According to the Globe and Mail a ruling has been made by the Federal Court of Appeal that will allow the Canada Revenue Agency (“CRA”) to demand information from eBay about Canadian eBay PowerSellers. The original ex parte application that started all of this was filed by the CRA on November 6, 2006 but the ruling from the Federal Court of Appeal was delivered last week.

It appears that this fight relates to the CRA’s request for records from the 2004/2005 period, but it is very likely that they will now start to ask for records for later years. It is estimated that 10,000 individuals or companies are of interest to the CRA’s inquiry.

For readers’ information, in order to become a PowerSeller an individual must have reached three month and twelve month revenue targets, and have achieved a very positive feedback rating. In terms of revenue the various levels of PowerSellers range from US$1,000 to US$150,000 per month in sales and the CRA is concerned that these individuals and businesses have not been accurately reporting the these revenues and therefore have not been paying the appropriate taxes. For more information on the PowerSeller criteria click here.

Not surprisingly, there is mixed reaction from the auction community on this activity. Also not surprising is the fact that the Canada Revenue Agency only one of many Federal tax agency going after online auctions. This has happened or is happening in the United State, Australia and the United Kingdom as well.

I have a few thoughts on this that I think are worth noting.

First, although some individuals might get dinged with a large tax bill for having cleaned out their garage and making a profit on an online auction, these people are not going to be the majority of sellers consistently ranked as a “PowerSeller” on eBay and are likely not the main target of the tax authorities.

Although many of the businesses on eBay sell legitimate versions of products and pay taxes like everyone else; most brand infringement/intellectual property fraud investigators will tell you that some of those businesses do not play by the rules, and it is for that reason that they prefer the perceived anonymity of an auction site as a sales channel.

Despite eBay’s vigorous defence of this case, even it states: “Sellers are responsible for ensuring that they are in compliance with all laws and regulations relating to their activities online” which is one of the reasons why they have developed such a strong relationship with law enforcement and brand owners to help with cracking down on counterfeit items sold on eBay.

Second, eBay will be forced to provide different pieces of information on each PowerSeller which are also described in their “Frequently Asked Questions: PowerSeller Information.”

My guess is that the CRA will find that a number of these PowerSellers have different user ids, but the same address, ip address, fax number, etc. They may even be lead to other on-line businesses owned by the PowerSeller.

That same IP fraud investigator you talked to earlier will also probably tell you that brand infringers can change on-line personas fairly quickly. It is much easier to change your on line presence than to change your physical address and you may see an uptick in this activity now that tax authorities around the world are looking at PowerSellers.

Third, what about those things that have up until this point been determined not to have any real world value or to be owned by the person selling it? Although eBay has made efforts to stop the sales of virtual items such as currency and character accounts, there are still some eBay members selling the stuff on the site.

Finally, what about other sites like MMOBay.com, Craigslist and many other similar user-to-customer or industry specific sites? Although eBay is going to represent a significant share of online sales, there is going to be a few of the more savvy sellers that are selling on a number of these types of sites and may never actually reach PowerSeller status on eBay.

The Ottawa Citizen mentioned one other item to be on the lookout for, which is a report from the Office of the Auditor General on “Ensuring Compliance” in the on-line economy. It will be interesting to read the OAGs findings on the matter.

On another note, it is going to be interesting to see what this verdict means in terms of Canadian authorities ability to access information stored in US databases when the US company has a Canadian subsidiary and Canadians can access it easily.