ebay meets IRS

[disneysteve]

Well, it has finally happened. I just got this email:

We're writing to let you know that starting with transactions occurring on or after January 1, 2011, new Internal Revenue Service (IRS) regulations require Half.com (and other businesses that process payments) to file a Form 1099-K for all sellers with more than 200 transactions and $20,000 USD in sales per year.

Obviously, that won't affect the vast majority of casual sellers, but I figure it is only a matter of time. Why they picked $20,000 in sales as the cut off point I don't know, but they could just as well have picked $2,000 or $200 or $20.

[elessar78]

Cost-benefit, I assume. That's probably the dollar amount where they finally see tax revenue worth going to the trouble of policing.

I bet they are just getting really desperate for revenue.

[marvholly]

IL is going after use taxes on any/everything bought online from any seller. Examole: if I buy a used doll for my grandkid I have to file & pay the 10.25% use tax (state + county + local).

NOTE: I live in the burbs, chicago is even higher.

[disneysteve]

IL is going after use taxes on any/everything bought online from any seller. Examole: if I buy a used doll for my grandkid I have to file & pay the 10.25% use tax (state + county + local).

NOTE: I live in the burbs, chicago is even higher.

They are making the buyer pay the tax, not the seller? That's interesting. What if you buy from a major retailer, like Amazon, that doesn't charge state sales tax? Do you still pay the same? That would obviously make shopping online a real pain in the butt.

I do charge, collect and submit sales tax on sales I make on ebay to NJ buyers but that's it.

[jIM_Ohio]

They are making the buyer pay the tax, not the seller? That's interesting. What if you buy from a major retailer, like Amazon, that doesn't charge state sales tax? Do you still pay the same? That would obviously make shopping online a real pain in the butt.

I do charge, collect and submit sales tax on sales I make on ebay to NJ buyers but that's it.

Steve- the buyer pays the sales tax in 95% of all transactions (most transactions). Aside from a beer at a bar, or a beer at a ball game (where the tax is built into the listed sale price and is posted as such).

So if you buy something at a store, you pay sales tax, and that merchant turns around and cuts the government a check for all purchases that month.

How would you suggest it worked?

If a buyer did not pay sales tax on a purchase, they need to pony up and pay that tax.

[disneysteve]

Sorry if I wasn't clear, Jim. Yes, the buyer pays the tax but it is typically the seller's responsibility to collectand submit the tax. As I said, when I have taxable sales on ebay, I collect the tax from the buyer. I then file a state sales tax return and submit the tax money that I've collected. It isn't up to the buyer to do that.

[graceful]

They are making the buyer pay the tax, not the seller? That's interesting. What if you buy from a major retailer, like Amazon, that doesn't charge state sales tax? Do you still pay the same? That would obviously make shopping online a real pain in the butt.

I do charge, collect and submit sales tax on sales I make on ebay to NJ buyers but that's it.

In NYS, we have to pay sales taxes on purchases from Amazon. I think Amazon had to start charging or face a fine or something. On our state tax returns, we either have to keep records of all tax-free out-of-state purchases (to be used/consumed in NYS), on-line or otherwise, and make the appropriate state sales taxes owed to NYS. If that is too much paperwork, we can either make your own estimate or use NYS standard estimation. I usually use standard estimation because I make a lot of on-line purchases and I don't want to keep records and the state estimation isn't too high.

This state sales tax on out-of-state (where there is no sales tax) and on-line purchases has its own separate line on the tax return. Some people don't bother paying it at all, especially, if they make minimal on-line or out of state purchases. However, I remember that when this requirement went into effect a few years ago, NYS was threatening to crack down by examining your credit cards to see how much you were spending on-line each year "tax-free." $20-$40 a year wasn't worth a tax audit to me.

[MonkeyMama]

In California, the buyer has the responsibility to pay sales tax on purchases from out-of-state sellers.

Of course, the state uses the buyers to gleam who is not properly collecting state sales tax. But on the flip side, it is impossible to enforce that every seller across the globe report any sales tax to the state of California (for sales to California residents). It's easier to enforce on the buyers. They try to enforce all sides, of course.

[disneysteve]

So How much they gonna take from 20K?

That all depends. Taxes aren't based on sales. Taxes are based on profit. Two sellers with 20K in sales each could have tremendously different tax liabilities.

I really wonder how much of a difference this will make. Are there really that many ebay sellers doing at least 20K/year in business who are not reporting their income? These are primarily businesses I would think. I've reported my income for 10+ years and the most I've ever had in sales in a given year was under $14,000.

[greenskeeper]

I wonder how you would prove actual income on the sales. Maybe you could show $20k in sales but what if everything was sold at a loss?

[disneysteve]

I wonder how you would prove actual income on the sales. Maybe you could show $20k in sales but what if everything was sold at a loss?

You prove actual income by documenting all relevant expenses: purchase price of items sold, ebay fees, paypal fees, travel expenses when buying merchandise, shipping materials, office supplies, staff salaries if applicable, etc.

Lots of people sell things on ebay at a loss. I've done it many times myself. But I'd suspect that the vast majority of PowerSellers doing greater than 20K in annual sales are running a business and making a profit.

[moneybags]

Sorry if I wasn't clear, Jim. Yes, the buyer pays the tax but it is typically the seller's responsibility to collectand submit the tax. As I said, when I have taxable sales on ebay, I collect the tax from the buyer. I then file a state sales tax return and submit the tax money that I've collected. It isn't up to the buyer to do that.

In Illinois (and possibly other states), it is a law that you pay "use" tax on items you buy from out of state that you haven't paid sales tax on. So, if I buy a $1000 TV from an online store that doesn't collect IL sales tax, I am suppose to fill out a form and send the IL gov't their money. For the most part, it is not enforced and most people don't even know they are suppose to pay it. Of course IL really needs some funds. They are behind on tax refunds to businesses, and I know they owe our school district a lot of money.

[disneysteve]

In Illinois (and possibly other states), it is a law that you pay "use" tax on items you buy from out of state that you haven't paid sales tax on.

This is probably the law in most states but is never enforced. In PA and NJ, people often drive down to DE to make big purchases since there is no sales tax there. If you are getting a computer, costly TV or other big ticket items, it can be well worth the drive to save, for example, $140 on a $2,000 purchase in exchange for a few gallons of gas and a $4 bridge toll.