Discussion on selling/taxes etc. (from Arrowhead threat)

[Deleted]

Well, as part of updating my freight car fleet to something much more current, my local train store had no problem selling 10 of the Arrowhead H-39's, used, at the same blowout price as Lombard Hobby was asking for brand new ones, and they all sold in less than one week.

In fact, given the current pricing of new freight cars from all the importers, my local train store has decided they can sell anything that I don't need if we price it right. My buddy just took nearly 30 freight cars last night with a few engines. I have the relief of not having to deal with Ebay to sell them, and they are getting immediate inventory to stock their shelves with reasonably priced quality freight cars.

We are trying some used high end stuff on the local population. Hopefully it will be a win-win.

[lvrr325]

Managed Payments has chased a few away mostly out of irrational fear. The change buried in the latest Covid relief bill will chase more away as you'll get 1099'ed if you sell more than $600 (used to be like $20,000) than MP did.

[lars]

I can’t tell if the $600 thing will take effect for tax year 2021 or 2022. It shouldn’t affect me too much as I rarely break that amount. I guess my wife could sell some things too in the future.

[Deleted]

Dang it dang it dang it. lvrr325 appears to be dead on correct, and it will definitely affect me. Right now the tax professionals are not sure if it will affect the 2021 tax year or the 2022 tax year because the language is a bit vague, but it does appear that Biden just stuck it to those people who occasionally clean out their house or their basement, the small time sellers.

The threshold was $20,000 and 200 transactions per year for Paypal and/or Ebay to report (though I think Ebay was reporting it at $10,000 at one point, as it affected someone I know). It will become $600 and number of transactions does NOT matter.

This will most definitely drive more small time sellers off Ebay onto HO Yardsale or groups elsewhere (where stuff becomes a LOT harder to actually sell, and it is MUCH easier to get ripped off, as I have been).

Regarding Arrowhead Models, there WAS a time that I "needed" the Conrail H-39's, but they weren't made yet, and now unfortunately I'm modernizing to an era where they just do not belong (or rather not in any significant quantity), and even the PS 4750 covered hoppers are "old" and really should be heavily weathered (but I lack the heart to do that).  Though my son and I retain a couple big steam articulateds to run once in awhile, all the freight cars on hand are suitable behind most modern diesels.  We are just not going to do 2 separate fleets like some do.

[lvrr325]

IMHO what's going to happen for most casual sellers is they get a 1099 out of the blue and find out they have to report this income they didn't keep any track of and that will be it, you'll see them turn to other means to sell the things they no longer need because it's now a big hassle to document out the actual profit and pay tax only on the actual income.

I don't know how it can affect 2021 since it wasn't even signed until partway through the year, to expect people to have kept track of things they didn't know they'd have to, but nothing surprises me anymore.

It will probably mean less competition for dealers, but more work to try to sell used items and some creative financing to lessen any burden at the end of the year. When I sell a new item it's easy to pull up the invoice and say I paid X for it, it sold for Y and my profit after fees was Z. When I buy a box lot at a show or flea market for $50 without a receipt all there is is my word what I paid for it.

What it means for the average modeler is it's going to be that much more important to pre-order and buy things when they come out, because they will be harder to find secondhand and when they do turn up they will be with dealers who likely will charge a higher markup.

[Deleted]

Apr 26, 2021 22:03:14 GMT -8 lvrr325 said:

[valenciajim]

I was going to post something in the Crew Lounge about the new Form 1099 requirement. From what I read it is effective for 2022, so we may see a flood of eBay sales in late 2021. By way of background, I am CPA who has practiced for 46 years. (That's why I don't get to spend as much time working on the railroad as others who participate in this forum.)

This is a way of raising tax revenue without raising taxes. People who sell on eBay and other sites will just have to be more careful about maintaining records. There are two types of sellers:

First is what I call the professional seller--people who operate a business for profit. Assuming they are not operating through a partnership, they will report their activity on Schedule C and will pay self employment tax on Schedule SE. These folks probably already keep pretty good records on QuickBooks or something similar.

