Sales Tax Rules for eBay Sellers
By Barbara Weltman
Many sellers on eBay want to do the right thing - collect sales taxes when required and pay this amount to their state. Unfortunately, doing the right thing isn't easy. There are over 8,000 tax jurisdictions (when you add state and local tax authorities); each has its own rules on what is subject to tax, what is exempt, and how much the tax rate should be.
Obligation for Sales Tax Collection
Are you required to collect sales taxes? Some people are under the mistaken impression that all online sales are automatically exempt from sales tax. While there is a federal ban against sales tax on Internet access to November 1, 2014, in most states, this ban does not apply to retail sales of "tangible personal property" (i.e., goods). Whether you are obligated to collect sales tax depends on your selling activities and your location.
Casual sellers aren't required to collect sales taxes; the obligation falls only on those in business. eBay sellers in business should obtain a resale certificate from their states and use this to report their sales tax collections and to avoid paying sales tax on items they buy for resale (i.e., inventory items).
Five states do not have any sales taxes: Alaska, Delaware, Montana, New Hampshire, and Oregon. Usually, if you sell online from one of these states, you don't have to collect sales tax.
What's Subject to Sales Tax
Familiarize yourself with the sales tax rules affecting you. Some states only require sellers to collect sales tax on sales they make to residents within their state. Other states have a longer arm and may require collection by out-of-state sellers on sales made to their residents. New York, for example, enacted the so-called "Amazon tax" to require out-of-state companies selling through affiliates in the state to collect sales tax (with an exemption for online retailers that do not collect at least $10,000 in annual revenue from affiliates within the state) effective June 1, 2008. (Amazon has filed a lawsuit challenging the new law.)
Learn whether shipping charges are subject to sales tax or exempt. More than half the states include shipping charges in the price on which you figure sales tax. Some states exempt shipping charges if they are separately stated.
eBay sellers who use drop shippers have more complexity to deal with. Some states treat drop shipping as two sales: the primary sale between the retailer and the supplier and the secondary sale between the retailer and the customer; other states treat drop shipping as a single transaction. States holding the two-sale view may exempt the retailer from sales tax where the retailer furnishes the supplier with a resale exemption; the customer is potentially still subject to sales tax.
What's Exempt from Sales Tax
If you sell certain types of goods, you may not be required to collect sales tax, even though your state and/or locality normally impose a sales tax. This is called an exemption. Examples:
Clothing: some states exempt from sales tax any purchases up to a set dollar amount. For example, Connecticut exempts clothing, footwear, and bicycle helmets up to $50. Massachusetts' exemption extends to clothing up to $175 other than items designed for athletic activity or protective use.
Computer software: while "canned" software (that comes in a box) is taxable in most states, some states exempt downloadable software. Hardware usually is subject to sales tax, even if the software is exempt.
Sales Tax Holidays
A number of states suspend their sales tax on certain items for a limited period - usually a few days or up to one week. For instance, some states hold sales tax holidays on clothing and footwear prior to the start of school to give parents a break on back-to-school purchases. Online sellers should not collect sales tax on exempt items during a sales tax holiday.
Determining whether you have to collect sales tax can be challenging. Try using a free online sales tax rate calculator from Avalara. It's always best to work with a knowledgeable sales tax expert who can help you fulfill your sales tax obligations and avoid penalties.
About the author:
Barbara Weltman is an attorney, prolific author with such titles as "J.K. Lasser's Small Business Taxes and The Complete Idiot's Guide to Starting a Home-Based Business," and trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of "Idea of the Day(R)" and monthly e-newsletter "Big Ideas for Small Business(R)" at http://www.barbaraweltman.com and host of "Build Your Business" radio. Follow her on Twitter: @BarbaraWeltman.
You may quote up to 50 words of any article on the condition that you attribute the article to EcommerceBytes.com and either link to the original article or to www.EcommerceBytes.com.
All other use is prohibited.