May 7, 2010
Some Tough Questions From The Top Ebay Sellers
Some Tough Questions From The Top Ebay Sellers Cliff Ennico www.creators.com Last week I had the privilege to attend the annual meeting of the Professional eBay Sellers Alliance, or PESA ( www.gopesa.org ), a non-profit trade association of top eBay merchants. These are the #147;Imperial Stormtroopers#148; of the eBay community, folks, and they do not ask easy questions. Here are some that came up during my presentation on #147;Business Taxes for eBay Sellers#148;: #147;I sell out of my home in New York but I #145;drop ship#146; on eBay for several large out-of-state distributors. If I sell to a buyer located in the same state where one of these distributors is located, do I have to charge that state#146;s sales tax?#148; When you #147;drop ship#148; for someone else, you are selling that person#146;s stuff, but the goods never leave that person#146;s warehouse. They ship the goods directly to the buyer once you#146;ve notified them you#146;ve made a sale. Technically, if the #147;drop shipper#148; is using its own address labels on the packages, and is accepting returns of damaged or defective items, then they, not you, are the real seller of the items, and should be charging sales tax to buyers living in any state where the #147;drop shipper#148; has manufacturing, warehouse or office facilities (not just the location you are dealing with). Ask if the #147;drop shipper#148; will use your address labels with your New York address, and let you accept returns for credit. If they won#146;t do that for you, then make sure your #147;drop shipper#148; agrees in writing to pay all sales taxes that may be due on sales you generate for them. #147;I run an eBay consignment shop. Do I have to pay any sort of taxes on the items I take from people for sale on eBay?#148; You should check with your local accountant, but in most states you will not have to pay sales or inventory taxes on goods you take on consignment. Also, they are not considered part of your #147;inventory#148; for income tax purposes, as you do not have legal title to them, so you shouldn#146;t have to pay income taxes on them either. If you sell something on consignment to a buyer in your state, however, you will have to charge the buyer sales tax and remit it to your state tax authority. #147;I started selling on eBay part-time last year and made about $20,000. I expect to do slightly better this year. Do I have to pay estimated taxes on the income from my eBay business?#148; Absolutely. If you make more than $400 in #147;self-employment income#148; in any calendar year, you must pay your income taxes in quarterly estimated installments. Welcome to the club. #147;I buy all my packaging, such as boxes, labels and plastic peanuts, in large quantities, and I pay a fortune for them. Should I be charging my buyers sales tax on these items, since they are really being sold along with the goods themselves?#148; No. Packaging materials are considered #147;supplies#148; for income tax purposes, not part of your inventory. If you buy them from a local supplier, you will have to pay sales taxes on them since you are #147;consuming#148; them in your business, not buying them for resale. If you buy them from an out-of-state supplier, you may have to pay #147;use tax#148; on these purchases. Many eBay sellers try to cover these costs by imposing a #147;handling fee#148; on each sale in addition to the shipping and other charges. The handling fee would cover the cost of any supplies you consume in fulfilling a buyer#146;s order, as well as your time in processing the order. But don#146;t be greedy #150; eBay buyers hate it if they think they#146;re being #147;gouged#148; on your shipping and handling charges. #147;I am currently operating a Subchapter S corporation for my eBay business. My accountant is telling me I should convert to a C corporation, but hasn#146;t really explained why. Is this a good move for me taxwise?#148; Generally, regular or C corporations can deduct a ton of stuff that Subchapter S corporations can#146;t. While C corporations are taxable entities, they usually (not always) pay tax at a lower rate than Subchapter S corporations, where everything is taxed at your personal tax rate. Ask your accountant to prepare a #147;pro forma#148; tax return for your corporation showing you what the tax savings would be if you had been a C corporation for all of the 2005 calendar year. If the tax savings are significant, it will be easy for you to convert to a C corporation. Just remember that if you convert to a C corporation, you will have to wait three years before you elect Subchapter S status again. Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. His latest book is #145;Small Business Survival Guide#146; (Adams Media, $12.95). This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2005 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com.

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