Tax Avoidance?

[darmar3180]

I am curious to hear from others why so many EBAY sellers have an item listed for significantly less than its expected value, only to charge excessive fees to ship, often 5-10 times the actual shipping costs.  The only thing that makes sense to me is, they can show no profit or even a loss on the product, yet make all the money tax free from shipping.  As there are no taxes required on shipping when the price is separated from the cost of the product, their business potentially avoids/evades all potential taxes.  I have read so many threads where this is discussed, and the responses seem to all state emphatically that a seller can charge what they want for shipping, but it is apparent they do not know the law.  Even if that was true, for EBAY to allow this, should almost certainly be against any reasonable TOS.  Thoughts?

[nobody*s_perfect]

It's apparent that you do not know the law.  When eBay sends the Form 1099-K to you and to the IRS, they will report every penny that they processed for you -- including not only the Sold price but also whatever your buyers paid to you for shipping and handling.  Then your actual shipping costs are a deductible expense.

[richard1rst]

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@darmar3180 wrote:

I am curious to hear from others why so many EBAY sellers have an item listed for significantly less than its expected value, only to charge excessive fees to ship, often 5-10 times the actual shipping costs.  The only thing that makes sense to me is, they can show no profit or even a loss on the product, yet make all the money tax free from shipping.  As there are no taxes required on shipping when the price is separated from the cost of the product, their business potentially avoids/evades all potential taxes.  I have read so many threads where this is discussed, and the responses seem to all state emphatically that a seller can charge what they want for shipping, but it is apparent they do not know the law.  Even if that was true, for EBAY to allow this, should almost certainly be against any reasonable TOS.  Thoughts?

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It is apparent that you also do not know the law. As stated above income taxes are based on ANY money you receive regardless of the source. My sister is a great, great, great, great, grandmother with a brood the size of a small city. I send her a substantial Christmas check. The moment it is deposited in the bank it us reported by the bank to the IRS as income. (Not really sure about the number of "greats" but there are a bunch of them.)

As for the shipping income you then reduce the tax bite by showing what you actually spent for shipping. But a tax IS DUE.

More likely the people doing this do not know eBay's policy of charging FVF on shipping as well as everything else. Don't believe that? Then peruse these boards and see how many posters are shocked, SHOCKED,  to discover that shipping and sales taxes are subject to FVF.  (My apologies to Captain Renault).

[darmar3180]

nobody's_perfect, esq.

Spoken like a true seller!  You only know how to attack and not explain with actual facts.  "Sounds like you know tax law for all 50 states" sarcasm off: In regards to my statement about the excessive shipping costs that sellers on this platform frequently apply.  There is plenty of case law that cites Article 11 of the Data and Marketing Association’s Guidelines for Ethical Business Practice, which provides that “[p]ostage, shipping, or handling charges, if any, should bear a reasonable relationship to actual costs incurred.”  If you want someone to consider your response as legitimate, it may help to not start out on the attack.   

In regards to Form 1099-K, it will include your gross proceeds through a particular payment provider. What it will not include is a breakdown of your tax deductible business expenses. This includes things like:

• The amount actually spent on shipping costs
• Fees you paid to the payment processor
• Subsequent refunds and returns

This means the shipping costs you listed during the sale can be used to reduce the taxable income when filing even if it didn't actually cost that much to ship.   Of course, I am sure this would never happen with the sellers that charge 5$ for the product, then $150 to ship it, as they are certainly honest, law abiding, tax payers.

Out of curiosity, what is your store account name, as you seem to have a lot of stars for someone who doesn't buy or sell anything on the platform?

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[darmar3180]

Richard,

Thanks for your response! I am glad to see your profile is public and you do not participate in the ridiculous and deceptive shipping cost shenanigans that are becoming the norm rather than the exception.  I would only point out that the banks do not report "every" deposit to the IRS, but yes large deposits are.  In regards to your comment about me not knowing the law, I would only encourage that anyone who reads/peruses these forums, do not take the content as actual and factual law, and seek counsel for any questions they have specific to the federal/state/local jurisdictions they reside.

[wastingtime101]

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@richard1rst wrote:

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More likely the people doing this do not know eBay's policy of charging FVF on shipping as well as everything else. 

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Or they're trying to get around category/listing limits since separate shipping costs aren't factored in to those limits. And yeah, it's an eBay policy violation to do that.

Or they're trying to make the item price appear lower by putting a portion of the cost into shipping because they want to get more clicks on their listing.

Or their S&H is reasonable but the average buyer isn't aware how much it truly costs for postage, bubble wrap, boxes, etc.

So many possible explanations to a low item cost / high ship cost situation.

[soh.maryl]

Guess you have never heard of the fact that both sellers and buyers can have more than one eBay ID.

