PayPal 24% tax hold

[BobC]

Originally Posted by hcv123

selling to or doing a private consignment (NOT an auction) with your local Net54 board member (ME ) who is in the business and handles all the taxes and other selling headaches!

Howard,

This is a serious question, and not trying to be funny or cause problems, but have you in the past, or do you in the future, plan on issuing 1099s to the people who consign things to you to sell on their behalf? (And maybe don't answer that directly here on a public forum either, and consider my post as food for thought.)

You mentioned handling the taxes and such for people who would consign through you, which makes it sound like they don't have to worry about those issues at all then. That would supposedly take care of the sales tax issue, since you would be the one actually doing the direct selling, and thus incurring the sales tax collection/remittance responsibility. But that doesn't automatically remove any income tax responsibility your consignors may still have. One big thing to keep in mind is that when you act as the consignee and sell things for others, if you sell on a platform or use some third-party service that then reports those sales to you on a 1099 form, you are technically receiving those reported payments on behalf of others, in a capacity that is known as being a "nominee". The IRS recognizes "nominees", and expects them to actually create and send out what they then refer to as "nominee' 1099s to properly report the sales that really belong to all your consignors.

I assume you charge a percentage or fixed cost as a consignment/sales fee to people that consign with you, and take that out of the proceeds of the consignment sales you make on their behalf. So then, you actually only incur taxable income to the extent of your consignment fees. So, what are you going to do on your own tax return when you sell something for say $1,000 that was originally consigned to you, and for which you charged the consignor say a 10% consignment fee. You really only have taxable income of $100 ($1,000 X 10%), but if you sold that item through say Ebay, and got paid via Paypal G&S, you are going to get a 1099-K at the end of the year showing you had $1,000 of taxable sales to report, but again, you really only have $100 taxable income for yourself. How are you going to report that $900 difference on your tax return that the IRS automatically assumes is your taxable income, based on the 1099-K you get?

Just so you know, in my described circumstance the IRS technically expects you to prepare and send out 1099-K forms to your consignors to then report the "nominee" sales you originally received on their behalf. If you fail to report that $1,000 on your own tax return as taxable income, the IRS will get a hold of you if you don't otherwise report enough sales/taxable income to cover what got reported to you on the 1099 form(s) you receive. And if you do report that full $1,000 as taxable income on your tax return, what do you then put down on your tax return so you don't end up paying income tax on the $900 that actually went to your consignor? That "nominee" payment you collected and then remitted to your consignor is supposed to then be reported by you, to them and the IRS, on a 1099-K form as well. If the IRS ever came questioning you, and found that you had not properly issued a 1009-K form to your consignor, they could legally deny you the $900 deduction you may have taken against the $1,000 of taxable sales reported to you originally on the Paypal/Ebay 1099-K form you received. The 'nominee" 1099-K form for $900 you should have issued to your consignor is the proof the IRS would look for to show that $900 is a valid deductible expense on your own tax return. In other words, they could possibly make you pay income tax (and maybe self-employment taxes as well) on the whole $1,000 you originally got if they caught you and found out you didn't properly report the consignor's share of the taxable sales income on a 1099.

This is not anything new in the tax laws, and has been around for decades. It is also a probable reason why many AHs don't accept Paypal, or use any other payment services/platforms, that would require them to send 1099-K forms to the AHs once sales hit $600 for the year. If the AHs don't receive any 1099s, the IRS won't be expecting, or looking, for them to be sending "nominee" 1099 forms to their consignors. I've talked and posted about this "nominee" 1099 reporting expectation/requirement elsewhere on the forum before. Hopefully this will help to educate others to at least be prepared for what this could entail and involve given the new, lowered 1099 reporting threshold requirements that officially took effect on 1/1/2023, unless the IRS decides to postpone them again for another year from now. LOL

