EcommerceBytes-NewsFlash, Number 1415 - November 21, 2006     2 of 2

Committee Wants eBay to Report Seller Revenue to IRS

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Raise your hand if you sell on eBay and don't report your income to the tax-man. A United States IRS advisory committee recommended the IRS require Internet business sites to get tax identification numbers from all sellers, according to USA Today.

It appears this non-governmental panel wants to put the burden on sites like eBay, requiring them to collect tax ID numbers and report sellers' income to the IRS. Blame eBay in part for IRS scrutiny - the committee was impressed with the auction site's 2005 survey that showed more than 724,000 Americans described the top online auction site as their primary or secondary source of income.

eBay first conducted this survey in the US on February 23, 2004: "Today, there are more than 430,000 sellers on eBay.com selling full-time or part-time, compared to 150,000 reported by eBay previously." The day after eBay released those numbers, I spoke to Jordan Glazier, General Manager of eBay Business. He said the statistic citing 430,000 sellers was based on an AC Nielsen study of 196,000 eBay users, but he could not tell me how they extrapolated those numbers to come up with the 430,000 figure, or describe the methodology used in the study. The number is comprised of full-time sellers whose only source of income is from eBay, and part-time sellers who use eBay to generate a second income or use eBay as a secondary channel for their main business.

In September 2004, Leslie Walker, columnist for the Washington Post, referenced that figure in an online discussion. "To my way of thinking, someone running a jewelry store in Boca Raton who sells 10 percent of their merchandise on eBay isn't making their living there. That definition used by eBay probably includes many thousands of established merchants who sell a small amount of stuff on eBay,..."

The online-auction tax matter raises some interesting issues.

Do eBay and other online auction sites have good reporting capability? And can sellers be sure eBay is reporting the correct numbers to the IRS?

Because eBay is "a venue only," how do they know that the seller actually received payment from buyers? (They do know if the seller filed non-paying bidders (UPI) reports on transactions.)

Will this turn off sellers who don't want to give their tax ID numbers to online marketplaces? If so, will this hurt marketplaces and give consumers less of a selection of goods? Might it help larger professional sellers (whose tax ID is often different from their social security number) by weeding out more casual sellers?

Will individuals (as opposed to business sellers) give marketplaces like eBay their social security number, and if so, can marketplaces assure that those numbers are kept safe from hackers and scammers? Might we see a slew of new phishing email scams that trick sellers into revealing their social security numbers?

Finally, how many sellers are shrugging their shoulders because they pay their taxes and wonder, what's the big deal?

See Monday's article, "IRS advisory committee wants online auctioneers to have to pay taxes," By Kevin McCoy, USA Today, 11/20/06 (http://www.usatoday.com/money/perfi/taxes/2006-11-20-irs-usat_x.htm).


About the author:

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.


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