Sales Tax on Magic – Reacting to Increasing Costs

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On April 1st, a change made by several TCG vendors quietly snuck into our everyday Magic: The Gathering purchasing habits. Depending on the state you live in, you may notice that your final cart price on various sites such as TCGplayer and Card Kingdom is a little higher now due to the introduction of sales tax.

For some states and vendors, these changes went into effect a while ago (I was actually impacted by it on TCGplayer back in mid-2018). For others, this change may be entirely new and a big shock to the system.

Most of us are used to paying sales tax on various daily goods or services, and already pay tax on purchases at our LGSs. As a result, taxation of Magic cards purchased online might not be a big deal as we get used to it over time—but as a speculator and player, the change stings in the moment.

I couldn't help but stop and think about the consequences of this change to the various parties who are impacted. The thing that stands out to me the most is how much money a single Magic card might generate in sales tax for states over its lifetime.

Think about this scenario for a moment:

You live in Illinois (like I do) and buylist $400 worth of Magic cards to Card Kingdom. Using their store credit bonus (1.3 multiplier), you buy a VG copy of Underground Sea (retail value at the time of this writing: $511.99).

Card Kingdom charges you $32 in sales tax on your Underground Sea (the Illinois rate of 6.25%). This effectively requires you to trade in an extra $25 worth of cards to cover the price change, if you're paying entirely with store credit.

Fast-forward eight months and it's Christmas time. You need cash to cover cost of gifts for your friends and family, so you list your Underground Sea on TCGplayer for $500 and it sells to someone in California.

Of course, you pay the fees and taxes on the sale to TCGplayer, but guess what? Your buyer just paid a California sales tax on that purchase—possibly as high as 10.25% (depending on your municipality, etc.). So, that Underground Sea now has somewhere between $60-80 worth of sales tax accrued on it just by changing hands twice.

We can all imagine how often "trading cards" change hands, but if you were to start to add up the sheer volume of actual sales per card, the taxation aspect becomes a mind-boggling statistic.

I was talking with folks in the QS Discord about this a few weeks ago—I am convinced the average Magic card will generate more sales tax in its lifetime than any major commodity.

To illustrate the point, some of us were jokingly using an analogy of underwear sales (picking it as a random commodity to compare) to Magic card sales. While hilarious, the comparison also perfectly underscores the biggest difference of sales taxation on Magic vs. the majority of other things that taxes hit. It is unlikely to resell underwear (or most commodities) after purchase, but it is highly likely to resell Magic cards.

Besides the hit to our wallets, what other impacts should we consider regarding the new sales taxation on Magic cards?

Downsizing the Box of Shame

We all know the pain of whiffing on specs. Whether the card falls out of favor, is reprinted, or simply just never hits in popularity, the cost of whiffing can be exorbitant (shipping, resale fees on various platforms, storage space, etc.). Anyone who is in the business of speculation should focus on keeping miss rates low and ROI high. The new sales tax cost, combined with the postage hike earlier this year, makes ROI even more difficult than before.

My advice: stick to the lowest-hanging fruit. There's no room to get cute with specs, because the costs of missing are even more punishing than before. Easier said than done, though. To shore this up on my end and keep the miss rate low, I have adjusted my strategy ever-so-slightly.

Leverage Overseas Options

For one, I've begun using overseas options to help increase margins, notably by making several purchases recently from Hareruya. The EDH scene is smaller outside of the U.S., which means two things:

  1. Cards in demand here could still be available overseas.
  2. The cost of the cards might still be at the "old" (pre-demand) price.

We've heard a lot in the community about arbitrage of late (there have been some fantastic discussions about the pros and cons in the QS Discord). I'm not sure this is the same thing, though, since I'm not buying cards simply to flip for a modest 20% profit.

Instead, I'm waiting to find cards that I know are moving here in the U.S. Then while other speculators are purchasing from the U.S. mainstays (eBay, TCGplayer, Card Kingdom, etc.), I'm looking at Hareruya and picking up larger quantities all at once. I had a ton of success with this strategy when Feather, the Redeemed was spoiled, and will continue to use this strategy sporadically in the future.

