As a multi billion dollar online marketplace, eBay has to be seen to react quickly to constantly changing laws and regulations. One of the most significant recent developments in the retail industry is the Internet Sales Tax, now enshrined in law in 35+ states across the USA.
This article will first look at the introduction of the Internet Sales Tax before scrutinizing how it has affected both buyers and sellers using eBay.
Collecting sales tax on eBay: What’s changed
For a long time, eBay.com sellers have been required to collect sales tax in any state where they have a physical presence. To assist with this, eBay promoted the use of tax tables to calculate and add the required tax to the buyer’s checkout total. The seller then needed to pay the sales tax to the appropriate authority.
In June 2018, the Supreme Court ruled in favor of South Dakota to change the law regarding collection of sales tax by internet sellers. It was established that states could now require retailers to collect state sales tax on the goods they sell, even without any physical presence in the state.
At the time of writing (April 2020), 39 states have introduced new ‘Internet Sales Tax’ laws for retailers selling over a selling threshold. In South Dakota, the threshold for out-of-state retailers is $100,000 in annual sales.
As a large retailer (or ‘marketplace facilitator’ in some state legislation) eBay is now required to calculate, collect, and remit sales tax on behalf of sellers for items shipped to customers in these states.
The tax rate charged by eBay is determined on the ‘ship to’ address and the type of items purchased.
The Internet Sales Tax process
Unless an eBay seller is considered to be a ‘larger’ retailer (over a state’s selling threshold) or is using managed payments, no action is required regarding the new Internet Sales Tax (IST) laws.
eBay calculates, collecting and remits the sales tax automatically for all sales shipped to addresses in states with IST laws. This is true whether the seller is located in or outside of the United States.
A record of the sales tax portion of every order is available on Seller Hub.
On the buyer’s side, the applicable sales tax is confirmed on checkout. The buyer has to pay the cost of the item as well as the sales tax during the regular purchasing process.
The problem with Internet Sales Tax
While eBay sellers may not have any direct involvement with the new Internet Sales Tax regulations, there are still a few issues to be aware of. The main considerations relate to buyer confusion and processing fees.
New procedures are often a cause of confusion, especially when involving increased fees. Even regular eBay buyers may be surprised to find taxes automatically being added at checkout. Indeed, sellers on various online forums and websites have reported receiving messages from puzzled buyers.
With the IST being law, the best way to respond is to direct buyers to the relevant state regulations. To attempt to mitigate frustration before it happens, it may be worth noting the recent sales tax change in the listing. This could also prove helpful as a reference point to direct buyers to after the sale.
Increased processing fees
eBay sellers have also experienced confusion during the roll out of the Internet Sales Tax. This bewilderment is most often experienced after spotting additional transaction processing fees after payment.
PayPal, for example, charges a percentage fee based on the total transaction amount. This includes any relevant sales tax. This results in an additional cost for sellers, even though they will not see any of the sales tax collected.
There is, unfortunately, nothing sellers can do about additional processing fees. It is completely legal. Charging a processing fee on sales tax is normal in traditional retail and across the online marketplace.
Other tax responsibilities for eBay sellers
In addition to the new Internet Sales Tax regulations, eBay sellers should be aware of all relevant tax obligations. As per eBay policy, sellers are fully responsible for paying all fees and taxes associated with selling.
Each country has different tax filing procedures and for this reason, it is imperative to check the rules in your local area before making any assumptions.
Besides risking government penalties, eBay sellers who do not fulfill their tax responsibilities may be subject to listing removal, restrictions or even suspension from eBay.
Not sure whether your eBay selling constitutes a business? If you regularly and often sell items on eBay for the primary purpose of making a profit, this should be declared and tax paid on the income earned.
eBay.com sellers who used managed payments and generate more than $20k sales in 200+ transactions in a calendar year will receive a Form 1099-K from eBay. The income is also reported to IRS and, when applicable, the state tax authority.
Besides being aware of sales tax collection and paying income tax on sales, eBay sellers also need to inform overseas buyers about import charges.
While international buyers remain responsible for paying any relevant import fees and taxes (either on arrival or as part of the customs clearance procedure), sellers must make sure that buyers know this before purchasing.
eBay strongly recommends eBay sellers to seek professional advice about tax obligations. Find out more about tax filing tips and considerations for eBay sellers.