flashlights, paypal, and taxes?

hi all,

i was wondering what effect the new tax laws will have on fellow cpf members. beginning in 2011 ebay (owner of paypal) must report sales over $20,000.00 usd or more than 200 incoming transactions. do you think this will slow sales of parts to the hobby types (frequent modders) or just those with a storefront. i think it will hurt the casual modder/collector that likes to build their own lights piece by piece in a trial and error way.

FORCETEN said:

do you think this will slow sales of parts to the hobby types (frequent modders) or just those with a storefront. i think it will hurt the casual modder/collector that likes to build their own lights piece by piece in a trial and error way.

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First impression. This is a policy directed at sellers, so it will effect buyers indirectly. The dollar amount isn't key, but 200 a year is only 17 transactions a month.

eBay example: gal picks up small pieces at estate sales on the weekend. Sells them soon, pays no taxes, pays a little for shipping. This low overhead means she can afford to sell at prices that would make a company blush. Is she going to be willing to do the work required to track all of this activity and pay the income taxes to continue this activity?

CPF example: guy makes flashlight parts, 20-30 at a time. New batches of stuff come out every 3-6 weeks. Using a selection of threads, one sale at a time, he generates 40+ transactions a month. Is he going to be willing to do the work required to track all of this activity and pay the income taxes to continue this activity?

In both cases, the sellers will have to choose between reducing sales to stay under the radar or increasing sales enough to make the paperwork (and taxes) worth it. This is likely to have a chilling effect on supply, reducing casual and semi casual parts supply on CPF (and ebay). The clock starts in Jan 1, so there is likely to be a surge is such activity toward the end of the year.

Looks like small businesses aren't as good at lobbying as the big ones. Loopholes don't make themselves.

Moving this one to the Café...

Looking around, there seems to be some confusion about whether its:




The later would be harder to hit, offering more headroom for casual CPF type activities. You could sell 399 things for $50 each or a car for $15 K, have 190 other transactions, and still be report free.

ElectronGuru said:

Looks like small businesses aren't as good at lobbying as the big ones. Loopholes don't make themselves.

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:sigh:

Tuikku said:

:sigh:

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Sorry, didn't mean to make it sound like that. It was supposed to be sarcastic commentary.

I feel like I pay plenty in sales tax already, thanks... the internet is the one place where I can buy stuff without dealing with tax overhead.

ElectronGuru said:

Sorry, didn't mean to make it sound like that. It was supposed to be sarcastic commentary.

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Yes, I noticed
But there´s some truth in it, how big companies walk over smaller entrepreneurs. That made me go sigh

Ebay started out as mostly "used goods" but over time, has transitioned to a large proportion of "new, Chinese goods". A lot of these are imported on the sly to avoid import duties and sold on ebay with no sales tax. This makes it just that much harder for western companies to hire workers and compete.

IMHO, applying sales tax to all goods sold on ebay makes perfect sense, unless the seller has a resale license. In that case, it is up to them to comply with their license. Since getting one and paying the tax is a non issue, that is not really a problem.

HarryN said:

Ebay started out as mostly "used goods" but over time, has transitioned to a large proportion of "new, Chinese goods". A lot of these are imported on the sly to avoid import duties and sold on ebay with no sales tax. This makes it just that much harder for western companies to hire workers and compete.

IMHO, applying sales tax to all goods sold on ebay makes perfect sense, unless the seller has a resale license. In that case, it is up to them to comply with their license. Since getting one and paying the tax is a non issue, that is not really a problem.

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If western companies can't compete, then they shouldn't try. Also, if you increase sales tax you lose tax money somewhere else. If the US government decided to start taxing imports, people would buy fewer chinese products and the chinese would be out of business. That's a problem, because I don't want to shell out more for a product of inferior quality/higher cost just because it's made in the US. Ebay greatly increases the worldwide societal surplus by allowing international trade on the scale of individual dollars, and that might be ruined if the government starts taxing it (although paypal already takes a ridiculous amount).

If 200 transactions is a limit, maybe some workaround is possible. The modder who is is making a few batches of 30-40 products a year can establish a network of CPFers who live nearby and are not involved in sales and sell every batch through different friend, which will keep everyone's number of sales within safe limit.

There should be always a way out - unless your government bans all transactions paid by cash, which is what Sweden is going to do according to some rumours.

I find it exceedingly difficult to keep my mouth shut on topics like this.

May God grant me the patience and wisdom to keep my fat yap shut.

wyager said:

I feel like I pay plenty in sales tax already

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HarryN said:

applying sales tax to all goods sold on ebay makes perfect sense, unless the seller has a resale license.

