The Legality and Taxation of Digital Scalping

    Generally, buying and reselling products on the internet is legal. Even if the prices are marked up an insane amount, scalpers do not usually face any legal repercussions. This is mainly due to how difficult it is to enforce the laws of different states and countries in a digital space. There are other aspects that contribute to the complexities of the legality of scalping, such as what the practice can be considered as in the market. Moreover, there is no federal standard for what a legal price mark-up is or how much profit a reseller is allowed to make. There is a way to ethically resell products on the internet, so discerning between these two cases is not easy. However, despite reselling on the internet being legal, there are certain supplementary techniques that scalpers usually exploit that can lead to some legal trouble, especially now with the COVID-19 pandemic and the shortage of necessities, changing tax laws, as well as trademark issues. 

    Most legislation in the United States against scalping targets ticket scalping. Although it varies, in at least 15 states it is illegal to resell tickets and make a profit besides a $2-5 service fee. This was mainly for in-person scalpers outside of the venues of the event, however, more recently for online ticket scalping, Congress passed the Better Online Tickets Sales (BOTS) Act in 2016. In accordance with the US Congress website, the BOTS act makes it illegal to use software, such as scalping bots, to bypass the security measures authorized online ticket sellers to place to prevent scalping. Furthermore, it mentions that it is illegal to resell tickets obtained with the software with the intent to make a profit. This act was a good first step in controlling scalpers, though, it is still difficult to enforce and there are other products besides event tickets that are not brought up. Especially during the COVID-19 pandemic where there has been a shortage of necessities such as toilet paper and hand sanitizer, scalpers will resell these products online for over ten times the original price, exploiting the public's fear and need for them. In these instances, the price mark-ups for necessary products during a time of global emergency are considered illegal. 

    Another issue that digital resellers can run into is taxes. Scalpers that make a profit off of reselling products would legally have to report those earnings to the IRS whether they are authorized resellers or not. Needless to say, the unethical act of reselling products at way more than the original price is not often reported to the IRS. Because of this, scalpers run the risk of getting in trouble with the government if they do not tax their profits since they are technically running a business. This is going to become a little more strict in the next few tax years because the increase in eCommerce and online small businesses is causing tax laws to focus more on them. 

    Depending on the product being resold and how the scalper advertises it, they can also get into legal trouble concerning trademarks. Although it does not happen often because of the large volume of resellers, brands can sue those that blatantly resell their products without the authority to do so. Another factor is the services that the original product may have come with, such as warranties or insurances. So, if a concert ticket is sold to the original buyer with a warranty, the scalper is not able to resell the service that they paid for to their buyer. This causes more problems to the original brand if the second-hand buyer, who paid so much more, were to need the service. Also, this is mainly why, to combat scalping, some companies sell their products in bundles, or include other services with them that customers would have to pay more for. Since selling what comes alongside the product is difficult and less cost-effective for scalpers, they'll usually not find it worth it to buy it out.