And for those that don't like me, and/or don't think I know what I'm talking about (not talking about you Howard), here are a few links to back up and prove what I'm saying, including the third/last link which it to the official IRS website. Just cursor down to Section A. Who Must File, and the very first thing the IRS talks about is nominee income and reporting. And don't get all hyper because these links don't specifically mention 1099-K forms. The 1099-K form reporting requirements weren't passed until 2011, and with 1099-K forms only first issued starting in 2012. These other links are pretty much just based on the IRS site terminology, which was written long before 1099-K forms even existed. The IRS just didn't see a need to specifically go back and redo their terminology since it already covered and referred to ALL 1099s being received and issued.

http://www.taxproplus-la.com/29729/N...20the%20income.

https://www.calculatedmoves.com/nomi...-requirements/

https://www.irs.gov/instructions/i1099gi

[Aquarian Sports Cards]

Actually Bob, Auction houses have a carve out and are specifically exempted from 1099'ing their consignors. There were questions about this with the new reporting but the NAA (National Auctioneers Association) got it directly from the IRS that auctions are not considered payment processors and our exemption holds. I gladly accept paypal and credit cards and report all my sales to the IRS and my payments to consignors are basically a deduction.

[BobC]

Originally Posted by Aquarian Sports Cards

Actually Bob, Auction houses have a carve out and are specifically exempted from 1099'ing their consignors. There were questions about this with the new reporting but the NAA (National Auctioneers Association) got it directly from the IRS that auctions are not considered payment processors and our exemption holds. I gladly accept paypal and credit cards and report all my sales to the IRS and my payments to consignors are basically a deduction.

Thank you Scott, I did not know there was a specific carve out for AHs. I'm assuming that they have to be properly licensed and/or members of a specified group such as the NAA to qualify for the exemption, right? In which case, what I was saying is still very applicable for someone like Howard, and other non-AHs in similar circumstances/situations.

My mistake, and apologies to everyone, for assuming they automatically applied these "nominee" reporting requirements to AHs as well. I've always admitted I don't know everything. But, given how everything else is going, I can also easily see the government possibly removing such an exemption in the not-so-distant future. Especially in the face of the lowered reporting threshold requirements for 1099-K forms, and the impact that is going to have on an awful lot of people. That ends up giving the AHs a distinct and somewhat unfair advantage over other consignment type sellers. And I am sure that they, and sites like Ebay, are not going to be happy with that advantage working against them, and thus exerting their own influence against/towards the government as well to correct this obvious inequity.

This is exactly why the Supreme Court finally ruled back in 2018 that online sellers were now going to be subject to sales tax on interstate sales, and to do away with the totally unfair advantage online sellers had over brick-and-mortar stores and businesses who were forced to charge sales tax, while online sellers weren't.

So Scott, I do have a very valid question for you. I assume then you do get a 1099-K for Paypal G&S payments, equal to the full amount of the sales through G&S and not just your commission fee on those sales, right? Paypal obviously wouldn't know how much your commissions actually are, so I assume they must still report the full amount of the sales you collected on behalf of your consignors in a 1099-K form then directed to you. Or are you able to send some kind of documentation, form, or something to Paypal in advance so that they do not send you any 1099-K form(s) at all? I am truly very curious for my own personal knowledge and reasons, as well as making sure you have the correct answer.

Or, is the exemption you're referring to based more on what I found in this accompanying link, from the NAA site itself, and only just recently confirmed with the IRS?

https://www.auctioneers.org/NAA/Advo...6-48f893f7a5b6

If the AH exemption you're referring to is based on this link and what it is saying, let me give you a word of caution then. This exemption refers solely to the designation of an AH as a Third Party Settlement Organization (TPSO), in other words treating the AH as though they are the same as Paypal or Venmo, and thereby requiring all AHs to report via 1099-K forms, ALL sales they collected for their consignors, and not just sales they got paid for through other actual Third Party Settlement Organizations (TPSOs). And I was already aware of this specific exemption whereby AHs are not considered as TPSOs. However, I don't think your AH not being designated as a TPSO automatically extends and exempts you from the "nominee" reporting rules and requirements, in regard to the IRS and 1099 reporting that I previously posted links to, either. That sounds and looks like an entirely different tax reporting issue and matter to me. You may want to do both of us a favor and contact the NAA for some clarification on this exemption they posted about, and specifically ask if it also covers and exempts AHs from possibly still being subject to the "nominee" reporting rules and requirements for valid 1099-K forms your AH does receive from other TPSOs you choose to do business through. This appears to be one of those "gray" areas that exist in the tax laws that aren't always fully known and clear right away, and may not ever be fully determined until someone takes the IRS to court over it, or the government changes the law somehow. I hope I am wrong and that the exemption you mentioned also covers "nominee" reporting rules and requirements as well. Please don't be mad at me if I end up being right though, and you do need to worry about 1099-K "nominee" reporting after all. As always, just trying to help and educate others on the forum as to possible issues that can possibly impact them in their various hobby activities.

