By [tag]Cliff Ennico[/tag]
Rules? You mean there are RULES?
Afraid so . . .
For many folks, selling on [tag]eBay[/tag] begins as a fun hobby, but then one morning you wake up and realize you’ve made $30,000 from all those tchotchkes in your attic. You’re cruising flea markets every weekend with a pickup truck, two illegal immigrants in back and a wad of hundred dollar bills, buying everything those little old ladies have on their tables. You’re clipping death notices from your local newspapers and sending flyers to the next-of-kin offering to clean out Uncle Irving’s house for a commission. You have 10 college kids (excuse me, “student interns”) in your basement grinding out [tag]auction listings[/tag], living on Diet Coke and Doritos, and sleeping on futons. The neighbors won’t talk to you because you get to their garbage before the sanitation department does. They’ve also turned you in to the local zoning board complaining about that “in-law apartment” with attached loading dock you’re building in your backyard. You bring packing crates and a forklift to your library’s annual used book sale. You know exactly where to score “cars formerly owned by drug dealers” and containers of Bobble-head dolls from Korea. You’re taking out ads in local newspapers with the tag line “I buy. I sell. I take consignments.” You’re in business now, chucko. Time to take things a bit more seriously.
Whenever you sell on eBay, you’re a “retailer”, and are subject to all of the laws, taxes and regulations that “brick and mortar” retailers in your town have to cope with. Here are some basic [tag]legal and tax tips for eBay sellers[/tag]:
- item descriptions – don’t “cut and paste” a description from another seller’s listing unless that item is 100% identical to your own;
- if you don’t know what it is you’re selling, say so in the description, and solicit input from other community members;
- don’t ask your friends to place phony bids on your items to drive the price up – that’s called “[tag]shill[/tag] bidding”, it’s a felony in most states, and if you’re caught eBay will not only boot you off the site but turn you over to your state Attorney General’s office for prosecution;
- make 100% sure it’s an “original Gucci handbag” before you put it up on eBay;
- if you’re selling stuff exclusively on one of eBay’s overseas sites (such as eBay U.K. or eBay Italia), you may be “doing business” in that country and may have to sign up for that country’s taxes and comply with their laws;
- if you’re making even One Dollar of profit selling stuff on eBay, you have to pay income taxes on it (sorry) – the [tag]IRS[/tag] doesn’t care whether you’re a “hobby” or a “business” if you’re making money at it;
- if you’re making more than $400 a year in profit selling on eBay, you’ve got to pay “[tag]self-employment tax[/tag]” (basically, Social Security and Medicare taxes) on top of your income taxes;
- if your state has a [tag]sales tax[/tag], and you sell something on eBay to someone who lives in the same state you do, you have to pay sales tax on the winning bid amount;
- in all your auction listings, be sure to say “Note to residents of [your state]: state and local sales taxes will be added to your winning bid” – if you don’t do this, you have to “eat” the tax out of the sale proceeds;
- if you buy something on eBay for your own consumption (i.e. not for resale) and don’t pay sales tax on it, you may have to pay a “use” tax to your state government – talk to a local accountant or CPA for details;
- lose the illegal immigrants and “basement interns”– there are laws about who you can and can’t hire and how you treat them;
- you must send [tag]IRS Form 1099[/tag] to each individual from whom you take consignments of inventory if you pay him or her more than $600 during the calendar year.
Paying taxes and dealing with laws ain’t fun, but it’s an essential part of doing business online. The federal and state governments have lost BILLIONS of dollars in tax revenue from online commerce, and it’s only a matter of time before the IRS starts going after eBay sellers who haven’t been paying up. Now’s the time to find out what your obligations are, and get into compliance before “they” find you.
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1 comment so far ↓
Cliff:
Thanks for the great article. One question though… you wrote: “item descriptions – don’t “cut and paste” a description from another seller’s listing unless that item is 100% identical to your own”
While I agree with the first part (”don’t “cut and paste” a description from another seller’s listing…”) I’m curious the second: “…unless that item is 100% identical to your own.”
Copying another seller’s product or item description word-for-word seems like a big no-no. At the very least, isn’t it unethical, and in some cases, well, wouldn’t it be considered a copyright violation?
Mikal
P.S. I am enjoying your latest book, “The eBay Seller’s Tax and Legal Answer Book.”
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