In the US you cannot run that company: if you accept money in exchange for goods (or even sometimes services), and are not a registered non-profit, you need to pay sales taxes on the sales, must declare any residual as income, and the people giving you the money cannot claim it as a write off.
Regretsy is in the EU, not the US, but I don't believe that changes the point. In the EU, everything that is traded, whether it be a good or a service, is subject to a "value added tax". (Note: this applies to you even if you are not yourself living in the EU; if you sell products to EU customers online, you must collect and remit VAT if you are above their threshold.)
These taxes can be quite high: up to 25% of the receipt. You are only responsible for the "value added" (so you subtract your costs), but the way you subtract your costs is very similar to expense structure in the US: the cost you declare has to be to another VAT-registered organization, and you need to keep whatever receipts and documentation is required to defend the costs later.
I am simply having a very difficult time seeing how this specific setup was, in the eyes of the law, any different from Ikea selling chairs: they were selling products, and selling products is a highly regulated business with a large number of taxes that have to be considered. You cannot just throw up a website and willy-nilly throw money around.
I believe most people understand the difference between donating money to a "good cause" and making a tax-deductible donation to a registered charity. Making it difficult for an honest person to collect donations and forward the proceeds to the needy (where the donors have no expectation of any tangible good in return), or forcing Boy Scouts to obtain a peddler's license to collect canned foods for a food bank, is socially harmful.
As far as I know, Paypal has no legal or even formally self-elected responsibility to enforce that "donate" buttons are used only in the context of a registered charitable organization, or to play cop for the calculation, collection, and remittance of federal, state, local, or international taxes and tariffs, etc., etc. Paypal does not even have any way of determining what is taxable and at what rate--it is so thoroughly beyond their purview that I don't know why we're discussing it.
"Paypal has no legal or even formally self-elected responsibility ... "
Paypal may or may not have any legal responsibility there, it makes no difference.
I think a lot of people overlook the underlying business model of Paypal. They're betting they can do a better job of fraud prevention than the entrenched credit card processing industry, and by doing so they can offer credit card facilities to more (read "higher risk") people.
What that means is that if you do _anything_ that might be even tangentially related to things that look like credit card fraud, you're opening yourself up to all the well documented risks of having them stop you withdrawing money from your account for 180 days.
If you're doing anything other than delivering physical goods to credit card billing addresses via 3rd party trackable shipping, you need to make sure you're fully aware of the risks you're choosing to expose yourself to using Paypal. If you're using Paypal for donations, preorders, digital goods, downloads, conferences, consulting - anything where you can't give them a FedEx tracking number (or equivalent), you're opening yourself up to a world of hurt in the dispute resolution process.
Surely I'm not the only one who looks at almost all of these Paypal "horror stories" and thinks "Yep, I could have told them they had that coming."?
One interesting question will be what impact the re-organization of financial services regulation enforcement has long-term over Paypal. I know I have heard anytime your account is frozen write a letter to the Office of the Comptroller of Currency at the US Treasury Department and CC the CEO of Paypal to get traction........
forcing Girl Scouts to obtain a peddler's license to collect canned foods for a food bank
As an aside, most of those laws were put in to use against the lower class people who were begging. They have recently (thankful) started to be applied in a non-discriminatory fashion (i.e. to rich kids aswell as drug addicted adults), and this is the consequence.
In the US you cannot run that company: if you accept money in exchange for goods (or even sometimes services), and are not a registered non-profit, you need to pay sales taxes on the sales, must declare any residual as income, and the people giving you the money cannot claim it as a write off.
The sales tax issue is a red herring. Regretsy was (presumably) buying the toys at a rate that included sales tax, and if the operation was not-for-profit then there was no financial value added, and no need to charge the "donors" any additional sales tax.
I believe this is only true if the sales tax as purchased is less greater than or equal to the sales tax as sold, and even in that case I believe still requires a business registration and declaration of the non-taxed receipts. I am not yet, however, an expert at this stuff, and would love to be given more information to learn more about how sales tax works in these situations (I am unfortunately starting to sell physical products, but luckily am not currently reselling anything I purchased at retail, so this specific detail isn't the kind of thing that would burn me ;P).
There are plenty of cases where the sales tax may not apply. For example, if I replace a warranty part, I do so without collecting or remitting sales tax because the transaction had no monetary value. Assuming shipping and handling is not taxable in the jurisdiction, and assuming that the company uses all the money gained for either shipping or purchasing the toys, then even assuming it's taxable it's already covered.
The sales tax is a red herring. The issue is probably one of a computerized algorithm being tripped somewhere.
Just because they don't make a profit doesn't mean they don't have to collect sales tax. When Walmart sells AA batteries as a loss leader, they don't get to not collect sales tax for it just because they used "all the money gained [(and then some, out of their own pockets!)] for either shipping or purchasing the batteries".
