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.
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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:
1. What are the requirements for
obtaining an auction license in my state? If it isn't that
hard or expensive to get one, it may be better to just get the
license so you can sleep better at night, and get a leg up on your
unlicensed competition--your buyers will feel more comfortable
knowing you are a licensed auctioneer.
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.