The second is the hobbyist who is trimming their collection because they have too much stuff. Their endeavor is not an active trade or business. They are selling off personal assets which generally are capital assets. That means what they sold is general reported reported on Schedule D and any profits are taxable at lower capital gains rates. If there is a loss, the loss is generally a nondeductible personal loss. One issue these folks will face is how to report this mechanically on the return when there is a loss. You probably will be required to report the sales proceeds, but cannot claim cost of goods sold exceeding the sales price. Another big problem for these folks is documenting what they paid for the stuff they sold. If you don't have receipts, perhaps you can establish a reasonable estimate based on Walthers catalogs, etc. Maybe the price is listed on the box of the item and you can take a photograph of the the box. The IRS will probably be fairly lenient-particularly if there is a relatively small number of sales. However, if you live in California, the Franchise Tax Board is much more strict wand will disallow the cost basis of the items sold without proper documentation. I think it is important to keep your receipts--I scan mine. If you order on-line, the email receipts can be particularly helpful if you save those.

We don't know what the form to report these sales will look like and what the IRS instructions will say, so it is a little premature to state conclusively how the new law will be administered in practice.

I hope this message helps those who are affected by the new law.

[gevohogger]

Apr 26, 2021 12:20:34 GMT -8 lvrr325 said:

Managed Payments has chased a few away mostly out of irrational fear. The change buried in the latest Covid relief bill will chase more away as you'll get 1099'ed if you sell more than $600 (used to be like $20,000) than MP did.

It's going to cut both ways, I think.  I've noticed a couple sellers claiming they will ship "in 5 to 7 days" as their new policy due to Managed Payments.

As a buyer, I am accustomed to next-day (or even same-day) shipping.  This isn't the 1970s any longer; Amazon has us demanding faster shipping.

Do sellers really have to wait that long to get paid?  I'd be unhappy too if that is the case.

[nebrzephyr]

Apr 27, 2021 12:24:44 GMT -8 gevohogger said:

Apr 26, 2021 12:20:34 GMT -8 lvrr325 said:

Do sellers really have to wait that long to get paid?  I'd be unhappy too if that is the case.

My experience is 5 days is minimum.Bob

[djh4d]

Apr 27, 2021 12:42:31 GMT -8 nebrzephyr said:

Apr 27, 2021 12:24:44 GMT -8 gevohogger said:

My experience is 5 days is minimum.Bob

I had one take 2 weeks to pay but, he said it would take a little bit. However, it took the post office 5 days to get it to him and he sent me an email accusing me of using the cheap shipping and taking the slow option because he needed his engine NOW! He got real quite after I sent the receipt showing 2 day shipping.

-Dave

[slowfreight]

For those who started selling on eBay in the wild west days of the early 2000s, it was efficient and fun. But the market for average folks unloading surplus stuff started to hurt when eBay charged fees on postage and handling.

After the split from PayPal, I quit listing anything. It had already become significantly harder to get a feel for market pricing or demand, and it felt to me as though auctions weren't well-attended enough to start things low and wait.

With tax implications, slowed payments, and bank account requirements, eBay is now effectively competing with Amazon and I fear the death of the auction market for random things like model trains.

Selling on FB is ob obnoxious, but the yard sale lists just haven't worked like they did 10 years ago. But that seems the first place we might all land.

[severn]

Oh I dunno. As a hobbyist who just happens to sell off his no longer of interest items I'd probably not think this was directed at me.

www.cnbc.com/2021/03/26/its-going-to-get-harder-to-avoid-telling-the-irs-about-income-from-online-sales.html

On the other hand if I spent my free time make 3d models of things and selling them so folks could print them out. I probably would think it's somewhat directed at me...

