Postage Increases Might Be the Least of eBay's Problems

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 eventually it would start paying a regular dividend (as long as it kept its servers and customer service, up and running). People will always have stuff to buy and sell. eBay, as an online auctioneer, is practically a de facto monopoly, just like utilities. Unfortunately, utilities are affected by government actions, and this also appears 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 anyone who sells more than 100 items per year. A hundred items per year is not that many - it's less than one item 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 with 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 its foot, causing it to stumble.

Disclosure: The author owns EBAY.

Comments

[Cashdollar:]

I too would like to see EBay become a "utility" and start paying dividends (and sell the unrelated business Skype).

2007 May 25 11:58 PM

[Stockerblog:]

If a lot of these companies (AAPL, AMZN, EBAY, YHOO, etc.) started paying a small dividend, even a nominal one of just a few cents per share per year, they would open up a large market of potential institutional buyers: the mutual funds that have restrictions on only buying income stocks, and trust funds which are prohibited from investing in investments that don't generate an income.

2007 May 27 12:08 AM

[Sr. Pessimist:]

The USG has a cashflow problem. They're not going to make themselves (big business) actually pay taxes, so they're looking high and low to see how they can get more of their tax income in their pockets. My feeling is that the US Government is an illegal entity in itself, and whether or not IRS hirelings know it, they are gangsters robbing people. Bush squelched economic activity a little too much, and here you see a piece the other side of the story of our current economy. They can make the price of a share of a large cap go high pretty easily. They can borrow from Japan and give to the rich owners of hedge funds. But they can't actually do anything right and make an economy tick. So now they're desperate to fund this illegal war by robbing more people in taxes. I think the real problem is the Federal Government is losing power at the International banking centers after Bush's crap he pulled through Wolfowitz, and in order to keep their illegitimate asses in their government chairs without the Federal Government itself going bankrupt and defaulting on all their stupid loans, they have to find a way to actually get income without robbing foreign nations.

2007 May 26 02:42 PM

[weiwentg:]

Not a CPA, but I imagine that if one were considered a business, selling a used item at a loss would enable one to take a tax deduction against the business' income. That would be a nightmare for the hypothetical housewife, though. As would proving that you made a loss on a small used item.

2007 May 26 06:58 PM

[Stockerblog:]

Here is what the IRS says:
"Almost everything you own and use for personal purposes, pleasure, business or investment is a capital asset. The difference between the amount for which you sell the capital asset and your basis, which is usually what you paid for it, is a capital gain or a capital loss. While all capital gains are taxable and must be reported on your tax return, only capital losses on investment or business property are deductible. Losses on sales of personal property are not deductible."

2007 May 27 12:16 AM

[akindman:]

"Heads I win, tails you lose" - IRS

2007 May 27 03:25 PM

[G:]

Good post! Hitting the nail on the head. No reason for 'PowerSeller' status. It just attracts attention and the benefits are pretty much worthless. Look for a mass exodus of powersellers if this pans out. Im really surprised ebay doesnt do more for their powersellers. It's a suckers bet at present.
Here is how it works. You sell more stuff with us and maintain a certain volume of sales we will give you a 'brownie button' called powerseller status with different colors representing different levels. Price breaks?
Oh no ebay won't do that. Who has ever heard of that concept? Use our service more and get a break in price? Let's see; the airline industry, the utility companies, restaurants, almost all retail stores. That is the dumbest ebay policy which will ultimately be their undoing in my opinion. But as a monopoly they can currently get away with it, but their users are disgruntled and always looking for an alternative. Not my impression of a way to run a long lasting company. Because there is no competition they have no incentive to increase customer service. Interesting but true.
So ebay just gives you a title that is suppose to mean something, but actually means little. Instead of price breaks the powersellers get hit with the bulk of the price increases everytime ebay raises their prices (yearly).

2007 Jun 04 02:08 PM