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Tue May 3 2011 22:50:21

Collecting Sales Tax Is Not Easy for Marketplace Sellers

By: Ina Steiner

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There's a lot of talk these days about sales tax collection, and while merchants are not (yet) required to collect sales tax for every transaction, many are required to collect sales tax for transactions when they are shipping to a customer in their own state (or any state where they have a presence). But some marketplaces are not set up to make this easy for the merchant.

Amazon.com collects sales tax on behalf of some large retailers, but it does not collect sales tax on behalf of Marketplace sellers - here's what it says about this issue:

"Marketplace sellers are responsible for the sales tax on any items sold on Amazon.com, and if necessary, they generally add this cost into the price of their items. Therefore, you will not be charged any additional sales tax for Marketplace purchases. If you have further questions about a particular Marketplace seller's tax practices, feel free to contact the seller directly."

(Here's a recent discussion thread on the Amazon boards in which third-party sellers explain that they pay their state sales tax obligation out of their own pocket.)

Bonanza is about to roll out a new feature for sellers that lets them collect sales tax from shoppers in their states. I spoke to Bonanza founder and CEO Bill Harding to learn more - see the article in Wednesday's AuctionBytes Newsflash newsletter.

I'm interested in what sellers have to say about this issue. Which marketplaces are doing it right, and how do you deal with sales-tax collection?




Comments (45) | Permalink

Readers Comments

Collecting Sales Tax Is Not Easy for Marketplace Sellers   Collecting Sales Tax Is Not Easy for Marketplace Sellers

by: Patricia This user has validated their user name.

Tue May 3 23:39:21 2011

I collect sales tax in California.  I've been doing it for years and its not too difficult if you just keep track of the purchases in your state.  I do mine electronically and they've really streamlined the process so it doesn't take me long at all.  Of course, I'm not a big seller.  On the other hand collecting sales tax allows me to get all my supplies free of sales tax so I'm not doing this for nothing.

Collecting Sales Tax Is Not Easy for Marketplace Sellers   Collecting Sales Tax Is Not Easy for Marketplace Sellers

by: Bookseller

Wed May 4 05:37:49 2011

I pay taxes on all sales within my state (Texas) whether I actually collect the taxes or not. Ebay has a function to automate tax collection as do a few other listing sites for booksellers. The major bookselling sites, such as Amazon Marketplace, AbeBooks (now owned by Amazon) and Alibris do not, but easily could. I know they have the resources to develop the code. I could build the tax into the sale price of each book and hope they sell in Texas. Of course, that doesn't happen and it also makes me less competitive price-wise with other sellers. ''No tax'' becomes a discount for the buyer (unless they buy through a site that automates tax collection) and I track the sales and pay the taxes. A cost of doing business.

Collecting Sales Tax Is Not Easy for Marketplace Sellers   Collecting Sales Tax Is Not Easy for Marketplace Sellers

by: JoyfulA

Wed May 4 05:39:00 2011

I pay the sales tax out of my own pocket.

Collecting Sales Tax Is Not Easy for Marketplace Sellers   Collecting Sales Tax Is Not Easy for Marketplace Sellers

by: Jen

Wed May 4 06:52:00 2011

After reading Amazon's sales tax policy for marketplace sellers many years ago I called my state (NY) Department of Finance to ask if I was required to collect/remite sales tax for sales to NY customers. Their response was that Amazon was the seller of record since payments were processed by them and money paid directly to them through their merchant account (or Amazon Payments). Since that time I've been collecting/remitting sales tax for instate purchases where payment was made to me directly but not those for sales on those sites that collect the money themselves directly then issue payments to me for my sales.

Collecting Sales Tax Is Not Easy for Marketplace Sellers   Collecting Sales Tax Is Not Easy for Marketplace Sellers

by: Tired of eBay's Bullsh*t This user has validated their user name.

