Sales Tax on eBay – Can it be Avoided Particularly by Sellers Who Don’t Sell Much?

[sportsntechspot]

Now that eBay among other e-commerce websites are deemed by taxing authorities as "marketplace facilitators" who must collect and report sales tax on behalf of their third-party sellers, many sellers on eBay are seeing their customers charged sales tax regardless of if they want their customers charged sales tax.

So how can sellers avoid eBay from slapping sales tax on their customers' invoices?

eBay accepts exemption certificates which is one way you can get eBay to turn off the tax. But that only works if your customer has a valid exemption reason such as resale AND is registered with the state in question that imposes the sales tax. If you're dealing with an unregistered customer, good luck completing an exemption certificate. It's not possible. They must have a registration number issued by the state which is required to complete the exemption certificate.

If you're running a business on eBay and you don't have exemption certificates from your customers you're pretty much going to be stuck with eBay charging the tax on your customers' invoices.

But what about the regular, average day users like me who aren't running businesses on eBay and just occasionally sell something here and there? Is there anything that can be done to avoid the tax being charged to your customers who live in states that impose a sales tax?

Most states allow sellers an exemption known as a casual or isolated sales exemption. Essentially it exempts a seller who is not regularly engaged in the business of making sales at retail.

District of Columbia: "Casual and isolated sales by a vendor who is not regularly engaged in the business of making sales at retail are not subject to tax."

Hawaii: "'Casual sale' means an occasional, isolated, irregular, infrequent, or incidental sale or transaction involving tangible personal property that is not ordinarily sold in the usual course of trade or business."

Idaho: "To qualify as an occasional sale, the seller must not make more than two sales of tangible personal property in a 12-month period, or hold himself out as engaged in the business of selling tangible personal property."

Missouri: "An isolated or occasional sale is a sale of tangible personal property, services, substances, or things by a person not engaged in such business. Such sales do not constitute engaging in business unless the total amount of the gross receipts from such sales exceeds $3,000 per calendar year."

Nevada: "If a seller has not made more than two sales during any 12 month period, these sales are considered tax exempt occasional sales and the seller has no obligation to collect sales tax from the buyer."

This is why most states don't tax garage sales. People who have occasional garage sales are largely ignored by state taxing authorities because states recognize garage sales generally don't occur very often and are immaterial in terms of sales.

With that said, how are casual sales by users on eBay viewed in this new "marketplace facility" taxing era? Is the exemption still valid for a user on eBay who only sells 2 items per year? Is it even relevant to the taxing authority that the eBay user only makes casual sales, or does it throw that exemption out the door when it comes to marketplace facilitators? I guess it would come down to an argument of who is truly making the sale, the eBay user or eBay itself? I would view the eBay user to be the true seller of the transaction and therefore entitled to the casual or isolated sales exemption. eBay as the marketplace facilitator is just that. A facilitator. It is merely aiding in the sale but not representing either the seller or the buyer.

Has anyone had any luck getting eBay to turn off the tax on their seller account based on the casual or isolated sales exemption? The only option I've found so far available to the public is to submit an exemption certificate. If no one knows, can eBay step in and assist on this one? I would like the sales tax on my seller account completely turned off for my token 1-2 customers per year based on the casual or isolated sales exemption.

[eleanor*rigby]

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@sportsntechspot wrote:

Is it even relevant to the taxing authority that the eBay user only makes casual sales, or does it throw that exemption out the door when it comes to marketplace facilitators? I guess it would come down to an argument of who is truly making the sale, the eBay user or eBay itself? I would view the eBay user to be the true seller of the transaction and therefore entitled to the casual or isolated sales exemption. eBay as the marketplace facilitator is just that. A facilitator. It is merely aiding in the sale but not representing either the seller or the buyer.

Your interpretation of "marketplace facilitator" laws is incorrect. In any state that has enacted a "marketplace facilitator" law, sales tax is collected by the platform on which individual sellers are operating their businesses.

For all intents and purposes, all of the platform's sales are considered sales of the marketplace. Limits imposed by states for exemptions of the sales tax do not apply. If you had your own website and sold under the limit in any given state, you would not have to collect and remit the sales tax; however, that's not how states' marketplace facilitator laws work. So, even your one or two sales per year will have sales tax charged to your buyers.

I do believe if you somehow qualify to be a tax-exempt seller, you can upload that documentation to eBay for their consideration. (This might be, for example, a charitable organization or religious organization that has qualified for tax-exempt sales, depending on the specific circumstances and laws in each state.)

[richard1rst]

many sellers on eBay are seeing their customers charged sales tax regardless of if they want their customers charged sales tax.

Hate to break this to you, but it doesn’t matter one whit what you want. The state government, and the U S Supreme Court, says taxes are due. Period.

Is there anything that can be done to avoid the tax being charged to your customers who live in states that impose a sales tax?

Simple answer - NO. Although it is unlikely they would come after any one small independent seller, failure to pay legitimate taxes is a felony.

[vintagecraze50]

I remember reading that there is an income threshold for these taxes. If you do not make x amount in sales then I believe you are exempt. Not totally sure, but I believe that it’s correct.

[vintagecraze50]

I meant x amount in profits on your taxes.

[corvettestainless]

It is against the law to avoid paying sales tax, hence 'sellers' will not and should not try to "find a way"

Sales Tax 'Exemption' is primarily for items that are resold and not to be used for items used to 'make or ship' your products. 

