Sales Taxes: Seller and Buyer in the Same State
- Q: "When do I charge sales tax for selling stuff on eBay?"
- Q: "Can I add the sales tax to the winning bidder's bid amount, or do I have to absorb the sales tax?"
- Q: "I know I have to charge sales tax on the purchase price when I sell on eBay. Do I have to charge sales tax on the shipping and handling as well?"
- Sales Taxes: Seller and Buyer in Different States
- Q: "Do I have to charge sales tax if the winning bidder lives in a different state than I do?"
Q: "When do I charge sales tax for selling stuff on eBay?"
A: Under current law, you are required to collect and pay sales tax to your state (and sometimes also your local) government whenever you sell something on eBay to a resident of the same state in which you are operating. So, for example, if I live in Iowa and I sell something on eBay to an Iowa resident, I am required to collect and pay Iowa state sales tax. It doesn't matter that the other fourteen bidders in my eBay auction were from other states or that the winning bidder in the auction could have come from anywhere on earth. When it comes to sales tax, you always pay it whenever there's a same-state transaction— unless, of course, your state is one of several that doesn't have a sales tax at all.
There is currently no federal sales tax. You register for sales taxes with your state tax authority and file a sales tax return with it, usually once each quarter (every three months). If your city or town imposes a sales tax surcharge, you may have to register with your municipal tax authority as well.
Q: "Can I add the sales tax to the winning bidder's bid amount, or do I have to absorb the sales tax?"
A: You can add the sales tax to the purchase price of an item, or the winning bid amount for an auction listing, but only if you warned the buyer in advance that you would do this. If you didn't, both eBay and your state law will have a problem if you try to tack on the sales tax after the listing closes.
Whenever you create an eBay listing, be sure to put the following sentence somewhere on the page (most sellers put it in their Terms and Conditions section): "Note to Residents of [your state]: State and local sales taxes will be added to your purchase price or winning bid amount." Use boldface type or an all-capital-letters font for this, so the sentence is clearly visible to your buyers.
If you don't warn your buyers in advance that you're planning to collect sales taxes from them, you cannot do so. You are still required, however, to pay sales tax on the transaction to your state tax authority if the buyer is a resident of your state. In that situation, you will have to absorb the sales tax out of your profits on the sale—although it is deductible and reduces your reportable income for income tax purposes.
Q: "I know I have to charge sales tax on the purchase price when I sell on eBay. Do I have to charge sales tax on the shipping and handling as well?"
A: Some states require that you charge sales tax on the gross amount the buyer pays you, including shipping and handling charges. You should consult your accountant or tax adviser to learn about the rules in your state. Charging sales tax on shipping and handling when your state doesn't permit that violates eBay's Excessive Shipping Charges policy, which can be found at pages.ebay.com/ help/policies/listing-shipping.html.
Sales Taxes: Seller and Buyer in Different States
Q: "Do I have to charge sales tax if the winning bidder lives in a different state than I do?"
A: Under current law, the answer is no. You do not charge or pay sales taxes on interstate or international sales transactions unless you have a legal presence, called a nexus, in another state. Nexus is hard to define precisely, but some common examples are:
• You have a mailing address or post office box in another state that you use in your business.
• You are bidding on eBay as an employee of a company that has offices in other states.
• Your company has employees in other states who use their home offices as business locations (for example, they use their home addresses on your company's business cards).
• You are in partnership with someone in another state, and both of you are selling on eBay.
• You are drop shipping for a company that has offices in other states.
• You take consignments for sale on eBay from individuals who live in other states.
• You sell something on eBay and require a buyer in another state to come to your home or office to pick it up.
• You travel to another state and sell items at a flea market or garage sale there.
The law may be changing in the very near future, however, especially when it comes to Internet sales transactions. State and local governments have lost billions of dollars in sales tax revenue because of Internet commerce, the vast majority of which is interstate or international in nature and therefore not subject to state and local sales taxes. And they are hopping mad about that.
As a result of their anger, twenty-two states have adopted a law called the Streamlined Sales Tax Project, or SSTP. This statute requires you, as an Internet seller, to collect and pay sales taxes whenever you sell to a resident of a state that has adopted the SSTP. The tax is based on the rate in effect where the buyer is located, which means that you have to keep track of thousands of state and local governments in the twenty-two SSTP states that impose sales taxes on local transactions. If SSTP is adopted by all fifty states, you will have to keep track of roughly 7,600 sales tax jurisdictions in the United States alone.
Now, don't panic! Technically, the states that have adopted the SSTP are not in a position to enforce it, because of several U.S. Supreme Court decisions that prohibit states from imposing their sales and other business taxes on interstate commerce—state and local governments cannot legally enforce laws that the Supreme Court says violate the federal Constitution. Those Supreme Court decisions, however, can be overruled by an act of Congress—and every time there's a new Congress someone introduces a bill to do exactly that. So far, those bills have gone nowhere, but it's only a matter of time before Congress acts and the SSTP becomes enforceable in the twenty-two states that have adopted it. (And you just know the other twenty-eight will climb onto this bandwagon as soon as Congress acts, don't you?)
The states that have adopted the SSTP offer eBay sellers and other e-merchants a voluntary amnesty program, promising, in effect, that if you begin complying with the law now and start collecting and paying sales taxes when you sell to residents of SSTP states, the state tax authority won't audit you if and when Congress acts and the SSTP actually becomes enforceable. Extremely gracious, aren't they?
Avalara.com, based in Seattle, Washington, has developed a number of software products that will help you comply with SSTP if you wish to participate in the voluntary amnesty programs offered by the twenty-two SSTP states.
In the meantime, it's important for every serious eBay seller to join the fight to keep Congress and the states from passing legislation that would hurt the eBay community. The eBay Government Affairs department operates a website at ebaymainstreet.com, where you can sign up to receive news, information, and form letters whenever Congress or your state legislature is considering a bill that would hurt eBay sellers or the eBay community generally. These form letters are preaddressed to your federal and state government officials—all you need to do is print them out, sign them, and mail them to the officials whose names appear on the letters. The idea is to let these officials know just how many eBay sellers live in their districts and how unhappy those people will be if the officials vote for any legislation that would hurt their businesses.