It is hard to parse what the IRS means here. The income the exempt organization receives is still income from sale of the article, not income from running an advertisement. It may be reasonable to see the auction house as the equivalent of a newspaper running a classified ad, rather than as an agent making the actual sale, but in either case, it seems the IRS should be asking whether selling donated merchandise generates UBIT, regardless of how the charity reaches potential buyers. Perhaps the more difficult issue is when sales become regularly carried on. Internet auction houses add convenience so that charities may sell a small number of items more frequently rather than waiting for one auction fundraising event each year.
Charities can also reach a much broader audience of potential buyers over the Internet.
If periodic sales, separated perhaps by weeks or months, or if selling only one or two items at a time, but always having at least one thing for sale, will cause a charity to be regularly carrying on a trade or business, that could cause it to have UBIT it would not have with non-Internet based auction sales. As museums that conduct mail order sales have known for some time, determining when state and local sales taxes are owed, how they are to be collected and how they are to be paid is a complex task. Congress recognized that applying the nexus test to electronic commerce on a state by state basis would be extremely complicated and, therefore, enacted the Internet Tax Freedom Act, which imposes a three year moratorium on any tax that discriminates against electronic commerce or that is on Internet access. 105-277, 105th Cong. Congress also ordered the creation of a national commission to study, international, state and local taxation of electronic commerce and report to Congress on its findings.