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.

[the*dog*ate*my*tablecloth]

It’s Minnesota

[mam98031]

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@the*dog*ate*my*tablecloth wrote:

There is one State that I know of that caused a problem for a regular poster to the boards. I think it was Wisconsin or Michigan? MFLs do not cover casual sellers who sell less than 10k. The poster had an issue because his total sales including off-EBay were over 10k but the amount he sold ON eBay was not. The government required sales tax collection but eBay overrode his ability to collect it because he did not meet the threshold.

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Well that is an interesting issue I hadn't thought of.  One I would think isn't that hard to work with.

For example.  I don't just sell on Ebay either, as I'm sure lots of sellers do as well.  In the state of Washington, I have to report all my retail sales, no matter if an MFL is in play or not.  Then I take the deduction for any site that is required to collect the taxes for me via the MFL.  Leaving a net amount, if any, for me to remit sales tax to the state.

I would think the same thing could apply in situations like this.  Or at least similar.  

Unfortunately I'm just a small fish and this isn't an issue I would have so I would have no first hand knowledge as to how this would work.

[7606dennis]

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@the*dog*ate*my*tablecloth wrote:

There is one State that I know of that caused a problem for a regular poster to the boards. I think it was Wisconsin or Michigan? MFLs do not cover casual sellers who sell less than 10k. The poster had an issue because his total sales including off-EBay were over 10k but the amount he sold ON eBay was not. The government required sales tax collection but eBay overrode his ability to collect it because he did not meet the threshold.

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Actually, that shouldn't be an issue since states consider that the facilitator's sales within the state to be taken in aggregate so all sales made by eBay sellers would exceed any state threshold.  Of course, the seller would still have to file their state's return accounting for both off eBay sales and those for which eBay collects and remits the tax.  The seller should contact their state's taxing authority of instructions.

[postcards_vintage_eu]

Hi I live in Norway, Scandinavia.

Why do Ebay deduct taxes from me when I sell a used item to a US buyer ?  I just found out and they actually charge both fee and tax are deducted from the sale .   

[lacemaker3]

@postcards_vintage_eu;

You (the seller) are not being charged the sales tax. Sales tax is charged by the state where the package is delivered to, and it is paid by the buyer, not by the seller. It doesn't matter whether the item is used or not, what determines if the sale (of a taxable item) is taxable is when it is sold to a retail consumer, and is delivered to a shipping address in a state that has sales tax. My understanding is that this much, at least, is the same as VAT tax in Europe.

eBay adds the appropriate sales tax to the buyer's invoice, and when they pay it, PayPal receives the entire payment and then transfers the sales tax to eBay so they can remit it to the state.

eBay fees are charged on the purchase price and shipping cost only, not on sales tax. PayPal fees are charged on the total amount being transfered, so the sales tax is included in calculating PayPal fees. This is also the same as when VAT is included in the purchase price in Europe.

Assuming that you are paying foreign PayPal fees (since you are registered in Thailand and your items are being shipped from Norway), the PayPal fees would be something like 3.9% on the sales tax, say 8% (as an assumed average sales tax rate) or about 0.312% which is less than 1/3 of a percent of the payment amount. Many sellers feel that is a very cheap rate for them not to have to deal with the hassle of collecting and remitting the sales tax.

[lacemaker3]

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@the*dog*ate*my*tablecloth wrote:

There is one State that I know of that caused a problem for a regular poster to the boards. I think it was Wisconsin or Michigan? MFLs do not cover casual sellers who sell less than 10k. The poster had an issue because his total sales including off-EBay were over 10k but the amount he sold ON eBay was not. The government required sales tax collection but eBay overrode his ability to collect it because he did not meet the threshold.

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As others have mentioned earlier, it was Minnesota. If you are remembered the same case that I am, eBay was able to fix that for the particular seller involved, by adding his account manually to the list of sellers who did meet the threshold.

However, Minnesota has now changed their law, and they don't have a small-seller-exemption anymore. So eBay is now required to collect Minnesota sales tax for all sellers on items that are delivered to Minnesota.

[bogdan]

I agree that failure to pay legitimate taxes is a felony; however,  what about the taxes that Ebay continues to charge that are not required by a state law? For instance CT does not charge the sales tax on purchases of coins and paper money but Ebay adds it to my bill all the time. They use the sales tax as a blanket on  purchases of all goods without making distinction that some items may be excluded from it.

[the*dog*ate*my*tablecloth]

Thank you lacemaster!

[the*dog*ate*my*tablecloth]

Ebay is not using sales tax as a blanket. I have bought some excluded items lately and they were not charged sales tax. However I made sure they were in the clothing category.

Perhaps your purchases were in incorrect sales tax categories OR there is a mistake in their tables? I expect they are using tables from a company like Avalara, consistent with other sites. It doesn't make sense for every company shipping to Sales Tax States to figure out their own set of rules. Remember some sales tax is coming on line with little notice AND sales tax can be very complicated. Like coins for instance. I was looking at a State the other day where coins were not taxed if they were sold as money for face value or below. However they ARE taxable when they are acting as collectibles and selling for above face value. I'm not surprised it is taking a while to sort out these tax anomalies.

[mam98031]

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@bogdan wrote:

I agree that failure to pay legitimate taxes is a felony; however,  what about the taxes that Ebay continues to charge that are not required by a state law? For instance CT does not charge the sales tax on purchases of coins and paper money but Ebay adds it to my bill all the time. They use the sales tax as a blanket on  purchases of all goods without making distinction that some items may be excluded from it.

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@bogdan 

It is a lack of information, accurate information that causes some to have this view point.

Ebay charges the sales tax for the rates required of them my LAW.  Nothing  more, nothing less.  However as you have noted some states have exceptions to the sales tax law.  The way that Marketplaces, such as Ebay deals with this is by category.  So if the SELLER has the item being sold in the appropriate category, then sales tax will not be charged to the buyer in a state that has an exception for those products.

HOWEVER, there can be multiple correct categories for certain things.  Specifically Coins, it could be in Coins / Paper money category or it could be under Collectibles.  It is likely that sales tax is charged under the collectibles category for your state, but not if the coin is in the Coins / Paper Money category.

Ebay isn't always doing something wrong when you have an issue on the site.  Sometimes there is more information needed to make an accurate observation.

@bogdan 

[bogdan]

Thank you. All my coin purchases are in Coin/Paper money category and I am still being charged the sales tax. So that makes me think that ebay just applies the appropriate state sales tax to all items disregarding that actual exceptions might exist. I am having ebay looking into it right now. Regardless this fact, Ebay should not add sales tax to everything just because now it can. On the contrary, it should not tax anything unless absolutely sure that tax is in order. Caution on the side of the customer. 

[dougbjn73fl]

my days of selling and buying cars on ebay is over. Im done with ebay.