IRS Wants a Cut of Sales On eBay and Craigslist

Ponca City, We love you writes "In 2009, $60 billion worth of items were sold on eBay, meaning 'extra' money for many sellers, whose activities may provide them with taxable income. Now the Washington Post reports that beginning next year, a new law will require 'the gross amount of payment card and third-party network transactions to be reported annually to participating merchants and the IRS.' Also, for 2011 tax returns, 'taxpayers who annually sell more than $20,000 worth of goods and have more than 200 electronic transactions' will receive a new IRS form, known as 1099-K, for reporting the proceeds. The new tax issues shouldn't be a concern for people who sell just a few small items online for less than they paid for them, because as the IRS points out, income from auctions that resemble a garage or yard sale 'generally' isn't required to be reported. But if an online garage sale turns into a business with recurring sales and purchases of items for resale, it may be considered an online auction business. 'Generally, transactions resulting in a gain are reportable, regardless of whether the taxpayer is conducting a business,' says Gil Charney, principal tax researcher at The Tax Institute at H&R Block. The real reason behind the law is simple: Research shows taxpayers do a much better job of reporting taxable income when they know the IRS is receiving information about their transactions."

Comments

Well for starters

[goombah99]

it means that they will have to collect your Taxpayer ID number and then validate it.

so no illegal alliens can use E-bay.

Since they will be reporting SSNs to the IRS it will also be interesting if the law enforcement agencies sniff this for fugitives. Supposedly SSNs are not supposed to get used for law enforcement but they are.

I wonder how they will deal with people who claim not to be US citizens.

Re:Well for starters

[blantonl]

's also worth noting that the IRS is prohibited by law from sharing information with other government departments,

Really? That is interesting... because the FBI needed to get ahold of me about an issue with my business, and they contacted my [b]accountant[/b] first.... presumably through my corporate tax returns. Why/how else would they have contacted my accountant?

Re:Well for starters

[peragrin]

I suggest you read the history of Al capone. He was never tried for killing anyone. Instead he went to jail for not paying taxes on his speakeasies, and illegal liqueur sales.

I don't know why people fail to understand history the implications it has across time. I am personally waiting for the IRS to start cracking down on drug dealers. there are billions in taxes that are waiting to be collected.

Re:Well for starters

[kcitren]

And this tax is tracked how online? On ebay, for example, is ebay required to collect this tax? or the seller? or does the buyer just record all their purchases and pay up at the end of the year? I'm all for a national sales tax, but it still requires tracking of individuals.

Re:Well for starters

[causality]

And this tax is tracked how online? On ebay, for example, is ebay required to collect this tax? or the seller? or does the buyer just record all their purchases and pay up at the end of the year? I'm all for a national sales tax, but it still requires tracking of individuals.

No, it requires tracking of businesses and merchants. Ever buy groceries at (say) a Wal-Mart and then have to file a form with the state for the salex taxes you paid? No? Do you know why? Because that is a matter between Wal-Mart and the state in which that particular store is located. Wal-Mart has to pay sales taxes on its sales volume whether or not they pass them on to you. To keep things simple they pass them onto you on a per-transaction basis. That's why your receipt has line-items detailing your subtotal, the sales tax, and your final total which is the sum of both.

The Fair Tax is designed to be revenue-neutral. That is, the federal government would collect the same amount of taxes under the national sales tax as it does now under the income tax. That means that unlike most state sales taxes, services are taxable because companies that sell no goods but make money from providing services currently pay income taxes. Thus, eBay would pay its own sales tax because providing the storefront and maintaining the Web site is a service and the merchants are its customers.

As a business or a merchant, it would cost less to comply with this simplified tax code than it does to comply with the enormousely complex income tax system we have today. That's partly because it only applies at the retail level; factories and wholesalers and such would not be paying it. Most importantly, it would represent the single largest transfer of power away from politicians and to the people that has ever occurred during my lifetime.