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wyager said:

if you increase sales tax you lose tax money somewhere else.

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FYI: this is not a sales tax.

All sales taxes in the US are levied at the state level. States (and certain counties) add fees to items sold by people within their boarders, to people within their boarders. Sales taxes are paid by the buyer and appear on the buyer's receipt. In general, internet (ie mail order) commerce has been and will continue to be sales tax free, between states. Oregon, for example, has no sales tax.

What's going on here is an income tax, levied at the federal level. This is paid by the seller and does not appear on the buyer's receipt. When a registered business buys something for $10 and sells it for $15, and keeps the profit, the $5 is reported and taxed as income. Technically, when you have a garage sale, you are 'required' to track the sale and do the same thing, but it is generally ignored. The same thing has happened since ebay/paypal began. Transactions were so small and reporting so difficult, it wasn't worth "going after". This new law means that paypal is required to report these transactions, and the seller will be required to pay income taxes on profits made from the transaction(s), in excess of the minimums.

ElectronGuru said:

FYI: this is not a sales tax.

All sales taxes in the US are levied at the state level. States (and certain counties) add fees to items sold by people within their boarders, to people within their boarders. Sales taxes are paid by the buyer and appear on the buyer's receipt. In general, internet (ie mail order) commerce has been and will continue to be sales tax free, between states. Oregon, for example, has no sales tax.

What's going on here is an income tax, levied at the federal level. This is paid by the seller and does not appear on the buyer's receipt. When a registered business buys something for $10 and sells it for $15, and keeps the profit, the $5 is reported and taxed as income. Technically, when you have a garage sale, you are 'required' to track the sale and do the same thing, but it is generally ignored. The same thing has happened since ebay/paypal began. Transactions were so small and reporting so difficult, it wasn't worth "going after". This new law means that paypal is required to report these transactions, and the seller will be required to pay income taxes on profits made from the transaction(s), in excess of the minimums.

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It has the exact same effect economically. Income tax for small sellers is the same as tariffs or sales taxes on their products. The seller has to bump the price to make money, so in the end the buyer pays more no matter what, that means fewer sales and decreased societal surplus.

ElectronGuru said:

What's going on here is an income tax, levied at the federal level. This is paid by the seller and does not appear on the buyer's receipt. When a registered business buys something for $10 and sells it for $15, and keeps the profit, the $5 is reported and taxed as income.

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Since this is an "income" tax, what if you aren't making money or are even losing money? Most of my Ebay sales have been pretty much just recouping costs, such as selling the $800 desktop I bought three years ago for $200.

wyager said:

in the end the buyer pays more no matter what, that means fewer sales and decreased societal surplus.

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Agreed. The consumer is the one one who ends up paying for most everything.

The trick to good tax policy is ensuring none the various groups receives an extraordinary burden. Each group wants to pay less. Its the ones with the most power/money with the ability to work (or even change) the system to their own advantage - who manage to succeed. I think the rest of us are tired of holding the bag.

Robin24k said:

Since this is an "income" tax, what if you aren't making money or are even losing money? Most of my Ebay sales have been pretty much just recouping costs

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Unlike personal income taxes (which are effectively 100% profit minus specific expenses), business income taxes are 'balanced' against losses. Many businesses, small and large, invest considerable energy, maximizing the 'loss'. Capital investment (equipment), healthcare, actual loss. All count against profit, the same way as standard deductions do for personal 1040's. So 0 profit = 0 tax.

The burden, then, is having to take the time (yours or an accountants) to record, declare, and prove these activities. Even if you 'break even', it could still end up costing $1000 in paperwork. At that point, it may be cheaper to give the computer way (and take a deduction somewhere else ).

That sure sounds like fun...

So I'm guessing the easiest way would just be open multiple PayPal accounts in family member names (would that even be necessary?) for those custom builders and such?

Robin24k said:

So I'm guessing the easiest way would just be open multiple PayPal accounts in family member names (would that even be necessary?) for those custom builders and such?

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I agree with you ... Just use several names to get by this ... You would need extra bank accounts too , otherwise someone at Paypal would realise that there was a bit of cheating going on (with several names being paid into one bank account).

The next thing will be that we will have to use our real names ... Good job that I no longer sell things now.
.

march.brown said:

The next thing will be that we will have to use our real names ... Good job that I no longer sell things now.

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Yeah, me neither. I only sell occasionally, and usually it's to get rid of stuff, not for profit.

Robin24k said:

I only sell occasionally, and usually it's to get rid of stuff, not for profit.

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Hopefully its 20,000 and 200 transactions. That will give plenty of room for such activity.