Thursday, May 24, 2007

eBay may have Bigger Problems than Postage Increases

Last week, I wrote an article about how the increase in postage may affect the revenue, on a short term basis, of eBay (EBAY) which trades on NASDAQ. However, that may be a minor problem, compared to what might be looming on the horizon.

I always thought that eBay would eventually turn into something like a utility, where earnings and revenues would steadily increase and they would eventually start paying a regular dividend, as long as they kept their servers and customer service up and running. People will always have stuff to buy and sell. eBay, as an online auctioneer, practically is a de facto monopoly , just like utilities. Unfortunately, utilities are affected by the actions of government, and it seems to be happening with eBay.

The April 23 issue of Forbes Magazine had a great article, which I highly recommend as a great read, about how the IRS may start cracking down on the self-employed. But what really caught my eye was on page 37 where it mentioned that the IRS may eventually require eBay and other 'middlemen' to start reporting gross sales of those who sell more than 100 items per year. A hundred items per year is not that many, less than one every three days.

So if this goes into effect, would someone like a housewife who sells off 25 of her kid's old toys, clothes, and other household goods every quarter have to reconcile this on her tax return? [Is there a CPA in the audience? What is the tax consequence of selling a personal item that has been used at either a profit or loss?] I have a friend who inherited a couple hundred books from his father, and gave his kids the job of selling them off on eBay, one at a time. I wouldn't even want to speculate about what the taxation of those transactions would be [inheritance cost basis, etc.], if there even is any, but there would still have to be some kind of accounting to match up what is reported to the government.

Would some sellers create new accounts with eBay when they approach 99 transactions, creating more hassles for eBay? [Who wants to be a Power Seller now?] Would eBay be responsible for trying to aggregate these accounts? If this sales reporting proposal isn't nipped in the bud, it may not be a stake in the heart of eBay but it would certainly be a stake in their foot, causing them to stumble.

Author owns EBAY.

1 comment:

Matthew said...

With news like this, plus some Congressmen talking about taxing the Internet again, including net access, I bet a lot of Silicon Valley people are wondering what the heck they got for supporting Democrats.