By Cliff Ennico
Slowly but surely, eBay is making a big comeback.
I am privileged to be giving a talk at next week’s eBay Open conference in Las Vegas (www.ebayopen2016.com) on some of the legal and tax issues involved in sourcing the merchandise that you want to sell on eBay.
Here are some highlights from my talk:
You must source your merchandise legally. A thief cannot pass good title to property of any kind. Seriously, dude, don’t even THINK about doing any of the following:
- Stealing merchandise (until garbage is actually picked up by a trash hauler, it is still considered somebody’s property – resist the temptation to “dumpster dive” or “Blue Bin binge” on trash pickup day);
- Robbing somebody’s grave, even if it is a centuries-old burial ground you discovered while installing your backyard swimming pool;
- Shoplifting, even if it was during a riot or power blackout and, well, everybody was doing it;
- Selling stuff eBay says you can’t sell on the site (an alphabetical list of prohibited items can be found at http://pages.ebay.com/help/policies/index.html);
- Buying merchandise from dubious sources that you just know, or have strong reason to believe, is counterfeit or violates somebody’s trademark (in the immortal words of rock singer MeatLoaf®, “there’s ain’t no Coup deVille hiding at the bottom of a Crackerjack box”).
“Drop shipping” and consignment sales. When you “drop ship” somebody else’s goods, you sell their stuff online, collect the money, take your cut, and remit whatever’s left over to the owner, who ships the order. Make sure you include sales taxes in each state where the owner has a physical place of business, and make sure the owner warns you when it’s running low on inventory.
Consignment sales are the same as drop shipping except that the owner is usually an individual and not a company. The same sales tax rules apply to consignment sales as apply to drop shipping. Also, make sure either you take possession of the merchandise, or get the seller to agree not to sell or give the merchandise to anyone else until your eBay listing ends.
The tricks to “retail arbitrage.” When you buy something and pay the full retail price, then resell that something on eBay for an even higher price, that’s called “retail arbitrage.” You will have to pay sales tax when you buy the merchandise, and deduct it as part of your “cost of goods sold” when the item sells on eBay. Also, if you resell the item to someone who lives in the same state you do, you will have to collect your state’s sales tax (yes, there is sometimes double sales tax in “retail arbitrage” transactions).
“Retail arbitrage” is all about maxing out your margins. Don’t buy gift pens for $1 apiece and resell them for $2. Look for the “clearance” merchandise that’s discounted 60% or more, then offer a 20% discount off the list price on eBay. Don’t worry: the buyers will be there. If it’s trademarked merchandise (think Coach® handbags or just about any brand of perfume), buy only from authorized sources and include a photo of the receipt in your eBay listing so you can demonstrate “provenance” in case somebody accuses you of selling bogus stuff.
Becoming somebody’s “exclusive online distributor.” This is the best way to “lock in” a continuing source of supply for high-demand merchandise. Approach a local manufacturer of really cool stuff and offer to be their “exclusive online distributor.” Many companies don’t have the time or patience to build an online sales channel and will welcome the opportunity to work with you. Make sure the agreement lasts for at least three years, and that the manufacturer agrees not to sell their stuff online with anyone but you during that time.
Selling “private label” merchandise. When you buy generic merchandise overseas (usually from China or elsewhere in Asia), slap your trademark on it and resell it on eBay, that is called “private labeling.” It can be a great way to build a brand if you truly are adding value to the merchandise in some way, but it can get you into a lot of legal trouble.
When you “private label,” you assume all legal liabilities of the manufacturer. If the product is defective or harmful, that will become your problem. You will need “products liability” insurance. Make sure the merchandise is not counterfeit, and that the manufacturer isn’t selling the identical merchandise to other eBay sellers who may then (believe it or not) sue you for infringing their “private label” brand.
The secret to success when selling on eBay, or on any other online retail venue, is to find merchandise that is always in demand, with little competition, in quantities big enough that you can easily restock your inventory whenever necessary, at a low enough price that you can realize a decent profit on resale, in a “niche” that’s big enough to give you a living and help you build a recognizable “brand identity.”
Cliff Ennico ([email protected]) is a syndicated columnist, author and host of the PBS television series ‘Money Hunt’. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com. COPYRIGHT 2016 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Follow him at @cliffennico.
The eBay Inc. logo is a trademark of eBay Inc. Used with permission.