It Don’t Matter If It’s Black Or White…Or Does It?

Broadly speaking, there are two kinds of markets, colloquially described as white and black. A white market is a lawful, above-board market or business. You keep accurate records, pay your taxes, get all your licenses, and so on. A black market, otherwise known as a shadow market or an underground market, is unlawful for one or more reasons, but break down into three basic categories:

1. The goods or services themselves are illegal. Illegality can further be differentiated into what legal theorists call malum in se and malum prohibitum offenses. Malum in se offenses are things that no civilization ever tolerates: murder, rape, arson, putting ketchup on a hot dog, etc. Malum prohibitum offenses are those that are wrong only because a particular society has labeled them as wrong, while others do not. Marijuana is a perfect example. What I can buy and get high on here in Cali at a nice store front next to a falafel place will get you arrested in Texas.

2. The goods or services are legal but regulated and the black market exists because it is profitable to skirt the regulations. An example would be unlicensed contractors who are performing work that is legal but without the proper licenses to do it or contractors doing work without the requisite permits.

3. Lawful goods or services provided by people lawfully allowed to provide them, but who do it for cash, barter or in some other manner that allows to them to avoid registering their businesses or reporting the transactions and paying taxes as required.

Economic philosophers theorize that if there is profit in skirting laws, regulations, or taxes, black markets will exist parallel to otherwise legal and above-board trade. And there is always a profit to be had. Consequently, according to the Bureau of Labor Statistics, the underground economy in the United States is estimated to be equal to about 8.8% of the “white” economy. Since GDP is about $20-23 trillion each year, the underground component is nearly two trillion dollars. Just taxing that would cover most of the government deficits.

So, what does this have to do with cards? Well, glad you asked. There are no regulatory barriers to buying and selling cards, nor are cards malum in se. But it is a cash business with lots of trading, so the percentage of transactions that fall outside the applicable regulatory and tax structure unless self-reported is pretty high. Nowhere is there a better example of a white economy going black than what goes on at a card show. Lots of cash changes hands and I am not just guessing that a lot of it goes unreported, I know it.

I was dealing at a show in 1990 with a table of vintage cards, having a modestly profitable day. The guy next to me was raking in the cash selling stacks of 1989 Upper Deck rookies: Griffey, Sheffield, and so on. It was thousands of dollars. In between sales he was bragging loudly to me about the great gobs of cash he was raking in at all the local shows, all tax-free because it was all cash.

“Last weekend I was in Pomona, I did $5,000 in sales. The week before, Long Beach and $7,000. All of it in cash, so no taxes.”

Finally, he asked me what I did. I said:

“I’m a lawyer.”

He said: “What sort of law.” I said:

“Actually, I work for the US Attorney’s Office in their tax enforcement division. We will be in touch.”

I was absolutely deadpan.

Now, it turns out people actually can turn green. He sure did. I had to tell the poor guy I was kidding, that I practice construction law, because I thought he was going to have a heart attack.

“Felony stupid” is an actual phrase my colleagues in the criminal defense bar use to describe clients who aren’t trying to break the law but who behave so stupidly that they get nailed. Many dealers I know, especially the part-timers, do not bother to take even the most basic steps to run their businesses as businesses. They don’t obtain resale permits, don’t declare income, don’t pay sales tax. That gives them an automatic advantage over their competitors. In some states, like California, it can reach over 10% of gross receipts plus the income tax savings. In my experience, though, that is just a dumb thing to do. If you pay nothing in taxes and do not file a return or properly administer your business, you make a criminal tax evasion charge easy for the government to prove. Register and pay and the odds of a criminal referral go way down, even if you screw up and underpay. Buyers also fail to pay the use taxes they owe on interstate and international purchases. If you are spending five or six figures every year, not paying use taxes at all is another gimme for an auditor and maybe even a prosecutor.

So, don’t be felony stupid and brazenly cheat on your card-related taxes. And if you do cheat, like that dummy of a dealer I set up next to, for God’s sakes, shut the fuck up about it, because you never know who might be listening. Maybe it will be a cop. Maybe it will just be someone who is envious of your good fortune and will narc on you out of spite (the IRS has a narc line). Just. Shut. Up.