Wed May 4 09:44:03 2011

ok, so here is a (rare) instance where eBay has done the right thing ... by allowing seller to specify a tax rate for sale to any particular state. Likewise, Ruby Lane does the same.

I currently have set my tax prefs at both eBay and Ruby Lane to collect sales tax for my home state (which I then send to the state gov quarterly, as required).

I am surprised (no, shocked!) to hear that Amazon has no tax collection feature built into its marketplace, and that (in effect) Amazon simply expects seller to meet state sales tax responsibility OUT OF POCKET, ie: Pay tax out of the item price.

THAT is outrageous ( ! ) imho. It might also be illegal (since, I seem to recall, that my state requires sales tax to be listed separately in pricing for buyer).

ok ... so ebay did something the right way (in this instance) ... a rare occurrence indeed.

- Tired of eBay's Bullsh*t

Collecting Sales Tax Is Not Easy for Marketplace Sellers   Collecting Sales Tax Is Not Easy for Marketplace Sellers

This user has validated their user name. by: Nan
Web Site

Wed May 4 09:47:49 2011

I live in New Mexico where they have Gross Receipts Tax (instead of sales tax) for in-state sales.  I do not add it to the cost of the item, since I don't know before hand where (which destination) the item will sell.  It just comes out of profit as a cost of doing business.  I pay it out of pocket and claim it on my Schedule C as a deduction.

Collecting Sales Tax Is Not Easy for Marketplace Sellers   Collecting Sales Tax Is Not Easy for Marketplace Sellers

This user has validated their user name. by: Ric

Wed May 4 09:58:10 2011

Just as eBay keeps raising fees because they can not manage their business without substantial increases in revenue, states face the same problem on a larger scale.

IMO, sales tax collection is inevitable at some point in the not too distant future. It will not be long before states with sales taxes demand that taxes are collected for all items delivered to residents in their state.

If states are smart, they will insist that the marketplace, not the seller be the party responsible for collecting and remitting sales tax revenue as they are the common choke point in every transaction.

Sales tax should be assessed/collected from the buyer at rates based on their residency at point of sale by the marketplace.

Why create a compliance audit nightmare involving potentially millions of audits when the same could be accomplished based on the relatively small number of marketplaces.

Making marketplaces responsible for collection would insure that sellers would not be able to cheat the system on an individual basis, and that each state would receive the revenue they are entitled to.

Making venues responsible would assure that each purchase is taxed based on rates due and collectible at the destination since that is technically where the purchase was made.

The nightmare for the venue is initially setting up their marketplaces to comply with the wide variety of tax laws from individual states and in some cases, additional sales taxes at the county and even the municipal level.

The good news, it is a one time pain that once set up requires only periodic revisions when rates increase or additional categories of taxable items are added to increase the revenue stream.

The advantage for marketplaces is that they would be able to hold and float the revenue until making the monthly payment.

Knowing eBay's propensity for scheming and devising underhanded ways to hold revenues, this would provide them with millions in revenue they could legitimately hold and float to their greedy corporate hearts content.

A secondary advantage for venues might turn out to be that individual sellers may find it easier to go back to selling through an established marketplace. Individual sellers would likely find it easier to escape the compliance nightmare by returning to established marketplaces to sell product rather than attempt to collect and remit sales taxes individually.

Collecting Sales Tax Is Not Easy for Marketplace Sellers   Collecting Sales Tax Is Not Easy for Marketplace Sellers

This user has validated their user name. by: Tula

Wed May 4 10:24:27 2011

This is a difficult question. The venues should allow for third party merchants to collect whatever sales taxes they wish, since most of us who live in states with sales taxes are required to collect it from customers in the state where our business is based. But when you start talking about the 8000 other tax jurisdictions, things get hairy. This will not be an easy, fast, or cheap thing to implement on any venue, no matter how deep their pockets. Keeping track of that many ever-changing tax rates, with their various exclusions and rules (tax on food or not, tax on clothes or not, different tax rates for different kinds of goods, etc...) plus all the required reporting and filing requires staff and computing resources.

