRS would require eBay to report via 1099, ALL SELLERS who had gross cumulative sales of $10,000 or more for the year. It would then be up to you the seller to document and claim any incurred costs so that you could calculate a taxable "net profit" on your eBay sales. It would be no more burden on the IRS than your bank reporting your savings account interest would.

sonoranmonsoon

If I remember correctly this came up last year or the year before, and it failed. I guess they will keep trying until it passes. It will create a mess for most sellers on ebay. Unless they figure out a way to stream line it, it would require every seller to open a sales tax account with every state. What a nightmare. I suspect, if passed, there will be an easier proceedure to handle the paper work. On the bright side, it may remove a lot of sellers on ebay to the sidelines, reducing competition and increasing sales for those that adopt.

BAJJERFAN

The IRS is not concerned about sales tax; the states are. Seems like we are mixing two different issues here.

The IRS would probably like to collect income taxes on your profits from eBay sales. The state would too if you live in one of the 43 states that levies a tax on income.

The state would like to collect [that is have you collect it for them] sales tax on your eBay or other internet sales to residents in your state. If you are a business with branches/outlets in other states the would like you to collect sales tax on sales in those states as well. Eventually they would like you to collect sales tax on sales to ALL states.

MrSpud

Here's a couple of questions that go off on a tangent from this thread, but are related.

1) Suppose you buy a group of coins for $100. The group contains 1 morgan, and 40 state quarters. Then you sell the Morgan for $45 and keep the quarters for your state quarter collection. Can you claim that the quarters are worth $10 face and claim that you therefore paid $90 for the Morgan and lost $45? Would it matter if you then submitted 5 of the best state quarters to PCGS and got MS69 grades on them?

2) Suppose you bought 2 slabbed MS65 Morgans at the same time from the same dealer for $200. Only one is in a PCGS slab and the other is in a PCP slab. Suppose you keep the PCGS coin for your collection and sell the PCP coin on Ebay and get $20 on it. Can you claim that you lost $80 on the coin?

BAJJERFAN

<< <i>2) Suppose you bought 2 slabbed MS65 Morgans at the same time from the same dealer for $200. Only one is in a PCGS slab and the other is in a PCP slab. Suppose you keep the PCGS coin for your collection and sell the PCP coin on Ebay and get $20 on it. Can you claim that you lost $80 on the coin? >>



You would determine a cost for each coin at the time of sale say:

PCGS 65 Morgan $160
PCP ms65 Morgan $40 so your loss would be $20 you can't claim a net loss for this sale on your income tax but you can use it to offset 420 in gains from other sales.

I spose you could say that each coin cost $100 in which case your loss would be $80.

dorancoins

Personally, I stopped selling on Flea-Bay a while back as there are too many tightwads looking to get something for nothing. I am restricting my Flea-Bay activities to buying only. With this legislation being floated around and, with the "pinko libs" now running congress, it will get passed. Just what the sellers need - a tax so some putz in DC will continue to pay $50 or more for a toilet seat.

And by the way, Yahoo Auctions and Delcampe will be next!

Coxe

<< <i>

<< <i>The point I am making is that the IRS would need to figure out who to target for audits and not knowing cost information (or if the seller has it documented) puts the IRS as a system at a disadvantage. >>



In all probability the IRS would not do audits; how would they even know that you sell on eBay. What would likely happen is that the IRS would require eBay to report via 1099, ALL SELLERS who had gross cumulative sales of $10,000 or more for the year. It would then be up to you the seller to document and claim any incurred costs so that you could calculate a taxable "net profit" on your eBay sales. It would be no more burden on the IRS than your bank reporting your savings account interest would. >>



Which 1099? Couldn't be 1099-B as eBay does not fit the official description of a qualified broker, the commodities exchanged are not regulated by securities laws, among other reasons. There are provisions, to keep this coin related, to use the form to report sales of precious metals and coins made of them. However, the sale must CFTC (Commodities Futures Trading Commission) regulated futures contract limit. A single or handful of coins won't cut it. 1099-MISC wouldn't be correct as eBay is not the payor. (Also form 926 for foreign sales would be extremely limited in scope and probably never applicable.)

I don't believe there is a mechanism or precedent for this. Do they require Mastercard Corp to send annual data to the IRS too? If so, why doesn't the consumer get a copy? Only sales meeting or exceeding $10K are reportable.

BAJJERFAN

Same reason I sell very little on eBay anymore.

