Marketplace firms say tax policy change creates unnecessary burden for online sellers

(Illustration GeekWire)

When Dan Marx helped launch a new startup this summer, he figured he ought to know more about bicycles and their parts than anything about American tax policy. But in the first months of List of bikesa peer-to-peer marketplace for bike sellers and buyers, the tech veteran gets a crash course in taxes, politics and more.

BikeList is part of a group of marketplace companies and payment platforms that oppose a tax code overhaul that was included in President Biden. US Bailout Act of 2021. Previously, users of sites like eBay, Etsy, PayPal, Venmo, and others received a 1099-K tax reporting form for goods and services sold only after earning $20,000 in one year or completing more than 200 transactions. The policy revision lowered the threshold to $600 in earnings.

BikeList co-founders Dan Marx, left, and Rob Einaudi. (Picture of bike listing)

This effort to close the tax gap would aim to capturing about $8.4 billion more in tax revenue more than a decade of gig workers earning income through apps like Uber and DoorDash. But BikeList and others worry that casual online sellers will get caught up in the rankings mess.

“There’s going to be confusion,” Marx said. “I think a big concern is that a lot of people are going to assume they have to pay taxes when they don’t necessarily have to. It all depends on how much profit you made on what you sold.

Marx, who serves as chief technology officer for his three-person startup, gets a quick lesson in lobbying as he’s been called in by the Coalition for Equity 1099-K share his company’s story in meetings with staff members of various U.S. Representatives and Senators. Its purpose is to articulate the impact the tax change will have on BikeList’s ability to operate and attract new sellers.

The startup is already hearing from users confused or discouraged by the need to provide their social security number when signing up. Marx called it a “customer service nightmare,” but BikeList was determined to have an appropriate response and educate users. New language on the company’s website (below) now details why they collect this information.

A message that BikeList shows members before they embark as a seller on the marketplace. (Picture of bike list)

Bellevue, Wash. OfferUp competes with Craigslist, eBay, Facebook and other marketplaces where users buy and sell goods. Founded in 2011, the company has 56 million buyers and sellers on its platform and also supports the Coalition for 1099-K Fairness to protect the interests of its sellers.

“The 1099-K reporting threshold change, while well-intentioned, will cause confusion for people selling used household items on re-commerce platforms,” ​​said Nathan Garnett, general counsel for OfferUp, in a statement. statement emailed to GeekWire. “These sales are generally made below the original purchase price and do not generate revenue for federal tax purposes.”

While calling the 1099-K requirement for small transactions “unnecessary and confusing,” OfferUp also believes there are potential privacy and security risks associated with collecting personal tax return information on these sites.

“We support a revised reporting threshold that distinguishes between small, individual sellers and actual businesses that have the revenue, resources and sophistication to manage the 1099-K process,” Garnett said.

The Coalition for 1099-K Fairness is calling on Congress to raise the threshold to a level that would not impact as many casual online sellers. The organization conducted a survey in February targeting US adults who sold less than $20,000 worth of goods online in 2021.

While 83% of survey respondents say they sell used or used goods online, only 47% were aware of the new IRS reporting requirements and 69% said they would likely stop selling online. reason for these requirements.

(Coalition for 1099-K Equity Chart)

Ed Cafiero, public affairs specialist at DC-based Marathon Strategies, manages communications efforts for the Coalition for 1099-K Fairness. He told GeekWire that there are concerns about how aware people are of the change.

“I think there’s a high likelihood that people will just over-report their income because they just don’t want to violate the IRS,” Cafiero said. “Tax season is shaping up to be quite confusing and potentially costly if this isn’t sorted out before the end of the year.”

The solution could come in the form of legislation sponsored by Democrats and Republicans in both houses of Congress. New Hampshire Rep. Chris Pappas is among those who want increase the sales reporting threshold to $5,000. Tennessee Senator Bill Hagerty is among those pushing a return to $20,000introducing a bill called “Stop the Nosy Obsession with Online Payments”, or SNOOP Act, to remove the provision from the tax code.

The purpose of all legislation is to attach it to a year-end tax package resumed in the coming weeks as part of the lame session between the recent midterm elections and the end of the calendar year.

Marx, the co-founder of BikeList, called it a critical time when DC lawmakers can prevent an avalanche of documents that will have to be mailed out in January. He said he’d be happy with either attempt to fix the situation, but he’s leaning toward the $5,000 threshold.

“I’m more of a technologist and we tend to like to do things in small steps instead of arguing over the big ones,” he said. “Get traction, get that [minimum viable product] and later we can see if there is a desire to raise the bar.

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