No offense is intended, but to be completely honest with you, your question is uninformed and trivially answered with a Google search. The Fair Tax bill is the most thoroughly researched piece of legislation in the history of the USA and such questions have been exhaustively answered. Really the only reason it has not already become law is not because there are credible objections to it, not because it would do harm, but because politicians do not wish to give up the tremendous and subtle power that the income tax code represents.

Re:Well for starters

[shentino]

As disclosed on the tax return's OMB disclosure, they can disclose it for the purpose of "enforcing federal non-tax laws"

Re:Well for starters

[causality]

And I suppose you don't care that the Fair Tax is a ridiculously regressive tax? Because it taxes buying power, it disproportionately effects those who do not save or invest but, instead, live paycheck to paycheck. So, if you're poor and you have to spend all your income on rent and food, the fair tax hits you hardest.

Another trivially answered objection. See my reply here. Having established with facts you can verify yourself that this is not a regressive tax and in fact has been carefully crafted not to be, I'll reply to some of your other points.

Also, take a look sometime at the USA's negative savings index. As a whole, the adult population is spending more money than they make and are not saving up for the future. We have had rich people and poor people for as long as we have had a country. We have not, however, had a negative savings index until rather recently. While it is not the cause of it, it's rather obvious that attaching a tax penalty to income and savings has an effect on this.

Living paycheck to paycheck is a big mistake; the slightest miscalculation, unanticipated expense, emergency, or disaster will break you if you do this. Cars break down, appliances break down, medical bills happen, and generally this is a problem waiting to happen. Like the negative savings index, it is only relatively recently in our history that so many people have chosen to do this. We should be educating people about why this is a mistake, not looking for ways to make it more comfortable to make this mistake.

If you're rich, and you are able to invest half your income, and you spend the rest, you're only taxed on half your income. Thus, the rich pay a lower real tax rate than the poor. (Add to this the fact that the marginal value of $1 is far less to a rich person than to a poor person to begin with and the system starts to look downright dystopian.)

Two things. First of all, the reason why you invest your income is because you expect a return on your investment. That ROI is more money in the pockets of those who invest. That wealth is ultimately spent by someone, either the investors themselves or their heirs. When it is spent, it is taxed by this sales tax.

Second, do you suppose money just disappears when it is invested? No. If you invest large sums of money in a company by purchasing its stock, the company uses that money to expand its operations, do more business (generating more taxes), hire more workers, etc.

What makes this fail is when companies see our tax code and decide that it's cheaper for them to take those investments and use them for overseas operations. Then that wealth leaves our country and does not return to us in this fashion. As a case in point, do some research about DaimlerChrysler and why they decided to headquarter in Germany, incorporate in Germany, and pay taxes in Germany. Hint: it was not their original intention. You see the same thing on a smaller scale when you look at all of the domestic companies who incorporate in Arizona for tax purposes even when they have no intention of doing business there. They do it because Arizona has no state income tax.

The obvious way to fix this that I've heard some propose, is to allow exemptions for the poor, etc. But now you're getting back where we are now, where individuals have to keep track of their finances and report to uncle sam for their rebates. Except now individuals have to keep track of every single purchase, rather than just their annual income from their employer.

Research the Fair Tax bill. It's a written document consisting of the proposed legislation. Nowhere does it require tracking every purchase in order for the prebate to work. Please don't just make things up and pretend that they are valid objections. If you really want to gain some perspective, lo

Re:Well for starters

[AK Marc]

The Fair Tax bill is the most thoroughly researched piece of legislation in the history of the USA and such questions have been exhaustively answered.

I'm glad I put the milk down, or it would be going through my nose right now. What's the economic impact of setting the pay-back line at poverty (as done now) vs twice poverty (and, of course, having a higher tax level to compensate)? It's never been researched at all. Back when no one heard of Fair Tax, I thought it great, and I asked the question, "why exactly poverty level?" and the answer back was something to the effect of "Because that's the lowest we can get it and the point is to sneak in something as regressive as possible while claiming it to be progressive." It is an arbitrary line drawn in the sand without *any* research at all.

If you disagree, please point me to some research done about how it would affect the US economy if that level was set at half-poverty, poverty, and twice-poverty. Go ahead, I'll wait.

