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Individual Comments on Third-Party Information Reporting for Online Commerce

APR. 16, 2007

Individual Comments on Third-Party Information Reporting for Online Commerce

DATED APR. 16, 2007
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From: Margaret M. Richardson [margaretrichardson@yahoo.com]

 

Sent: Monday, April 16, 2007 2:45 PM

 

To: Solomon, Eric; Desmond, Michael

 

Cc: Dewland, Pamela

 

Subject: Third Party Reporting

 

 

Eric and Michael --

Thank you again for taking the time from your busy schedules to meet with us to talk about third party information reporting. I am attaching an electronic copy of the summary of our discussion with an explanation of how eBay provides an online venue for buyers and sellers and what information it collects when it provides the venue. Since other online venues exist, it would be unfair to single out one venue for information reporting and not impose the same requirements on others similarly situated. We continue to believe that the payment card proposal would be much more effective in promoting tax compliance. If you have any questions or would like any additional information, please do not hesitate to let me know.

Peggy

 

EFFECTIVE TAX COMPLIANCE AND THIRD-PARTY REPORTING

 

 

THIRD-PARTY REPORTING SHOULD NOT DISCRIMINATE AGAINST CERTAIN

 

BUSINESS MODELS

 

 

Basing tax policy on the venue of commerce will not provide complete or accurate information to tax officials. Reporting policies that treat different but comparable venues unequally also violates tax neutrality. Such policies would have the potential to encourage businesses to shift their activity to other on-line and off-line business venues.

 

NUMEROUS ON-LINE VENUES EXIST FOR SMALL BUSINESS ACTIVITY

 

 

Small businesses enjoy a variety of alternative venues and strategies for on-line commerce and often use multiple business channels. A significant volume of on-line commerce by small and mid- size businesses occurs over "paid search" venues (Google, Yahoo, MSN), and most large volume eBay sellers use multiple on-line venues to reach customers.

 

THE ON-LINE PLATFORM THAT IS EBAY IS NOT A BROKER (NOR IS IT AN

 

"AUCTION HOUSE")

 

 

eBay is a marketplace/platform/venue, not a broker. eBay does not stand in a position to effect sales between buyers and sellers. eBay does not take possession of, or guarantee the authenticity of, the product being offered for sale by a seller. eBay does not carry out the payment of the seller by the buyer. The fact that eBay is not a broker has a direct impact on the kind of transaction information it has access to. Any proposal to change the definition of broker for reporting purposes to try to cover marketplaces would not be tax neutral and would not result in comprehensive or accurate data collection.

 

EBAY DOES NOT COLLECT TAX COMPLIANCE DATA

 

 

eBay is not a broker or middleman and is therefore not aware of actual sales. eBay provides a marketplace and only knows of "agreements" to buy/sell. The fact is that some sales are not consummated, and others are completed for more or less money than the originally agreed-upon price. Furthermore, since eBay has no knowledge of the products being sold it cannot make any determination of profits or the "basis" value of any sales. IRS collection of inaccurate data will not help tax compliance.

 

PAYMENT-BASED INFORMATION REPORTING IS MORE SOUND THAN VENUE-BASED

 

REPORTING

 

 

While many challenges are inherent in any new IRS reporting regime, developing a workable system built around the credit card payment system is less flawed than a system based on commercial venues. The following points are critical to consider in the development of any third-party reporting system:

  • Treating all payment providers equally to ensure tax neutrality

  • The credit card system touches payments for the vast majority of on-line commerce

  • Payment reporting would impact both on-line commerce and off- line commerce

  • Payment data is more accurate in terms of gross receipts to businesses than any venue data

  • As the Joint Committee on Taxation points out in its 2007 report on the Federal Budget, overlapping and duplicate reporting of data on the same transactions will hurt, not help, compliance efforts

BACKGROUND ON E-COMMERCE

 

 

There are 5 steps between the buyer and the seller on-line:

 

1. Ad Placement: where the buyer finds the seller

2. Discovery: where the buyer finds the item

3. Purchase: selecting the item to buy (e.g. add to shopping cart)

4. Payment: fund transfer between buyer and seller

5. Shipment: delivery of goods

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