It gets really complex, in fact: the warranty replacement is only tax free if the warranty was a taxed line item during the original sale. If you make repairs to something, and you pass through the costs of the object to the person hiring you, you are generally considered to be a "retailer" and are responsible for collecting sales tax (which explains why you see wholesale discounts being given to large classes of professionals, from plumbers and carpenters to interior decorators).
That said, I am not claiming that the sales tax is the issue here: I'm claiming that this is a complex situation with a lot of intermingled laws and service terms, and that it is not at all clear that these people are running something that was entirely kosher and should de facto be supported.
People seem to have a thirst for PayPal's blood, and are totally ignoring (or, more favorably, simply not realizing due to lack of knowledge) that this was a somewhat sketchy, certainly risky (from a credit fraud perspective), and probably even illegal operation; and it makes no matter whether it involved feeding children or sick cats, or whether this is a computerized algorithm that flagged it or a person: the reason for the flagging, and for the blocks, actually makes a lot more sense when you examine the whole issue.
If they are paying tax at the outset and only spending that money on product purchase and shipping, then they would have paid all the tax that they are required to.
Walmart doesn't pay sales tax to their suppliers.
As for wanting Paypal's blood. No. I was a victim of similar freezes and for really convoluted reasons according to Paypal. I don't want their blood. I just don't want there to be any more victims.
In the EU, everything that is traded, whether it be a good or a service, is subject to a "value added tax".
Incorrect. I own an Estonian (an EU member) company that can sell stuff and offer services without VAT. VAT is actually optional until a certain revenue threshold.
...and sales tax is different for different classes of product in the US, with some things getting better treatment, such as groceries, and some things worse, such as car tires. I did not expect it to be relevant to this specific case, but yes: I guess children's clothing is an interesting one for this Regretsy charity drive; that said, they stated "toys", not "clothing", and I don't remember toys being on that exemption list (which I actually have read, as I needed to see if any of the things I was selling had different rates).
(PS: the coolest one I've seen is that bound physical books often have much better tax rates than other goods, leading to hilarious situations where shipping someone a physical pamphlet that includes base64 might be much cheaper than selling them an expensive piece of software on CD. ;P)
This varies by tax jurisdiction. For a while in Washington State, snickers bars were taxed as candy but Twix were tax-free because they were "groceries"....
Not the same. Business that sell VAT 0% items (zero-rated items) can still deduct VAT on supplies, whilst providers of VAT exempt goods can't claim back VAT on supplies.
For example, admission to a charitable event is VAT exempt in the UK, while goods sold at a charity shop are zero-rated.
I think the difference is sales tax was paid when the toys were purchased. I don't think Regretsy was claimin to add value. They were just organizing a donation of toys. It's just like a bunch of friends getting together, all giving two dollars to one person who goes to target, buys a bunch of toys and then gives them to needy kids. I don't see how the law is broken in that situation. All taxes were paid.
The most damning evidence against PP in my opinion is that they specifically stated (accordion to the author) that the same scheme was acceptable when raising money for a sick cat but not for needy kids. Unless the Regretsy folks were purchasing toys with a business account and skipping sales tax I don't understand the logic. The PP reps subsequent attitude seals the deal: eff PayPal. If he isn't authorized I dole out financial or legal advice regarding the use of the donation button or wrt raising money for needy kids he should just say that instead of being an obstinate jerk.
tldr: tax presumably was paid, PayPal rep is a scumbag, screw PayPal.
if you accept money in exchange for goods (or even sometimes services), and are not a registered non-profit, you need to pay sales taxes on the sales
Only if you have a point of presence in the same state as the person you're transacting with. The US does not have a national sales tax; all sales taxes are collected by the states. Currently, transacting with a person in another state is considered interstate commerce and is therefore exempt from state sales taxes. There are efforts in Congress to change this, but, for now, you don't have to pay sales tax on a sale you make across state lines.
Regretsy is in the EU, not the US, but I don't believe that changes the point. In the EU, everything that is traded, whether it be a good or a service, is subject to a "value added tax". (Note: this applies to you even if you are not yourself living in the EU; if you sell products to EU customers online, you must collect and remit VAT if you are above their threshold.)
These taxes can be quite high: up to 25% of the receipt. You are only responsible for the "value added" (so you subtract your costs), but the way you subtract your costs is very similar to expense structure in the US: the cost you declare has to be to another VAT-registered organization, and you need to keep whatever receipts and documentation is required to defend the costs later.
I am simply having a very difficult time seeing how this specific setup was, in the eyes of the law, any different from Ikea selling chairs: they were selling products, and selling products is a highly regulated business with a large number of taxes that have to be considered. You cannot just throw up a website and willy-nilly throw money around.