And ... I meant to add this ... And this is just a personal pet peeve ok. Our presidents do not write the bills they sign into law. That's congress's job. I'm not defending or detracting anyone here but these kinds of things originate in congress. It probably came out of a tax committee cause it is way in the weeds. (Aka ways and means committee)

[valenciajim]

Apr 27, 2021 19:17:44 GMT -8 severn said:

Oh I dunno. As a hobbyist who just happens to sell off his no longer of interest items I'd probably not think this was directed at me.

www.cnbc.com/2021/03/26/its-going-to-get-harder-to-avoid-telling-the-irs-about-income-from-online-sales.html

On the other hand if I spent my free time make 3d models of things and selling them so folks could print them out. I probably would think it's somewhat directed at me...

And ... I meant to add this ... And this is just a personal pet peeve ok. Our presidents do not write the bills they sign into law. That's congress's job. I'm not defending or detracting anyone here but these kinds of things originate in congress. It probably came out of a tax committee cause it is way in the weeds. (Aka ways and means committee)

You are right Congress writes the tax laws and tax bills almost always originate in the House Ways & Means Committee. Remember that more lobbying dollars are spent on taxes than on anything else, so tax law complexity is assured.

Another factor is the mentality that Congress cannot appear to raise taxes. Generally the public thinks taxes are raised or lowered based solely on the changes in tax rates. So when Congress needs to raise revenue to cover all of their spending, they make the calculation of taxable income more complicated (principally for businesses) by limiting deductions or accelerating income. They justify this by calling it tax reform or closing loopholes.

Then there is the problem of collecting tax. A few days ago, the IRS Commissioner testified that a trillion dollars of federal taxes are not collected each year. So in order to raise revenue, while creating the perception that taxes are not being raised, Congress passes laws that make it easier for the IRS to collect tax. The tax law change that we are discussing here is a prime example of that.

Presidents do not draft tax legislation, but the Treasury Department submits proposals that are frequently adopted by Congress. Furthermore, tax legislation is frequently changed to accommodate the President's desires when the President threatens to veto the legislation. That is how the corporate tax rates were dropped from 35% to 21%. The original versions of the Tax Cuts & Jobs Act called for a reduction of the corporate tax rate from 35% to 28%, but the President threatened to veto the bill unless the rate was dropped to 20%. For complex reasons that are beyond the scope of this discussion, the rate could not be lowered to less than 21%.

When a political party controls both the White House and Congress, typically the Treasury Department, House Ways & Means and Senate Finance Committee coordinate their proposals. The White House loses control when the other party controls at least one house of Congress.

Now let's get back to discussing that Arrowhead announcement.  What exactly are they going to announce?  I forgot.

[Deleted]

Thank you valenciajim for the information.

In my case I have gotten to try out lots of trains and then trade away the ones I "didn't need" on Ebay to pay for others I wanted more, usually taking a small loss and only very rarely ever making a small profit. I'm down to a few engines I just don't really "need", a used professional musical instrument that was my dad's, and a couple (inherited) Navajo rugs that I love but could use the money more...Once all that stuff is gone I'll just be another former Ebay seller. Looks like it needs to go this year to avoid problematic accounting.

In the future I won't be buying trains on a whim as in the past, but will have to carefully plan all acquisitions so as not to accumulate anything I don't "need".

Now back to speculation about Arrowhead H-39 Conrail and Penn Central open hoppers versus 4600 cf covered hoppers.

[lvrr325]

Same party is in charge of it all right now, so same difference who you want to blame. Either way it hurts the people they claim to support.

Plus it goes backwards, it's supposed to be a relief bill, but here it is ensuring it will cost people more money. Nothing new there either.

The only plus is the IRS can't possibly have enough people to handle the likely millions of new tax reports people will have to send in. Some who gamble will still slip through the cracks.

The other result of this is when guys sell collections they may only do it at shows and just dump the stuff there. So long as we have cash money to use there's no big brother watching there. So you'll want to be one of the first few guys in line at the train shows if you seek bargains on those used Arrowhead or whoever else's cars.

Also, as marginal sellers are forced to keep better track of their expenses you may see some quit bothering when they find out they're not making much money. Some of these shops are run more as a hobby that happens to be a business than a business that sells hobby items. If you can quit and collect SSI or go be a Wal-mart greeter or what have you and make the same money for a lot less effort, that option is going to be a lot more attractive now.