Actually I wonder if the "trickle down" effect from eBay sales doesn't ultimately generate more economic activity and taxes than merely taxing the ebay transaction itself. If you force people away from eBay as a venue to buy or sell then you will have NOTHING to tax.

tmot99

It seems to me that it would be pretty easy to show a loss on an item, not necessarily a coin and that the government would then allow a deduction for capitol losses.

BAJJERFAN

<< <i>Which 1099? >>



How the hell would I know; they haven't even enacted the legislation yet. The IRS would probly require eBay to report your gross sales on some type of 1099 form or other form as they deem appropriate. Or they would create a 1099-grrr just for that purpose. The point is eBay could be set up to do that very easily.

BAJJERFAN

<< <i>It seems to me that it would be pretty easy to show a loss on an item, not necessarily a coin and that the government would then allow a deduction for capitol losses. >>



Losses on coins or most other sold on eBay are NOT deductible as net capital losses. You pay taxes on the gains but you can't claim a net loss on coins. Losses on coins can be used to offset any gains on coins tho.

Hugegut

Maybe the IRS would just use the info they get from Ebay as one of thier many screening methods to identify returns that are "interesting". If you say on your return that your gross ebay sales were $20k but ebay says you did $60k then maybe they would want to look at you a little more closely.
Also, maybe the IRS is going to be tapped as the agency to administer any multi-state online sales tax compact. Maybe they will be the ones that you'll send all your collected sales tax to and then they would divvy it up to the appropriate states. Who knows.

Coxe

<< <i>

<< <i>Which 1099? >>



How the hell would I know; they haven't even enacted the legislation yet. The IRS would probly require eBay to report your gross sales on some type of 1099 form or other form as they deem appropriate. Or they would create a 1099-grrr just for that purpose. The point is eBay could be set up to do that very easily. >>



Not easily. They would need taxpayer IDs for every seller. (Something else to give the fundies wet undies. "There's the BEAST! EBAY!!!!") Might clean some things up lickety split, but would kill eBay's bottom line.

BAJJERFAN

<< <i>I don't believe there is a mechanism or precedent for this. Do they require Mastercard Corp to send annual data to the IRS too? If so, why doesn't the consumer get a copy? Only sales meeting or exceeding $10K are reportable. >>



I think that you are missing my point. Congress and/or the IRS may decide that there is considerable revenue to be gained by taxing eBay sellers' profits from their eBay sales. The easiest way for them to do this would be to require eBay to track and report your gross sales. I picked $10K as an arbitrary limit. It would be up to you to keep track of your costs so that a net profit [if any] could be calculated.
How would it be reported? Hell I don't know; maybe the IRS would concoct form-1097-eBay. eBay is a BIG operation with millions of users; certainly a lucrative target for tax revenues.

BAJJERFAN

<< <i>Not easily. They would need taxpayer IDs for every seller. >>



If Congress or the IRS says get the info eBay will get it. Its likely such shenanigans might put eBay out of business so the IRS would have to decide if we are better off with eBay or without eBay.

oreville

I essentially agree with BAJJERFAN's comments. I addition I want to add a few comments.

First, a quote from another poster;



<< <i>Which 1099? Couldn't be 1099-B as eBay does not fit the official description of a qualified broker, the commodities exchanged are not regulated by securities laws, among other reasons. There are provisions, to keep this coin related, to use the form to report sales of precious metals and coins made of them. However, the sale must CFTC (Commodities Futures Trading Commission) regulated futures contract limit. A single or handful of coins won't cut it. 1099-MISC wouldn't be correct as eBay is not the payor. (Also form 926 for foreign sales would be extremely limited in scope and probably never applicable.) >>



My comments;
I am sure there will be meetings about this exact issue coming up very soon. In fact, our local group has a meeting with IRS personnel to discuss some of the preliminary issues.

There is increasing thinking within The Internal Revenue Service that they may not require (after all) legislation to require ebay to report all sales of over $10 to the Internal Revenue Service. I happen to concur with that thinking. Ebay happens to be a third party that collects commissions based on the amount of value and quantity of items sold. It is my personal opinion that the Internal Revenue Service will first require all sales over $5,000 per year per ebay user ID name within three years then tighten things up to a $600 threshold within the succeeding two years.

These things are already being discussed in "hypothetical terms."

The reason while the $600 threshold per year will be maintained is to separate the casual seller from the seller who has potential net capital gain income to report to the IRS.