Eliminate Early Movers

The second adjustment I've made to combat rising costs is not calling cards that rank below a 3/5 on my "confidence rating scale." In other words, I won't be formally calling "early-mover status" cards moving forward. I may still put these cards on a "watchlist" but I won't recommend purchasing them (nor will I buy them) until they blossom into a 3/5. This should limit the number of cards I put in my box of shame (also affectionately referred to in my household as the very-long-term specs box) and hopefully help you avoid doing the same.

You might be thinking that the best time to get in on a spec is when no one else knows about it, and this was my mindset for a long time as well. However, my thought-process has changed while contemplating why cards are ones and twos on the confidence scale in the first place—because there isn't enough demand yet to move the needle.

I have started tracking cards more closely, looking for the proverbial "tipping point." I have realized cards at that point (i.e. 3/5 or better on my scale) are much more likely to tip over within 3-6 months on the back of natural demand, rather than requiring a new card to catalyze them. This is important as it means the hold time is much shorter and the returns are more consistent.

There are good cards out there in the "early-mover" class (see: Preferred Selection). But they are simply not positioned to climb quickly, because there is something holding them back (in Preferred Selection's case, it is outclassed by other cards like Sylvan Library, Mirri's Guile, and now Guardian Project).

By avoiding these types of cards as specs, I will cut down the size of my very-long-term spec boxand keep money freed up to remain agile as metas shift and cards go in and out of spikes.

Increase Sales Volume

Ultimately, I want to keep the box of shame small and the "for sale" pile large, because one of the best ways to combat a rising costs/lower margins scenario is to increase top-line sales volume. This brings me to my final strategic adjustment: lowering my target ROI on specs.

I normally shoot for a 100% gain on specs (i.e. a double-up) before fees and shipping are factored in. This usually keeps my margins around 50-70%, depending on the price of the card sold. Now I have made an adjustment to shoot for a lower pre-expense gain (80%) and a lower margin (30-50%). This should still allow me to profit handsomely on cards while making it a little easier to churn out specs faster and keep the sales volume higher.

Of note is that this strategy may not work for everyone, as it requires more time for the overall handling aspects (packaging, post office visits, etc.). I've been working on ways to offset some of that time spent via automation—for example, I bought a return label stamp to avoid writing it out by hand. Similar to any production line, my time-spent-per-envelope actually goes down when I'm doing more at once, so I've found this has actually improved my hourly rate when working on MTG-related sales.

The lower-target profit margin obviously hurts, and if I were a large company telling a Wall Street analyst this was my strategy to combat rising costs, my stock price could easily get crushed. For me, though, this strategy in a small sample size is working well. My expectation is that this will allow me to scale further over time, while absorbing more costs along the way.

Wrapping Up

While I believe the bad taste of sales tax on Magic cards will wear off in a few short months, the impacts will be felt for years to come.

I obviously cannot predict the future (wouldn't that be nice!) but I can be as prepared as possible for it knowing what I know now. To reiterate my adjustments to rising costs, I've adapted three new strategies: buy overseas more frequently to create a lower entry point on my EDH specs; reduce speculation to only the finest cards ranking 3/5 or higher on my confidence scale; and accept lower margins but offset them by increasing my top-line sales volume.

I recommend reviewing your speculation habits to factor in the constantly rising costs. If you are in it just to keep Magic cheaper, make sure you are finding ways to offset the rising expenses, and that you aren't spending more than you would if you simply did not speculate at all. Similarly, if you are in it for profit, make sure you know the ever-changing surroundings of the cost-basis on each spec you purchase, and have a plan for combating it.

The strategies I described above may not work for you, but the good news is they do not represent a list of all the possible solutions available. Be creative; challenge the norm; and try find ways new ways to optimize your speculation habits. I would love to hear what others are doing to adapt to the rising costs, and exchange notes.

To discuss further, you can always reach me in the QS Discord or on Twitter (@ChiStyleGaming)! Thanks!

One thought on “Sales Tax on Magic – Reacting to Increasing Costs

  1. Regarding Hareruya, one problem I’m seeing is it won’t let me preorder more than 4 copies of a card, even when the quantity is higher than 4.

    I agree I like their prices, but if I can’t order more than 4 at a time, then it hurts it as a speculation website, imo, at least in regards to preorders.

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