[severn]

Well my familiarity isn't super high on this but to me it looks like the online limits are just aligned with other kinds of 1099 income related limits.

[lars]

There will still likely be a lot of work arounds for someone culling their collection. Like I mentioned, I could sell some, my wife could on her account. I could set up a eBid account and sell on both platforms.

I think I'm getting burned by my first purchase through managed payments as something I bought Sunday hasn't shipped yet. We'll see how much this hurts eBay. Some of these other platforms might take off, especially if someone like PayPal snatched them up and put some money behind them.

[riogrande]

Well, you know ol 'Biden has to raise money to pay for all of his spending plans. You know!

[GP40P-2]

As hobbyist's, we don't have as good lobbyists as the "horse people" do. They get $1000 to take a wild horse from the government, which I guess we now pay for by selling models on Ebay.

I would prefer that the government pay me $1000 to take a Scale Trains locomotive or Tangent hopper, and tax the horse owners to cover it. Ha Ha!!

[milgentrains]

I had just started selling some stuff on eBay, now I guess that I'll stop again, perhaps for good this time.

[katyflyer]

Bummer that MB Klein/Modeltrainstuff is now charging sales tax on out of state orders......

[jonklein611]

May 6, 2021 6:43:00 GMT -8 katyflyer said:

Bummer that MB Klein/Modeltrainstuff is now charging sales tax on out of state orders......

Most online stores already do this, and it's built into the POS that they use.

[katyflyer]

That may be, but they weren't charging sales tax as recently as last month, nor have they in the past.

[riogrande]

I don't see tax on my Apr 21 order. Would suck if they do now.

[katyflyer]

Yeah, I just bought some stuff yesterday and was charged tax. First time ever!

[kentuckysouthernrwy]

Unfortunately, it IS the law and some businesses have been slow to adapt it. At times in the past if a business like that didn't have a business presence, office or store, they were getting around paying state sales tax. Some states have been aggressive in going after their pound of your flesh in the courts. After the last year many states are going to be very aggressive trying to balance their books and finding sources of revenue lost by business and workers being closed for so long.

[valenciajim]

Karl--you are right. Remember it is easier to impose and enforce taxes on nonresident businesses because they don't vote. It is a way for state and local governments to increase tax revenues without changing the way residents are taxed.

After the Wayfair Supreme Court decision, businesses are supposed to collect sales tax on sales to out of state customers. I am surprised that someone has not come up with a service for smaller on-line businesses to process these. Many states have a minimum sales threshold before they will enforce it. I am not sure how they identify who meets the minimum threshold, but the day of enforcement is coming. As I have said in other threads, I realize that people don't like to pay taxes, but technically people have been illegally avoiding paying use tax on online purchases. Since online purchases have largely replaced purchases from bricks & mortar stores, state and local governments have lost a significant source of tax revenue.

As we move from an industrialized economy to a technological economy, it is increasingly common for businesses to sell to customers in a different jurisdiction. Previously, a business had to have a physical presence (i.e., employees, inventory or property) in a jurisdiction in order to be taxed by that jurisdiction. The Wayfair sales tax case changes that by saying you have a presence in a jurisdiction if your customer resides in that jurisdiction. One of the legal theories espoused in the Wayfair decision is that a sales person physically present has been replaced by the customer's computer who is a virtual sales person. (I am not saying I agree with that theory, rather I am merely commenting on the existence of that theory.)

The OCED nations are working on an international agreement to provide for similar rules for income tax purposes aimed at large corporations with billions of revenue who currently pay little or no tax. The first draft of the proposals will be out later this year. The problem is that the tech companies move their taxable income into a tax haven jurisdiction, or even better, into cyberspace where there is no taxation. My former colleagues tell me that the Wayfair rationale will eventually be expanded to state income taxes as well. If so, online retailers will have to file both sales tax and income tax returns if certain thresholds are met. Before I retired, I was a partner in a Big 4 accounting firm and I filed tax returns in 34 states where my former firm did business. The multi-state tax compliance is expensive and will increase administrative costs for online retailers which probably will be passed onto the consumer.