I'm sure TaxCloud will chime in here any minute now about how great their free service is for this, but I would ask how long that service would remain free? Look at Outright. TaxCloud is probably looking to get lots of customers hooked before they start charging. And if not, how are they making money? Do you want advertising injected into your checkout process? Why should any of us have to endure yet another third party sticking their fingers into our transactions?

If the venues are ultimately forced into taking on this burden, guess who'll end up footing the bill? And for those who blather about main street "fairness", I would say that shipping costs -- especially in this era of customers demanding free/cheap shipping -- more than negates any perceived advantage online sellers have over bricks and mortar stores, most of whom won't have to collect sales taxes from more than a few tax jurisdictions.

This is not an easy problem to solve. Maybe the answer is a single sales tax rate across all states, but getting them to agree is probably unlikely, given the wide-ranging differences in tax structure. At minimum, though, all the venues should allow for separate tax collection similar to what eBay does, so we can at least collect for our own states, as required.

Collecting Sales Tax Is Not Easy for Marketplace Sellers   Collecting Sales Tax Is Not Easy for Marketplace Sellers

by: BeAware

Wed May 4 11:01:21 2011

@ Patricia

Your comment that "On the other hand collecting sales tax allows me to get all my supplies free of sales tax so I'm not doing this for nothing" may, technically, subject you to fines and penalties in California.  

As I understand your comment, you are using your California resale permit to buy supplies AND NOT PAY sales tax on those supplies.  

In actuality (per my understanding of California Board of Equalization guidelines/rules, from discussions with BoE personnel), if a business has a resale permit and buys supplies for use in the business (like bubble wrap, envelopes, etc.) then you (the business) are the "ultimate consumer" of those items and, therefore, must pay sales tax on those items.  

Many people misunderstand why sales tax is due on these items.  Think of it this way:  If you are selling packing supplies, then you can buy those supplies without paying California sales tax because you are really re-selling those packing supplies to the "ultimate consumer" -- the buyer.  

However, if you are in the business of selling earrings (even if they are earrings that you make from various "raw" materials), you can buy your earring-making supplies free of California sales tax (because those supplies are then constructed into the final item you sell: your finished earrings), but you cannot buy packing supplies without California sales tax because you are not IN THE BUSINESS OF selling those packing supplies.  

Yes, you do USE them in your business, and those are part of your "costs of business" for your State and Federal income taxes (and you may even deduct as a cost the sales tax you pay on your supplies)...but, again, you may be subjecting yourself to audit and fines/penalties by using your resale permit to buy supplies for your business.  

I know this is somewhat complicated, but I encourage you to seek clarification from the California Board of Equalization.  

Just trying to help....

Collecting Sales Tax Is Not Easy for Marketplace Sellers   Collecting Sales Tax Is Not Easy for Marketplace Sellers

This user has validated their user name. by: permacrisis

Wed May 4 11:29:27 2011

So, since they are going to vigorously collect sales taxes from online activity, the state attorneys general are going to FINALLY represent us properly in defense against shifty online companies... like ebay... right?

Right?

Collecting Sales Tax Is Not Easy for Marketplace Sellers   Collecting Sales Tax Is Not Easy for Marketplace Sellers

This user has validated their user name. by: TheCheapSkirt
Web Site

Wed May 4 13:10:45 2011

eCrater makes it simple to collect sales tax, as does eBay. Because we are located in a large state, we have quite a few customers in our various stores that we collect sales tax from.

I'm aware of at least one seller who has publicly bragged about a scam to collect sales tax from customers, but do not remit sales tax to the state, and that is illegal. She indicated on an eBay message board that she puts the final value fee percentage in the sales tax area for all transactions (in all states) to recoup her cost of doing business on eBay from her customers.

Collecting Sales Tax Is Not Easy for Marketplace Sellers   Collecting Sales Tax Is Not Easy for Marketplace Sellers

by: Patricia This user has validated their user name.

