Legal and Tax Tips for eBay Sellers
When you sell on eBay, you're subject to most all federal and state laws, taxes and rules that apply to retail businesses generally. Here are some tips to help you stay out of trouble on eBay:
1. Set yourself up as a legal business. Get federal and state tax ID numbers for your business, as well as any licenses and permits your state requires for you to sell your merchandise. If you're using a trade name, register it with your city, town or county clerk's office as your state law requires.
2. Register for your state's sales taxes. If the winning bidder is a resident of your state, you'll have to pay sales tax on the bid amount. Put the following statement on all eBay auction pages: "Residents of State X [your state] must add ___% sales tax to their winning bid."
3. Sell only legitimate merchandise. If a random street vendor offers you a shipment of "genuine Rolex watches," watch out. Competing eBay sellers offering Rolex watches and Rolex itself can report you to eBay for selling illegal knockoffs, and eBay will cancel your auctions. Find out if the stuff you're planning to buy is legitimate by visiting eBay's Verified Rights Owner program .
4. Resist the temptation to "shill." If you (or a friend or relative) are ever tempted to bid against legitimate bidders in an attempt to drive up the price of your products (an illegal practice called "shilling"), think twice. Not only will eBay's fraud department shut you down permanently if they catch you, but many state attorneys general are bringing criminal charges against flagrant offenders, with eBay's cooperation.
Finding Items to Sell
As eBay becomes more popular, it's getting harder to find quality products to sell without bumping into other eBay entrepreneurs. Here are some product sourcing strategies your competitors might not have thought about (yet):
- Estate attorneys are deluged with requests from grieving relatives to help them "clean out Mom's place" because they either can't bear to do it or don't have the time. Send a letter to the estate attorneys in your area (get a list from your local bar association), and tell them you specialize in online estate sales of any size.
- Other eBay vendors often buy tons of stuff in bulk lots, and there's a lot of merchandise they just don't want to sell. Let other sellers know you're looking to buy certain categories of merchandise and will take excess inventory off their hands.
- Take out an ad in your local newspaper and offer to take consignments of stuff to sell on eBay for a small upfront fee plus a percentage of each winning bid. Have your lawyer prepare a one-page consignment agreement for each new seller to sign. Keep in mind there's growing competition in this field (including nationwide franchises such as iSold It and UPS-affiliated QwikDrop), and your state may require you to get an auctioneer's license before you legally can take consignments.
, best known as co-host of PBS TV series Money Hunt, is author of Small Business Survival Guide and a faculty member of
, where he teaches the legal and tax aspects of starting an eBay business.
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.