Legal Issues of Selling for Others

Considering a consignment business? Know your local laws.

by staff writer
- Oct 13, 2008

Converting others' unwanted stuff into cash via eBay can be rewarding, for both you and the seller. However, depending on where you live, operating an online consignment business may have legal implications that aren't always clear.

At least 20 states and commonwealths in the U.S. have specific licensing or registration requirements for individuals or companies who sell merchandise on behalf of others through Internet auction venues such as eBay. In some cases, the laws are particularly stringent pertaining to auction drop-off locations, the retail storefronts maintained by many consignment sellers. Some states, including Nevada and New Hampshire, consider such businesses to be pawnbrokers, and require operators to jump through a whole different set of legal hoops.

Failing to comply with local regulations—even vague ones—can land you in the proverbial soup, as two recent cases in Pennsylvania demonstrate.

Two for the books

In late 2006, one eBayer was arrested for operating an eBay consignment business without an auctioneer's license—a requirement she was unaware applied to online sellers, until a Department of State investigator literally knocked on her door.

Meanwhile, the former owner of a drop-off store franchise anxiously awaits his fate after a May 2008 hearing before the Pennsylvania State Board of Auctioneer Examiners was abruptly postponed. He faces $2,000 in fines for operating without an auctioneer's license.

The two cases were seen as tests of whether Pennsylvania's auctioneering laws—enacted long before eBay existed—applied to businesses operating on the Web. Earlier this month, the state amended those laws, mandating that online trading assistants register with the State Board of Auctioneer Examiners, pay a registration fee and post a $5,000 indemnity bond.

In 2005, Ohio enacted a law that extended auctioneer's licensing requirements to online sellers. Tennessee is believed to be considering similar legislation. Illinois, meanwhile, classifies online sellers as Internet Auction Listing Services and requires special registration.

Lacking specific terms for online auctioneers or sellers, most other states require some sort of business permit be obtained at the municipal level for regulatory and tax collection purposes.

Laws concerning auctioneers and Internet sellers vary from state to state—and even from county to county

Fuzzy guidelines

The trouble is, laws concerning auctioneers and Internet sellers vary from state to state—and even from county to county. Often, they are ambiguous, and in some states, they are administered by a completely different branch of government than laws concerning pawnbrokers. So it's no surprise when sellers are left wondering how permit and license requirements affect them, if at all.

You can view a comprehensive digest of state laws relating to auctioneers, pawnbrokers and online sellers here. It's also a good idea to check with your local county and city officials to find out what regulations and license or permit requirements apply to your business—and what type of legislation may be pending.

To date, the U.S. government has mostly sat on the regulatory sidelines where Internet retail and resale is concerned. However, several bills are pending in Congress that propose to make online fencing of stolen goods a federal crime.

On its government relations site, known as eBay Main Street, eBay provides some background and updates on legal issues of concern to online sellers. eBay itself maintains an anti-regulation stance. But the weight of recent legislation and court cases is obvious: The online auction giant recently revised its rules regarding consignment sellers, or Trading Assistants. Registered TAs are now prohibited from using any form of the word "auction" in their business name unless they are licensed as an auctioneer in the state in which they operate. eBay also requires TAs operating as retail drop-off locations to carry a $25,000 bond and at least $1 million in general liability insurance.

Additionally, through ongoing changes to its policies and fee structure, eBay is increasingly prodding its user base in the direction of fixed-price listings, which, from a legal standpoint, may fall outside the scope of "online auctions."

As with any business venture, it's wise to do your homework before you jump in with both feet. Check in with every local and state government office that might have an interest. If there's any doubt, err on the side of caution.

It may cost more in licensing fees, but you can write the expense off on your taxes. Speaking of which, don't forget to report your online income to the tax man.

This article does not constitute legal advice. Though every effort was made to ensure its accuracy at time of publishing, you should seek the aid of a qualified, licensed legal professional in your area.

About the Author

Auctiva staff writers constantly monitor trends and best practices of those selling on eBay and elsewhere online. They attend relevant training seminars and trade shows and regularly discuss the market with PowerSellers and other market experts.

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