Dealing with Foreign Laws and Taxes—When You Export
- Q: "When I sell stuff on eBay's overseas auction sites, am I subject to local laws and taxes in that country?"
- Q: "What exactly is a VAT, and do I have to pay it when I sell on eBay to overseas buyers?"
- Paying Use Tax on Imported Items
- Q: "Two years ago, I bought something from an antiques dealer in the United Kingdom, which I then resold on eBay. Last week I got a notice from my state tax authority telling me I have to pay use tax on this item. What's up with that?"
Q: "When I sell stuff on eBay's overseas auction sites, am I subject to local laws and taxes in that country?"
A: Generally, no. If you are selling only on eBay's U.S. website and someone from a foreign country buys or bids on your item, you are legally doing business only in the United States, not in the country where the buyer resides.
There is a growing body of Internet law, however, that says you may be doing business in a foreign country, and will be subject to that country's laws and taxes, if you maintain a "legal presence" there or appear to be "targeting" your sales to residents of that country. Here are some examples:
• You list items for sale exclusively on one of eBay's overseas websites (such as eBay France) and exclusively in the host country's language (French).
• You list items regularly on one of eBay's overseas websites and sell a significant volume of items to residents of a particular country.
• Your items are shipped to foreign buyers from a local address under your name or your company's name.
The law in this area is developing rapidly, and there is currently no certainty about exactly when a foreign country will consider you to be "doing business" there. If you find yourself selling lots of stuff to residents of a particular country, and especially if you are listing certain items on only one of eBay's overseas websites, the best advice at this time is to make friends with an eBay seller in that country and find out the likelihood of being pursued legally as a result of your eBay selling activities there. Go to eBay's Community section, click on Groups, find the User Group for that country, and post a question asking for help.
Q: "What exactly is a VAT, and do I have to pay it when I sell on eBay to overseas buyers?"
A: VAT stands for "value-added tax," and almost all countries on earth (except, interestingly enough, the United States) have one. In Canada, the VAT is referred to as a general sales tax (GST).
A VAT is a national (or federal) sales tax, with one big difference. While sales taxes in the United States are imposed only on retail sales (see Chapter 13), VATs are applied at each stage of the manufacturing process—so, for example, whenever a United Kingdom manufacturer sells to a United Kingdom wholesaler for resale on eBay, a VAT would be charged to the wholesaler. That wouldn't happen in the United States.
When you sell on eBay to an overseas buyer, you are not responsible for paying or withholding VAT—the buyer is responsible for doing that. Because many overseas buyers are unaware of this, however, it's usually a good idea to put a sentence in your listing Terms and Conditions as follows: "Note to Overseas Buyers: Your purchase on eBay may be subject to customs duties, value-added tax, and other laws and taxes in your home country. Please consult with your legal or tax adviser before bidding on anything being sold by a U.S. seller on eBay."
Paying Use Tax on Imported Items
Q: "Two years ago, I bought something from an antiques dealer in the United Kingdom, which I then resold on eBay. Last week I got a notice from my state tax authority telling me I have to pay use tax on this item. What's up with that?"
A: If your state has a use tax (virtually all states with sales taxes do), you are required to pay it whenever you buy an item for your own personal consumption for which you did not pay sales tax (use taxes are discussed in greater detail in Chapter 13). Most things you buy from out-of-state or foreign merchants are subject to use tax if they are for your own consumption.
In this case, the item you imported from the United Kingdom was inventory that you intended to sell on eBay—it was not an item you personally used. If you still have records of your eBay listing, photocopy them and send them to your state tax authority along with a letter explaining how the transaction went down. If your sale on eBay occurred reasonably soon after you imported the item into the United States, that should make them go away, at least until you import something else.