Wed May 4 13:50:20 2011

@Be Aware - I have called them....not for the reason you stated but because I am an artist and my supplies can be used on paintings that sell to other states. I have been assured that as long as I submit all sales tax made in California that I can, indeed, buy my supplies free of sales tax.  They even have the vendors listed that I can use to buy my stock sales tax free.  As I said, I'm a small seller, and only submit my sales tax on a yearly basis...not quarterly.  Perhaps that's the difference?  I don't know - I only know I am following their rules.

Collecting Sales Tax Is Not Easy for Marketplace Sellers   Collecting Sales Tax Is Not Easy for Marketplace Sellers

by: Patricia This user has validated their user name.

Wed May 4 13:56:37 2011

@Beware - BTW I do not buy packing materials or boxes sales tax free since I use free Priority boxes and simply buy the bubble wrap and brown paper cheaply at Walmart.  I do buy my canvas, paints, brushes, etc. free of sales tax.  I feel you may be thinking along the lines of people who buy items in order to sell - whereas I buy the supports and create what I sell. I don't know....in any event I spoke to the franchise board twice on the matter and both times they said I could deduct ALL my art supplies.  I also could not understand how I could buy ALL my supplies sales tax free when I would have no idea what state those supplies would end up...but that was their answer...twice!

Collecting Sales Tax Is Not Easy for Marketplace Sellers   Collecting Sales Tax Is Not Easy for Marketplace Sellers

by: BeAware

Wed May 4 14:07:58 2011

@ Patricia

It sounds like the "supplies" to which you were referring are similar to the supplies I mentioned re an earring-making artist.  Thus, I believe you are correct that what you use to get to your final product (e.g., canvas, paint, etc.) is part of the final product.  However, my understanding from the BoE is that items such as brushes, paint thinner, shop rags, etc. (which, while used to create the final item, are not ultimately "included" in the final product) are subject to sales/use tax...and the same applies to shipping materials (at least that's what they have told me).



Touchy thing, this sales tax discussion.  Sellers are already burdened with decreased sales and increased fees, so adding another layer of accounting/potential aggravation can drive one mad.  That said, here is another way to think about how/why/when one may owe sales/use tax:  If I went to a car dealership to buy a truck for use in your business (even if I was using it 100% for business use), I'd still owe/pay the California sales/use tax for the truck.  Why?  Because I (the business) am the "ultimate consumer" of the truck, and I am using the truck for business.  (This also can be called "use tax," and is the same rate as sales tax.)  The only way to "not" pay the sales/use tax is if you are IN THE BUSINESS OF buying/selling the particular product (in this example, cars/trucks/motor vehicles).  If that IS your business, then your resale permit allows you to "buy" the truck and put it into your inventory for sale, without having to pay the sales/use tax.  When you SELL the truck (to the "ultimate consumer"), THEN you (as the final selling car dealer) collect the sales tax and give it to the state.  

Further, I understand that every business that buys items without sales/use tax is supposed to fill-out and sign a "resale certificate" for the business from which you are buying the property.  So, if you buy a book that you plan to use for researching antique prices for the antiques and collectibles that you sell, you owe the sales/use tax on the book (because you are using the book in your business, it is not "inventory" for sale, and you are not in the specific business of buying/selling books).  True, you may sell books as part of your antique business, but you bought this particular book for your own use (for research-purposes), so it is not part of your inventory.  Also true, you may end up selling the book in 5 years (or even next year) when it becomes obsolete, but you are "skating/skirting" the sales/use tax laws by using the book all year for your research-purposes and yet not paying sales/use tax on it.  That is the "use" part of the sales/use tax law.

