More Taxing Issues When Selling On eBay
Cliff Ennico
www.creators.com
"If someone has been selling on eBay as a 'hobby', and wants to get a sales tax number to sell as a 'business' with a new name, should the person first take all their auctions off eBay, and if so, for how long? In my state, the rules for applying for a resale license say that you should not be conducting business for 20 days prior to applying for the resale license, and warn that you could be fined up to $10,000 if you engage in business before you get the license, which takes approximately 20 days. I imagine a lot of people in this situation would just apply for the resale license and leave their eBay auctions going, but if there's a better answer on what to do I would really appreciate it."
First, some basics. When you are selling stuff on eBay, you are required to register with your state tax authority to collect and pay sales taxes. When you register, you will be issued a document that, depending on the state, is called a "sales tax permit", a "business license", a "resale license", or a "certificate of authority". The name on the document doesn't matter. What's important is the tax ID number, or "resale number", that appears on the document. That number must appear on all sales tax and other tax returns you file with your state tax authority.
It doesn't matter whether you treat your eBay selling as a "hobby" or a "business". When you sell stuff on eBay (or, indeed, anywhere on the Internet) to people who are residents of the same state you live in, you are required to collect and pay sales taxes (unless, of course, your state doesn't have a sales tax). Frankly, your sales on eBay right now may be in violation of that requirement - if you have sold anything on eBay to people living in your state, you are subject to the $10,000 penalty for doing business without a sales tax permit.
You are correct that most people in your situation would just apply for the sales tax permit, pay their sales taxes going forward, and not worry about their closed or pending eBay listings. Most people would not willingly pay the $10,000 penalty, even if they can afford it, for fear of "waking a sleeping dog" at the state tax authority and triggering a broader audit of their personal and business finances.
I would recommend that you review your past eBay sales and, if there were any sales to residents of your state, calculate and pay the sales tax for those in-state listings to your state tax authority as soon as you have obtained your sales tax permit. You will still have to pay the $10,000 penalty if they audit you and discover you were "in business" before you obtained your permit, but this is not highly likely to happen, and you will at least "stop the clock" on any interest or penalties that may be due on those unpaid taxes.
"I am an eBay Education Specialist and teach eBay classes at local colleges and adult education programs. What kind of tax form do I need to fill out for this? How do I pay taxes on revenue I generate through teaching, lectures, and private training sessions?"
For those who don't know, an eBay Education Specialist is someone who has been trained by eBay (for a fee) to conduct adult education and other classes that teach other folks how to sell on eBay (if you're interested in becoming one, go to
www.poweru.net/ebay
for details).
An eBay Education Specialist has to pay income taxes, just like anyone else, on the income they make from teaching classes. If you are a sole proprietor, you will have to fill out Schedule C (income or loss from a trade or business) each year and pay your taxes on April 15. If your tax liability is more than $1,000 in any given year, you will have to "estimate" your income taxes four times a year (on April 15, June 15, September 15 and January 15) and pay them in quarterly installments using IRS Form 1040-ES.
The good news is that in virtually all states educational activities are exempt from state and local sales and use taxes. The bad news is that in many states if you are using the word "education" or some variation in your company name, you will have to get permission from your state Education Department to do so. Check with a local attorney to find out if this is necessary in your state - if it is, you will have to pay a small fee and wait several weeks to get the Education Department's certificate authorizing you to hold yourself out as being in an education-related business.
Cliff Ennico (
cennico@legalcareer.com
) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. His latest books are 'Small Business Survival Guide' (Adams Media, $12.95) and 'The eBay Seller's Tax and Legal Answer Book' (AMACOM, $19.95). 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 2007 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com.
