I bet Paypal is reporting all 1099 due to the sales tax issue. If they give you a 1099 then that will be reported to the IRS. It could hurt you down the road like in an audit. Remember if you report this amount which I would do you can deduct expenses like shipping cost, Paypal cost, ebay charges (ebay charges an extra 10% on shipping if you dont use thier service, shipping charges on your sales and your expenses like boxes, traveling expenses going to and from the post office.. ) It will be a pain to make sure you keep records