Also, if/when one goes to (for example) a fellow antique dealer and buy something from the fellow-dealer that you plan to re-sell, then the fellow-dealer (selling dealer) should get you to sign a resale statement in which you state (1) your name and business name and address, (2) your California resale permit number, (3) what category of items you are buying (for example, antiques), (4) that you are in the business of selling this particular category of item (here, antiques), (5) that you plan to resell the item (here, an antique), and (6) if you use the item for anything other than "retention, demonstration, or display" while holding the item for sale "in the regular course of business," you understand that, under the Sales and Use Tax law, you are required to report and pay tax on the purchase price of such property.

Just my understanding....

Collecting Sales Tax Is Not Easy for Marketplace Sellers   Collecting Sales Tax Is Not Easy for Marketplace Sellers

by: BeAware

Wed May 4 14:21:10 2011

@ Patricia

BTW, it is not unusual (in my experience) to get different answers from different BoE personnel, so this could very well account for the slight differences in our "understanding" of this complex subject.  

You seem to be "on top" of the sales tax issue, and I apologize for not initially congratulating you for doing your share re California sales/use tax collection.



I truly wish you continued success in your business and future sales!

Collecting Sales Tax Is Not Easy for Marketplace Sellers   Collecting Sales Tax Is Not Easy for Marketplace Sellers

by: Rich

Wed May 4 18:48:29 2011

Ebay has a good set up for sales tax.  On sell page you just pick the state you live in and the % add it to listing and when buyers from my state win; they get a bill which reflects the added sales tax amount.  I add up the total collected at years end and send it in.  First praise I had for ebay in months; or maybe years

Collecting Sales Tax Is Not Easy for Marketplace Sellers   Collecting Sales Tax Is Not Easy for Marketplace Sellers

This user has validated their user name. by: Philip Cohen
Web Site

Wed May 4 18:55:28 2011

About 10 years ago, Australia replaced its mish mash of sales taxes on goods only (multiple varying rates and exemptions) in favor of a federally-applied Goods and Services Tax (GST) currently set at 10% on everything (except raw foodstuffs and exports, of course)—similar to the VAT that applies in the UK. The Australian GST revenue is specifically earmarked in total for return to the states, albeit with some federal weighting.

Today, with now so much interstate online activity this simplified form of tax is obviously the way to go. Then, the US, although it has had a decimal currency all along, has persisted with a mish mash of “imperial” weights and measures, when just about every other country on the planet has converted to the IS metric system.

So, what chance some sensible change from those that pull the levers of power in the US? A simple x-percent across the board, in place of the existing mess? We can dream, I suppose …

Enron / eBay / PayPal / Donahoe: Dead Men Walking.

Collecting Sales Tax Is Not Easy for Marketplace Sellers   Collecting Sales Tax Is Not Easy for Marketplace Sellers

by: Patricia This user has validated their user name.

Wed May 4 19:48:05 2011

Be Aware - I'm not the least bit disturbed over what you said.  I got verification twice and we're not talking thousands of dollars - probably no more than 50.00 on the brushes and I don't use paint thinner....paper towels substitute for rags.  Sorry - I'm just not big enough fish for them to fry - which is probably why I got that answer.  You may well be right but I sure am not going to worry about it.

Collecting Sales Tax Is Not Easy for Marketplace Sellers   Collecting Sales Tax Is Not Easy for Marketplace Sellers

by: mindelec This user has validated their user name.

Wed May 4 19:51:12 2011

"collecting/remitting sales tax for instate purchases where payment was made to me directly but not those for sales on those sites that collect the money themselves directly then issue payments to me for my sales. "

that's my view on it too, amazon (or other 3rd party site) is the one paying me, not the buyer.  however since on ebay the buyer is the one paying me, i do collect sales tax.

Collecting Sales Tax Is Not Easy for Marketplace Sellers   Collecting Sales Tax Is Not Easy for Marketplace Sellers

by: Patricia This user has validated their user name.

Wed May 4 19:56:28 2011

I believe there is no excuse for not reporting your state's sales tax.  They are desperate for the money and will put through far stronger laws if they have to.  Why provoke them?  Collect it and pay up - it doesn't take much time and the state repays you by allowing you to buy your stock free of sales tax.

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