It is interesting watching eBay sellers and taxes. The congress finally started to address one of probably the biggest groups of unreported income earners today in the "American Housing Rescue and Foreclosure Prevent Act of 2008". The recent bill signed into law to rescue homeowners includes a provision designed to offset the expenditures. It requires providers such as paypal and eBay to start reporting its seller's income starting in 2010 to the IRS. The IRS has tried to do this with regulations but has met very stiff resistance from eBay. One estimate is that this will result in almost $1billion a year in additional taxes being paid that are already required by current tax laws.
Feeding this is both dishonesty, confusion and just plain ignorance (some of it willful). There are the people just like the bar owner that rakes in $5k a night and reports $2k with expenses of $2.5k. These folks will report only that which they can be caught with and even then report as little as possible. You also have the people that have heard the refrain nothing on the internet can be taxed. Yes, your state and city cannot levy taxes specifically on the internet use and sales. But already existing taxes such as capital gains, retail profits and sales tax still apply. Many people just plain don't know and eBay makes no effort to explain it to them. Then there are also those that believe everything on the internet should be free, including music, pictures and the ability to sell Tiffany and Rolex "replica" items.
The truth of the matter is that eBay and other internet sites are a Wild Wild West and the government is just now realizing it has to control this territory. I have been posting specials in my tax business to help those who are eBay sellers with reporting their tax income. I have not had a single taker. My wife is a seller and we report her income. Many are petrified because if they are a power seller, they AT LEAST have $12,000 in gross sales ($1,000 a month for power seller status). This is even scarier because as a self-employed person, the self-employment tax must be paid. This is both the employer's and the employee's half of the Social Security and Medicare taxes (total 15.3%). Fortunately, as a business there are a whole host of thing you can deduct. This includes eBay/Paypal fees, postage, supplies, the purchase price of goods, the computer and even possibly morgage/rent, utilities and other home expenses. All of these are subject to a maze of rules, regulations and exceptions that would give any intelligent person a migraine.
Now, that being said, the IRS is not interested in people who aren't making thousands. These persons are the ones who occasionally clear out a room or their attic and sell the eight-trac tape player or CB radio they find. Basic tax law, these items were never depreciated and are typically sold for much less than was originally paid for them. Your basic garage sale item is typically not taxable for this reason. Now, this is compared to someone who deals with distributers of "As Seen On TV" products, bargain shoppers making a killing off the clearance racks or collectors who sell everything from Hot Wheels to Beanie Babies and baseball cards. Many of these sellers can make unbelievable amounts on eBay sometimes hundreds of thousands.
I can't predict the future but if you think Uncle Sam will ignore this pot of gold, I want to know if you would like to buy the Golden Gate Bridge.
Friday, August 15, 2008
Sunday, August 3, 2008
A few commments on eBay, Tiffany and counterfeits
From what I do on a daily basis, which is monitor eBay for unauthorized picture use and conterfeits, I find the Tiffany lawsuit an important event. Many manufacturers and marketers detest eBay and the monster it has become. Many eBay sellers detest the manufacturers and marketers for pulling their auctions that use the marketing materials or sell "replicas" or "genuine" products by the truckload at less than half of retail (just like the guy in New York selling Rolex's out of his trunk). The truth here is found in a paraphrased quote from Solomon: When all is said and done, there is truly nothing new under the sun. That is true with eBay. Fake or pirated Levis, Nikes, music, movies and even, yes, Tiffany handbags have been sold at countless flea markets from the time such products came into being. These are just brought into one easily searched place.
There is a structure set up, regardless of the perfection or lack thereof, to handle this. It involves the intellectual property owner reporting an infringing post or auction to the service provider (ie eBay). The service provider (ie Ebay) then promptly (depending on your definition of promptly) removes the offending listing in exchange for immunity from liability. The Tiffany ruling basically endorsed the Digital Millenium Copyright Act (DMCA) and granted eBay its immunity. Essentially, Tiffany failed to prove that eBay did not remove reported items in a prompt manner. Tiffany, for its part, wanted eBay to actively control the listings of counterfeits. eBay, whether marketers like it or not, does not make their products and beyond filtering auctions with words like "fake" or "replica", has no way of knowing a fake from a legitimate product. For the most part, only the manufacturer can truly spot fakes. There is also the interesting rulings from France and Germany to throw into the mix. If one doesn't like the laws in the USA, does one simply sue in France? Such are the headaches of the digital age. My own suspicion is that eBay will essentially find a way to abandon France and since the model under those terms is unprofitable, France will be without eBay or an equivalent.
eBay is the new way of doing business. There are those that didn't like the automobile. Some carriage makers contracted with Ford and other automakers and simply adjusted their business. Others so detested the new fangled things they rode their horse and their business right over the cliff. There is nothing new under the sun. The reality is that many sales can be had, new ways for selling are at hand. One of those realities is that it is much easier to sell stolen goods, counterfeit items or use someone else's pictures and text to sell. By the same token, it is also easier to spot these folks.
First, we look at stolen goods. Have you had your notebook computer or blackberry stolen? One cop I know told me the first thing he would do after filing a police report is keep an eye on eBay for it. You would be amazed at how often this is true.
