A reader sent in the following question:
"I've been buying and selling stuff on eBay for years. Recently, I started taking consignments from people in town who don't have the time or patience to sell stuff on eBay themselves. This business proved to be so profitable, I started taking out ads in local newspapers describing my business as an eBay consignment shop. Last week, I received a nasty letter from my local chamber of commerce warning me that I was in violation of state law because I didn't have an auction license. Do you really need such a license to sell stuff on eBay?"
Let's begin with the basics. Just about every state requires that auctioneers obtain a license. This involves applying for the license, paying a fee and, sometimes, taking a training course at a nearby college. If you operate an auction house where you take other people's property on consignment and conduct live auctions, you'll almost certainly have to get this license before you can bang your first gavel.
But what about online auctions? A growing number of states have been expanding their auctioneer license requirement to include certain online sellers as well. Why? Well, there are basically two reasons:
- Consumer protection. People who have problems with online auctions and who don't understand the proper way of dealing with those problems--such as posting negative feedback on eBay's Feedback Forum--can register complaints with their state's auction board.
- Greed. Internet commerce has cost the states tons of revenue from sales and other business taxes--which usually don't apply to interstate sales--and the temptation to impose a license fee as an indirect tax on internet auctions may be irresistible for states that are struggling financially.
So do you have to get an auction license to sell on eBay? That depends. You'll have to either call an attorney or your state's auction board (for a directory of auction boards in all 50 states, go to www.a1auctions.com/licensing.htm), and ask them these three questions:
2. Does the license law apply to online auctioneers such as people selling on eBay?
3. If the answer to question two is "yes," does the law apply only to consignment shops or does it apply to all sellers who regularly buy and sell on eBay?
If all you're doing is selling stuff out of your attic on eBay occasionally, or helping your Aunt Irma clean out her basement and not charging her anything, you probably won't be required to obtain an auction license. However, if you're in the business of taking other people's goods on consignment and selling them on eBay for a fee--and your state requires online sellers to be licensed--you probably will be required to get one. The idea is that by taking other people's goods, you stand in a position of trust (what lawyers call a "fiduciary relationship") to your sellers and have certain legal obligations to your sellers that you must take very seriously.
What if you're routinely buying stuff from wholesalers, paying for the goods up front (that is not taking them on consignment), taking title to them and then turning around and selling them on eBay hoping to make a profit? You could argue that such a person isn't an auctioneer at all but merely a retailer taking advantage of eBay's software to find buyers who will purchase the goods directly from the seller without the intervention of an auctioneer or other third party, and, therefore, wouldn't need a license. Unfortunately, the state license laws are frequently unclear on this point, and unless your state auction board has published crystal clear rules stating precisely that you don't need a license to sell on eBay or another internet auction service, the only way you can be 100 percent safe is to get the license.
Rather than call the auction board yourself and alert them to what you're doing, have your attorney make the call on your behalf. That way you'll preserve your anonymity--lawyers, after all, can't freely disclose to third parties who their clients are--and if your lawyer is any good they'll know how to ask the tough questions in such a way that you're more likely to get the specific guidance you need.
If you still don't get a straight answer, get the license. When it comes to government regulations of any kind, no matter how unfair they seem, it's always better to be proactive and make a good faith effort to comply with the law than it is to ignore the law and hope the regulators won't catch you. Because sooner or later, they will, and with your luck, you'll be the test case that people read about on the front page of their local newspapers.
Cliff Ennico is a syndicated columnist, author and host of the PBS television series MoneyHunt. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. Copyright 2005 Clifford R. Ennico. Distributed by Creators Syndicate Inc.
Cliff Ennico is a syndicated columnist and author of several books on small business, including Small Business Survival Guide and The eBay Business Answer Book. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state.