And you are more civil than most with your "It's perfect, don't question The Fair Tax" stance. But usually, when I ask questions, they are even more self-righteous than that.

But mention that spending is more volatile than, say, income for boom bust periods and asking about what will be done to improve the stability of income, and they'll look at you like they never took econ 101. And these are the people claiming "the most thoroughly researched piece of legislation in the history of the USA" and miss simple things like spending being more variable than income. Really? Or correct me, where's the actual study on the effect of spending levels in varying economic times. After all, this completely unresearched piece of crap was so researched, you'd be able to prove me wrong easily. Instead, it's a good idea that was perverted early on by conservative people with the specific goal of getting the top income level as small as possible and convincing everyone else it was "fair."

When they have to name something with adjectives, you are safe in assuming the opposite, until they prove otherwise, and they haven't.

If you don't believe me, look at the utter shit being presented about it. http://en.wikipedia.org/wiki/File:FairTax_married.png Apparently, this "revenue neutral" legislation will reduce the taxes on everyone. Either someone's taxes have to go up, or it can't be revenue neutral. So the graph, done by "a Boston University study" (really some guy's thesis, and I've done one of those, I know what crap they can be) is presented like fact, and is demonstrably flawed. That's the level of research this gets. "It'll lower taxes for everyone, and is revenue general too" and no one notices those are contradictions... With research like that, who needs facts?

Re:Death and Taxes

[Anonymous Coward]

The Works of Benjamin Franklin, 1817:

                "'In this world nothing can be said to be certain, except death and taxes."

It's a funny saying, but it's not quite true.

There was a famous case in Australia often cited by economists. The government was changing their tax regime, and if you died after a certain date, then you paid less tax. Death rates dropped significantly before the deadline:

http://people.anu.edu.au/andrew.leigh/pdf/DeathAndTaxes_BEP.pdf

Already paid taxes on those items once before...

[Anonymous Coward]

We have already paid enough taxes on the stuff we already own. If tax paying citizens want to sell something that they have already had to pay a sales tax to get, we should be exempt from any further taxation on said items. Am I missing something here, or is this just another greedy stab from our darling government???

Re:Privacy

[Anonymous Coward]

You would think that the Supreme Court decision Roe v.s. Wade (which is normally applied towards a woman's "right to privacy" to have abortions) could be applied here. I don't tell my neighbors or friends how much I earn -- it is none of their business and something I consider private. I suspect just about everyone on Slashdot considers their income the same. Why should I tell the government how much I earn? This is especially the case when it has been shown time and time again that they can't keep things private. (Just look at how government employees got into "Joe the Plummer's private dealings with the government and released to the press how he owed back taxes as a way to discredit him.)

The government has no need to know how much you earn. There are alternative ways to collect taxes. For example, if there were a flat tax, it could be collected from the employer. An audit would simply consist of the IRS looking to see how much was paid in payroll and how much was paid in taxes and making sure that the numbers work. Deductions could then be handled by the individual sending in claims to the IRS who would send back a check for the appropriate amount. The only reason why the IRS needs to know how much you earn is to be able to make some people pay more in taxes than others. (Which I've always felt violated the "Equal Protection Clause" of the U.S. Constitution that holds that we are all supposed to be equal under the law.) A national sales tax too would keep the IRS from needing to know how much you (or anyone else) earns.

It is amazing to me that people hold that in the U.S. there is a right to privacy when applied to abortions but clearly don't feel that there is any sort of privacy when it comes to just about anything else.

Re:it's worse than that

[ducomputergeek]

Our CPA is going to a seminar training session about this in June or July, but that was pretty much my response. If I go to Sams club and buy $600 worth of stuff for my house a year, which we probably do, I have to send Sams a 1099-K? What about the grocery store? What about Wal-Mart? Hell I spend $600 a month on basic needs. Hell I probably spend $600 a year at my favorite restaurant. Do I need to send them a 1099-K? Am I supposed to now itemize EVERYTHING I spend? I try to do that now for business expenses, but now if I walk into Walmart to buy a $3.00 can of shaving cream because I ran out that morning mean I have to keep track of all that shit?