[lars]

Does the WayFair ruling apply to orders placed over the phone or even the old school send in an order form and a check?

[lvrr325]

You're fine through the end of this year.

[valenciajim]

May 11, 2021 11:38:46 GMT -8 lars said:

Does the Wayfair ruling apply to orders placed over the phone or even the old school send in an order form and a check?

Good question. Wayfair dealt specifically with online sales and it is not entirely clear whether telephone or catalog sales are covered by the decision. Since the 1930's catalog sales and phone sales to out of state customers were not subject to sales tax, but the customer was required to pay use tax equal to the amount of sales tax that would have been charged had the merchandise been purchased from a local merchant. The problem with use tax is that it is hard to collect. Very few people voluntarily pay use tax even though they are legally required to do so. As a purely technical matter, I suspect it is safe to say that most Americans are guilty of tax evasion when it comes to use tax because they willingly refuse to pay use tax.


The reason why it is not clear whether telephone sales and catalog sales are included is because on one hand the court took the position that use tax is impossible to collect, so out of state merchants should be responsible for collecting sales tax. This conclusion differed from prior court decisions, including at least two Supreme Court decisions. On the other hand, one of the other arguments is that on-line sellers have a virtual presence on the customer's computer. Does a seller also have a virtual presence if a catalog is in the buyer's possession?

Once the internet became prevalent and the portion of commerce that migrated from bricks & mortar stores to online merchants became significant, states had to replace the lost sales tax revenue. For example, in California sales tax dropped from about 35% of state revenue to about 20%. So states started going after on-line merchants and started adding a line to the income tax return forms where taxpayers could voluntarily pay use tax without having to file cumbersome use tax returns. In California, when an individual's income tax return was selected for examination by the Franchise Tax Board, the examining agent would ask for the taxpayer's credit card statements to try to identify on-line purchases for which no use tax was paid. The first Supreme Court case involving catalog sales that was applied to on-line sales was decided in the 1990s. That case was decided against the state who brought it. Justice Kennedy thought that was an incorrect decision and made it clear about eight years ago that the Supreme Court would like to revisit the issue. The Wayfair decision is a very interesting decision to read. Justice Kennedy wrote the opinion and it is clear he had been thinking about the issue for years. Justice Roberts wrote the dissenting opinion, and in my opinion, really struggled to write a coherent opinion. Justice Thomas wrote a brief concurring opinion explaining why he changed his views from the 1990's. He basically said that he was an inexperienced justice in the 1990's and he made a mistake back then.  Of course he probably had to hear about his decision from Justice Kennedy for twenty years. 

Taxation will have to adopt to technology and will look considerably different in the coming years. For example, let's say you work in Manhattan but live in New Jersey. When you commute to Manhattan, you perform services in New York and are subject to tax by New York. During the pandemic, you never left New Jersey and you worked from home. Does New York get to tax your earnings? That law will evolve over the years, but Wayfair may provide a basis for New York to tax the income that was virtually provided.  Remember, states love to tax nonresidents who do not vote in that state.  

Here is my favorite question for the future. Individual A resides in Australia and is subject to Australian income tax. He designs a widget that can be produced using 3D printing technology. He maintains all of his information on a server located in a data center in Singapore. A customer in the US orders a widget and prints it using his printer in the US. The transaction was processed by the online server located in Singapore.  Individual A sold the widget for $100 and made a $60 profit. Where is the profit taxed--Australia, Singapore or the US? (You can bet that all three governments want in on the action!) Is there sales or use tax on the transaction? If so, who will pay it?  Australia imposes a value added tax (VAT) as well as an income tax. Is this transaction subject to Australian VAT? Is the widget included on a list merchandise that could be subject to a tariff if it was imported?  If so, is the widget that was 3D printed in the US subject to the tariff?  Currently, these are all unanswered questions. Do you think this will affect our hobby in the coming years? I suspect it will.