The only problem will be that many businesses operate ebay as a business not as investment property purchases and sales.

I suspect that ebay will be required to eventually re-register every user as a condition to make future purchases and/or sales as a personal/investment user versus a business user. That entails filing a form W-9 plus a separate form that ebay will have to create to distinquish business from personal accounts.

2manycoins2fewfunds

I'll mention that a few months ago I spoke with a retired examiner who now works defending taxpayers. He mentioned a local IRS office had requested from Paypal a list of the 20 biggest recipents of Paypal payments in their district then simply crossed list with recipents tax returns.

Personally I have and will continue to pay federal and state taxes on all Ebay sales/income. Had around 20K net income last year from Ebay and related sales. While it was only a part of my total income it was none the less income and reportable. I tried to be as accurate as possible but as many of you I had to do best estimates on cost of some items as they were purchased a number of years ago or they were part of large multiple item purchases.

Remember you are far better off having to defend whether what you filed is correct than having to defend why you never filed at all!!

Coxe

The problem is there are too many people who don't feel their fair share is their fair share. I personally maintain impeccable records and pay every dime of tax owed. But we see sellers on eBay who clearly make money on shipping. Imagine how they will like dealing with taxes. Fee avoidance is not the same as tax avoidance. Most of those characters I assume are small fish though. There are probably some huge cans of worms waiting out there. You know the stuff that traditionally fell off of a truck or is part of a grandparent's estate that needs settling immediately. Will start with tax evasion and lead to stolen property, trademark violations (knock-offs), and piracy (counterfeits). I still believe this has more to do with information acquisition to be shared than is on the surface of the proposal.

RVDavis

<< <i>The problem is there are too many people who don't feel their fair share is their fair share. I personally maintain impeccable records and pay every dime of tax owed. But we see sellers on eBay who clearly make money on shipping. Imagine how they will like dealing with taxes. Fee avoidance is not the same as tax avoidance. Most of those characters I assume are small fish though. There are probably some huge cans of worms waiting out there. You know the stuff that traditionally fell off of a truck or is part of a grandparent's estate that needs settling immediately. Will start with tax evasion and lead to stolen property, trademark violations (knock-offs), and piracy (counterfeits). I still believe this has more to do with information acquisition to be shared than is on the surface of the proposal. >>



John:

I think the IRS, under current law and administrative code, can make a very strong case against any Ebay seller who makes a profit and does not declare that profit. It is really that simple. The provision of a 1099 by an income source is not a prerequisite to tax liability. A 1099 just shows that someone has reported some level of income to the IRS. Is this a move to collect information? Sure, in my opinion. Can the IRS go to Ebay right now and demand records? Sure they could. If the IRS sends a seller a demand for records, does that seller have to provide those records? I think they do, even with no additional legislation.

The 1099 version would probably fall under the umbrella of the current 1099-Miscellaneous.

Rick

bestday

<< <i>Wow! That would have a huge impact on the ma & pa ebay sellers! >>



After the 2006 Anniv gold , silver , Plat run on Ebay , you just know the IRS was smelling MONEY. What will be left after taxes, ebay fees ??

bestday

<< <i>

<< <i>Wow! That would have a huge impact on the ma & pa ebay sellers! >>



After the 2006 Anniv gold , silver , Plat run on Ebay , you just know the IRS was smelling MONEY. What will be left after taxes, ebay fees ?? >>



Bet you will see something like a required 1099 form stock sales proceeds ..only this will list auction proceeds .. the game will be over

stockwiz

what about the people from china who sell bootleg seasons of television shows at a 300% markup? Will they have to pay taxes on that being they are not in the United States?

I say we pay enough taxes and they should leave well enough alone. The internet is a big chunk of the economy and the trickle down effect just from allowing this sort of commerce should make up for any tax money they think they can get.

Honestly, the system is insolvent the way it is anyways, and the government knows it.

BECOKA

I already do the sales tax thing for California and lose quite a bit of California business due to that. It might even the playing field if every one had to take in taxes for all states.

I already claim profits for income tax so that is not an issue for me.

LindeDad

Can we declare losses for the items we list that don't sell?

Russ

<< <i>Can we declare losses for the items we list that don't sell? >>



Selling costs should be recorded as an offsetting expense on the Schedule C. For example, I record eBay fees under advertising expense, and PayPal fees under bank fees, (processing).

Russ, NCNE