At least one Wall Street analyst is concerned about the impact on eBay of the recent Supreme Court sales-tax ruling in which it overturned Quill
, a precedent that protected remote sellers from having to collect and remit sales tax for customers in states where the sellers had no physical presence. (See our coverage here
SunTrust's Youssef Squali issued a report today sounding warning bells. CNBC
summed up his concerns as follows:
"SunTrust Robinson Humphrey lowers its rating to hold from buy for eBay shares, predicting the additional tax compliance requirements will drive sellers away from the platform. The firm's analyst said new tax laws will force eBay to report sales transactions to the IRS."
While the Court overruled Quill's physical nexus requirement, the previous precedent still requires a "substantial nexus" in order for states to require sellers to collect their tax from their respective residents. But what constitutes substantial nexus has yet to be determined.
Some believe the High Court indicated South Dakota's definition of nexus would pass the sniff test - its threshold is annual sales of $100,000 or 200 separate transactions. But others believe that's an unrealistically low bar. That uncertainty (and the ultimate burden of compliance once it's determined) could certainly scare off some percentage of sellers.
"Squali said he believes the U.S. Supreme Court ruling last month to reverse the 1992 precedent that states can require collection of sales tax without a physical presence increases the likelihood of a slowdown in gross merchandise value growth in 2019 and beyond. He said the new law reclassifies eBay as a "broker," which would require all sales to be reported to the IRS."
The reference to the IRS in these news stories is puzzling - we haven't read the analyst's report, but a few things worth mentioning:
- The IRS is concerned with Federal income tax, not state sales tax, and payment processors (including PayPal and credit card companies) are already required to report seller earnings to the IRS through Form 1099K. Sellers who meet the sales threshold have already had to provide PayPal and other payment processors with their social security number.
- Etsy and Amazon collect and remit sales tax on behalf of its sellers in at least two states (including Washington state) due to Marketplace Facilitators laws. This is something of which many small sellers approve, and once eBay becomes a payments intermediary, it may do the same.
We asked eBay about SunTrust's report, it has not yet responded.
With eBay facing Wall Street analysts next week during its second-quarter earnings call, what questions would you ask eBay if you had the chance?