[fern*wood]

You state a business tax deduction can be taken for "The amount actually spent on shipping costs", but then you go on to state, "This means the shipping costs you listed during the sale can be used to reduce the taxable income when filing even if it didn't actually cost that much to ship. "

So how can one use the shipping costs listed on a sale even if it didn't actually cost that much?  I can only prove what it actually cost for my deductions regardless of what my listings show.

[donsdetour]

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@darmar3180 wrote:

I am curious to hear from others why so many EBAY sellers have an item listed for significantly less than its expected value, only to charge excessive fees to ship, often 5-10 times the actual shipping costs.  The only thing that makes sense to me is, they can show no profit or even a loss on the product, yet make all the money tax free from shipping.  As there are no taxes required on shipping when the price is separated from the cost of the product, their business potentially avoids/evades all potential taxes.  I have read so many threads where this is discussed, and the responses seem to all state emphatically that a seller can charge what they want for shipping, but it is apparent they do not know the law.  Even if that was true, for EBAY to allow this, should almost certainly be against any reasonable TOS.  Thoughts?

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Well depends on the seller what they do or do not:

 Don't like the shipping cost move on.

What most savy buyer do.

Some do not over charge but use methods to get the item there, and faster than just depending on the slow boat to china method.

Byers that have never shipped think its all to expensive> If you have not looked at fees for shipping at the site of the shipper including added fees, and such I suspect you should take a look......

Nothing new to me to see post like this.

As for taxes by state and fed: its the gross received that will show on a 1099-K.

That of course has been cut to $600.00 for market place facilitators by the government: not the facilitators.

As for expenses: its what you can prove (receipts etc) to what you can write off your taxes.

Hope this helps your seeming confusion.

Note: some do over charge on shipping due to a set cost must cover the entire area the seller ships to.

Fixed cost to shipping is usually the result  when this happens: Save on confusion to the buyer as well.

It is also ok to add in a handling charge as well.

[stainlessenginecovers]

If it's not clear, a seller will receive a 1099 showing money collecting for the ITEM + SHIPPING. The 'write off' on the sellers taxes can only be for the amount of ACTUAL shipping costs (along with some small incremental materials, ie. box, tape, ink, label (paper) etc. 

So if an item shows $100 with $1000 shipping but really cost $100 to ship, the it would look like this

$1100 reported to IRS

Minus $100 for ACTUAL SHIPPING $ PAID

Therefore the seller is liable for Income Tax on $1000 (not counting other items they may write off including original cost of the item etc.) and NOT just for $100

[ms.rodriguez*]

They probably do that to fool someone into buying.  Someone might see that the price of the item is dirt cheap but NOT realize that the shipping is too high.    OR they can be naive and not realize that they are also paying the same commission on the shipping price as the sale price.  Always shop total price.

[jansrocks22]

By having the shipping taken out of the funds, will that reduce your sales, thereby reducing the taxable amount to IRS? Vs. paying separately via paypal.

[nobody*s_perfect]

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@jansrocks22 wrote: ... By having the shipping taken out of the funds, will that reduce your sales, thereby reducing the taxable amount to IRS? Vs. paying separately via paypal.

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No.  The 1099-K that you get from eBay includes the buyer's entire payment for both the item price and the shipping/handling.  Then your actual postage paid is a deductible expense, regardless of where you purchase it or how you pay for it.

[soh.maryl]

When eBay first began, the final value fee was calculated on the item price only.

So many, many sellers caught on to this loophole and would list their widget for $1 with $99 shipping, meaning that the FVF was charged only on that $1.

Then eBay caught on to this dodge and started calculating the FVF on the total amount the buyer paid the seller, regardless of how it was broken down.  $1 item with $99 shipping? Fee calculated on $100.

$99 item with $1 shipping? Fee calculated on $100.

So, as you can see there is no advantage for the seller to do what you describe.  And this protocol has been in effect for at least 15 years, probably longer, so any seller doing this is either (a) totally new and totally clueless or (b) somehow believes he's saving himself money.

Yes, you're correct -- there is nothing to stop any individual seller from charging any amount for shipping.  BUT the buyer sees the potential shipping fee BEFORE making the purchase and has the option to hit the back button and find another item/seller.  eBay cannot possibly check each individual listing to make sure the shipping is reasonable. 

And, let me go a little further here:  Are you confusing "tax" with "eBay fees"? Again, eBay's FVF is calculated on the total the buyer pays the seller, including the state sales tax that the buyer pays.

And the state sales tax, which eBay is required to collect from buyers on behalf of the state where the buyer has his purchase delivered, is set by the individual state, not by eBay.   Some states do not require that sales tax be charged on the shipping fee, but most do, I believe.  

[kh-vince]

Hi everyone,

Due to the age of this thread, it has been closed to further replies. Please feel free to start a new thread if you wish to continue to discuss this topic.

Thank you for understanding.