Oh well, I guess that means we'll have to use plastic. "Visa, everywhere you want your purchases tracked....priceless."

Re:It's worse than it looks.

[PPH]

will have to file a 1099 for every entity to which they pay more than $600 in payments for goods and/or services in a year.

...for every US entity to which they pay ....

If I purchase stuff from a foreign entity, there is no such requirement. What they earn is between them and their taxing authority. But that authority doesn't get me (the customer) involved in tracking these transactions. So, all other things considered, I'm better off buying my stuff overseas. Since 'my stuff' is software and online services, there are no added shipping costs. And I save all that time managing 1099 forms.

I see our online services business moving off shore in the near future.

Re:Umm. I wouldn't be opposed to them taxing

[gnasher719]

Umm. I wouldn't be opposed to them taxing the _profits_, not gross sales. Particularly if they let me deduct the losses when I sell something for less than I paid for it a month ago.

That would be what they will be doing. The point is that if you have $20,000 gross revenue then you have to tell them so they can calculate your taxable profits and tax you on them. Or possibly find out that you had no taxable profits. Like if you bought a car for $100,000 and sell it a year later for $60,000, you then have to report your sales, but you are not going to be taxed on anything.

Re:It's worse than it looks.

[Anonymous Coward]

Im a lawyer and this is already happening. My IT clients are opening up shop in Canada right now to get around this very requirement. This country is shooting itself in the foot.

Re:it's worse than that

[ducomputergeek]

Problem is what constitutes a "business". For instance, i've inherited most of the family farms totally about 500 acres. I rent the farms to a farmer, but I still have to spend a few weeks a year down there to do maintenance on the bins, building, tractors, bush hog, spraying, etc.. I'm not sure how familiar you are with farm equipment, but if anything breaks, chances are it's going to cost more than $600 in parts & labor to fix.

Right now taxes are pretty easy. It's the checks that come in when we sell the grain against the expenses that go out for Diesel fuel, my share of the fertilizer. I keep a separate bank account for the farms to make things a bit easier. But now having to spent the time to send the fertilizer folks a 1099, the gas station (I buy diesel 20 gallons at a time) a 1099, the local mechanic a 1099, the kobota dealer a 1099, Rural Kinga 1099, and damn that gets to be a lot of work on top of keeping track of everything for my day job (software company I own).

At the software company, I expect having to keep track of everything as part of the cost of doing business. The farms are something that are just there and I would like to keep the farms. They've been in the family for 4 generations and provide a nice annual bonus for the amount of time I do put into it. But time is getting to be a problem for me and it really begs the question is it time to put the farms up for sale.

Re:Abolish the IRS!

[truesaer]

I suppose it doesn't. However, that is not the nature of any flat tax proposal I've ever heard. For example, according to FairTax.org for 2009 they propose that a single adult with no children receive an exemption of $10830 (and double that for a couple). With children you get more, but a couple with 7 children would receive only $47840 rather than the $100k you suggest.

Furthermore, the fair tax people say the rate would be 23%. However they're not using this rate the same way sales taxes currently apply. The rate means that 23% of the total cost of the item would be tax. Lets give an example of how this is different. If you buy a tube of toothpaste for a dollar, if any state had their sales tax rate at 23% you'd pay $1.23 for the toothpaste. However the way the fairtax.org people define the rate 23% of the final price goes to tax. This means that you would have to pay $1.30, 23% of which is $0.30 (leaving $1 for the merchant).

In other words, the rate is actually 30% the way everyone in the country currently understands consumption taxes to be applied. And it is far from certain that even 30% would be sufficient, they're making very rosy assumptions to make their plan appear as feasible as possible.

Now maybe you have some other flat tax scheme involved, but I'm skeptical that 2/3rds of the fairtax proposal with a much larger exemption could be revenue neutral, especially when the fairtax proposal itself probably isn't setting the rate high enough.