Garage sales are not the same as 'facilitator' sales, and therefore, anything sold here, by you- whether it be 1 item or 100 per year,  will always be treated like any 'antique or thrift store'.. and sales/use tax will always be included and required by any buyer.  

[corvettestainless]

Income tax and sales tax are 2 different worlds. This thread is about sales tax. 

[eleanor*rigby]

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@vintagecraze50 wrote:

I meant x amount in profits on your taxes.

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@vintagecraze50 

The OP's questions are about sales taxes imposed on his/her buyers, not his/her own income taxes.

[vintagecraze50]

Ok thanks for clearing that one up for me. Yes, I was talking about income tax not sales tax for buyers. 

[m60driver]

deleted

[sportsntechspot]

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@eleanor*rigby wrote:
For all intents and purposes, all of the platform's sales are considered sales of the marketplace. Limits imposed by states for exemptions of the sales tax do not apply. If you had your own website and sold under the limit in any given state, you would not have to collect and remit the sales tax; however, that's not how states' marketplace facilitator laws work. So, even your one or two sales per year will have sales tax charged to your buyers.

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I think you're confusing economic nexus thresholds with casual or isolated sales thresholds when you say "limits imposed by states for exemptions of the sales tax do not apply."  

Economic nexus thresholds state something to the effect that if you don't have any physical presence in a given state, and, for example, you make less than $100,000 in sales per calendar year into the state, you're not subject to collect and report sales tax. 

I agree with you that economic nexus thresholds are irrelevant to consider for a third-party when making sales via a marketplace facilitator like Amazon or eBay. However, that doesn't invalidate the many sales tax exemptions available out there, as you yourself admitted, even on a marketplace facilitator platform.  Why else would eBay and every other e-commerce giant in America honor exemption certificates? 

The question at hand is how to take advantage of the casual or isolated sales exemption on eBay, nothing to do with economic nexus.

[7606dennis]

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@vintagecraze50 wrote:

I remember reading that there is an income threshold for these taxes. If you do not make x amount in sales then I believe you are exempt. Not totally sure, but I believe that it’s correct.

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Under the marketplace facilitator laws that many state's have passed, the state deems the total sales generated by the facilitator within the state to apply toward the threshold.  Thus it is unlikely that the total sales delivered within a particular state from all eBay sellers would not meet the threshold.

[sportsntechspot]

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@richard1rst wrote:

Is there anything that can be done to avoid the tax being charged to your customers who live in states that impose a sales tax?

Simple answer - NO. Although it is unlikely they would come after any one small independent seller, failure to pay legitimate taxes is a felony.

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Avoidance of tax is legal and prudent. Evasion of tax is a crime. Yes, there's a difference. That's how the many legitimate tax firms and consultants out there make money and help save us taxpayers from unnecessary taxation.

[lacemaker3]

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@sportsntechspot wrote:

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@eleanor*rigby wrote:
For all intents and purposes, all of the platform's sales are considered sales of the marketplace. Limits imposed by states for exemptions of the sales tax do not apply. If you had your own website and sold under the limit in any given state, you would not have to collect and remit the sales tax; however, that's not how states' marketplace facilitator laws work. So, even your one or two sales per year will have sales tax charged to your buyers.

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I think you're confusing economic nexus thresholds with casual or isolated sales thresholds when you say "limits imposed by states for exemptions of the sales tax do not apply."  

Economic nexus thresholds state something to the effect that if you don't have any physical presence in a given state, and, for example, you make less than $100,000 in sales per calendar year into the state, you're not subject to collect and report sales tax. 

I agree with you that economic nexus thresholds are irrelevant to consider for a third-party when making sales via a marketplace facilitator like Amazon or eBay. However, that doesn't invalidate the many sales tax exemptions available out there, as you yourself admitted, even on a marketplace facilitator platform.  Why else would eBay and every other e-commerce giant in America honor exemption certificates? 

The question at hand is how to take advantage of the casual or isolated sales exemption on eBay, nothing to do with economic nexus.

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I'm sorry, but you are misunderstanding the situation.

If a marketplace facilitator is required to collect sales tax for a taxable transaction they facilitated, that over-rides the seller's nexus status, whether they are a casual seller, or if they have a physical, economic or any other kind of nexus in the state. The tax is only to be collected once, and the marketplace facilitator's requirement to collect it takes priority.

Sales tax exemptions, of the kind you are discussing, apply only to buyers, not to sellers. In most states, sales tax exemptions are available to those who buy for resale (and only items that will be resold) and sometimes to charities (for some purchases not necessarily all).

These kinds of exemptions do not apply to sellers, so there is no way to do what you want to do.

The so-called casual seller scenario (in those states that allow this) is completely different from a sales tax exemption. It only means that the "casual seller" is not required to collect the tax, it doesn't mean the buyer doesn't have to pay it. Any time a buyer doesn't pay tax on a taxable purchase, for any reason, they are responsible to pay the use tax if they didn't pay the sales tax.

The fact that many buyers evaded their responsibility to pay this tax is the primary reason why so many states have now passed marketplace facilitator legislation. So that these tax-evading buyers can't get away with not paying their use tax anymore, because now the marketplace facilitators will be collecting it as sales tax at the time of sale instead.

Bottom line:

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@sportsntechspot wrote:

...

The question at hand is how to take advantage of the casual or isolated sales exemption on eBay, nothing to do with economic nexus.

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This can't be done. There is no "casual or isolated sales [tax] exemption" on eBay. And you, as a seller, should not be trying to facilitate tax evasion.

[forgottenape]

so you want ebay and others to help you break the law?