[Aquarian Sports Cards]

Originally Posted by BobC

I can also easily see the government possibly removing such an exemption in the not-so-distant future. Especially in the face of the lowered reporting threshold requirements for 1099-K forms, and the impact that is going to have on an awful lot of people. That ends up giving the AHs a distinct and somewhat unfair advantage over other consignment type sellers. And I am sure that they, and sites like Ebay, are not going to be happy with that advantage working against them, and thus exerting their own influence against/towards the government as well to correct this obvious inequity.

That's why we (AH's) were so adamant about our National association getting a clear answer on the matter. As it stood we weren't sure without clarification. Ebay's "mistake" was in becoming a payment processor like Paypal. As for what AH's are covered, that I don't know. Many states don't require any licensing, and most sports auction houses are located in those states. Hunt, Wheatland and The Collector Connection are all in PA and all have a licensed auctioneer of record. Can't speak for any of the others.

[JustinD]

Originally Posted by Aquarian Sports Cards

Ebay's "mistake" was in becoming a payment processor like Paypal.

Very interesting take!

I did not realize that after the PayPal split they could have been just fine, but greed and going after the direct managed payments pie could cost them dearly. This is very intriguing as a historical business misstep.

[BobC]

Originally Posted by Aquarian Sports Cards

That's why we (AH's) were so adamant about our National association getting a clear answer on the matter. As it stood we weren't sure without clarification. Ebay's "mistake" was in becoming a payment processor like Paypal. As for what AH's are covered, that I don't know. Many states don't require any licensing, and most sports auction houses are located in those states. Hunt, Wheatland and The Collector Connection are all in PA and all have a licensed auctioneer of record. Can't speak for any of the others.

Scott,

I'm with you. This stuff can be confusing as hell. That is why I'm hoping you may have some better luck in re-contacting the NAA and finding out if the 1099 reporting exemption they got clarification on from the IRS extends to not just AHs not being considered as Third Party Settlement Organizations (TPSOs), like Paypal G&S is, but also extends and covers an exemption for AHs from being subject to the "nominee" reporting requirements and rules as well.

And I'm not sure that Ebay in any way just voluntarily decided to become a TPSO like Paypal G&S. I think they were faced with additional scrutiny from the governments and tax authorities because they are so big, and made a "lesser of two evils" type of decision and agreed to take on the billing, collection, and remittance of sales taxes for all their sellers, as well as the 1099-K reporting. If memory serves, I thought Ebay was also supposed to be dropping Paypal as one of their primary/main payment service processors at some point a while ago. Seem to remember talk that Ebay was going to be partnering up with a European based payment processing service that would supposedly give them, Ebay, more control and say over the payment processing, along with probably a bigger piece of that processing fee pie as well. Yet when I purchase anything on Ebay, it still looks like Paypal is their major, primary player for providing payment processing services after all. At least it seems to be for me. And as for taking on the things like sales taxes and 1099 reporting, I think Ebay may have been agreeing to do that so those responsibilities wouldn't fall to or on their users/sellers. Not doing so could have potentially turned even more sellers away from using Ebay going forward, by saddling them more things they didn't understand or want responsibility for. And if Ebay didn't go along with 1099-K reporting, could see the governments/tax authorities threatening to come in and start reviewing their records and data to begin going after their sellers as well. Don't think Ebay made a mistake as much as they possibly weren't given a choice in the 1099 reporting issue.