Second, we look at counterfeit items. Are they on eBay? Do birds fly? Does a fish swim? In the past, these were at flea markets. In the past a company had to send someone to any auction to catch these. Now, eBay has so dominated the marketplace that while the flea markets still exist, the sales and profits are made there. All the company has to do is hire someone, train them to spot the fakes and have them follow the procedures.
Third, we look at unauthorized use of pictures or marketing materials. Does this happen? If you monitor, probably about 2 or 3 out of a hundred. If you don't monitor and report, it is probably 100% using your pictures and looking like they are official sellers when in fact most are selling large quantities of "new" items for less than half of retail. We all know this means mostly counterfeits. These are all displaced sales that would otherwise have resulted in sales for you. But there are enough legitimate sellers that find liquidations and clearance items that eBay can't just pull all of them. My wife is an eBay seller and she DOES find clearances at prices that are clearly meant to dump the leftovers. I gaze at a pile of George Foreman grills she got for less than a tenth of retail.
Speaking of my wife, there is a reason why someone uses YOUR pictures. It is very clear that in real estate there are three primary factors in value and sale, 1) location, 2) Location and 3) LOCATION. For online sales, professional pictures make a big difference in volume, price and even whether an item sells. My wife does take her own pictures, which eBay does repeated warn and advise. She does quite well. Another reason for using someone else's pictures, they also assist counterfeiters in masking their products. For this reason, if someone asks you for permission to use your picture, be wary.
My personal thought is that some retailers will try to stop the flow and lament new expenses and work to be done. Others will embrace online sales and do what it takes. These sellers will themselves be on eBay and monitor the competition. You cannot just pull everyone that sells your widgets, but you can surely limit the counterfeits and figure out where in your supply chain widgets are falling off the back of the truck. The times they are changing.
There is a structure set up, regardless of the perfection or lack thereof, to handle this. It involves the intellectual property owner reporting an infringing post or auction to the service provider (ie eBay). The service provider (ie Ebay) then promptly (depending on your definition of promptly) removes the offending listing in exchange for immunity from liability. The Tiffany ruling basically endorsed the Digital Millenium Copyright Act (DMCA) and granted eBay its immunity. Essentially, Tiffany failed to prove that eBay did not remove reported items in a prompt manner. Tiffany, for its part, wanted eBay to actively control the listings of counterfeits. eBay, whether marketers like it or not, does not make their products and beyond filtering auctions with words like "fake" or "replica", has no way of knowing a fake from a legitimate product. For the most part, only the manufacturer can truly spot fakes. There is also the interesting rulings from France and Germany to throw into the mix. If one doesn't like the laws in the USA, does one simply sue in France? Such are the headaches of the digital age. My own suspicion is that eBay will essentially find a way to abandon France and since the model under those terms is unprofitable, France will be without eBay or an equivalent.
eBay is the new way of doing business. There are those that didn't like the automobile. Some carriage makers contracted with Ford and other automakers and simply adjusted their business. Others so detested the new fangled things they rode their horse and their business right over the cliff. There is nothing new under the sun. The reality is that many sales can be had, new ways for selling are at hand. One of those realities is that it is much easier to sell stolen goods, counterfeit items or use someone else's pictures and text to sell. By the same token, it is also easier to spot these folks.
First, we look at stolen goods. Have you had your notebook computer or blackberry stolen? One cop I know told me the first thing he would do after filing a police report is keep an eye on eBay for it. You would be amazed at how often this is true.
Second, we look at counterfeit items. Are they on eBay? Do birds fly? Does a fish swim? In the past, these were at flea markets. In the past a company had to send someone to any auction to catch these. Now, eBay has so dominated the marketplace that while the flea markets still exist, the sales and profits are made there. All the company has to do is hire someone, train them to spot the fakes and have them follow the procedures.
Third, we look at unauthorized use of pictures or marketing materials. Does this happen? If you monitor, probably about 2 or 3 out of a hundred. If you don't monitor and report, it is probably 100% using your pictures and looking like they are official sellers when in fact most are selling large quantities of "new" items for less than half of retail. We all know this means mostly counterfeits. These are all displaced sales that would otherwise have resulted in sales for you. But there are enough legitimate sellers that find liquidations and clearance items that eBay can't just pull all of them. My wife is an eBay seller and she DOES find clearances at prices that are clearly meant to dump the leftovers. I gaze at a pile of George Foreman grills she got for less than a tenth of retail.
Speaking of my wife, there is a reason why someone uses YOUR pictures. It is very clear that in real estate there are three primary factors in value and sale, 1) location, 2) Location and 3) LOCATION. For online sales, professional pictures make a big difference in volume, price and even whether an item sells. My wife does take her own pictures, which eBay does repeated warn and advise. She does quite well. Another reason for using someone else's pictures, they also assist counterfeiters in masking their products. For this reason, if someone asks you for permission to use your picture, be wary.
My personal thought is that some retailers will try to stop the flow and lament new expenses and work to be done. Others will embrace online sales and do what it takes. These sellers will themselves be on eBay and monitor the competition. You cannot just pull everyone that sells your widgets, but you can surely limit the counterfeits and figure out where in your supply chain widgets are falling off the back of the truck. The times they are changing.
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