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Sat Jan 23 2021 22:16:53

How eBay Handles Sales Tax on 1099Ks

By: Ina Steiner

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Now that eBay is processing payments (rather than allowing buyers to pay sellers directly), it is required to file Form 1099K to sellers and to tax authorities in the US.

A reader who is now enrolled in the program reached out and asked how eBay was handling 1099Ks with regard to sales tax that it's required to collect and remit to states.

"I've contacted "Charles" on eBay's Managed Payments community board and posted the question below but have not received an answer:

""Is eBay reporting gross income including the taxes that were taken out to the IRS on our 1099's?"

"My gut feeling is that they shouldn't as sellers never are in possession of this tax money but no one will answer my question. Does anyone have any info on this for eBay sellers?"

This help page that explains how eBay handles 1099Ks includes the following information:

How to use a Form 1099-K
Form 1099-K includes the gross amount of payments made to you within a calendar year, so refunds, shipping costs, sales tax, etc. aren't subtracted from the total amount. This means that the amount reported on your Form 1099-K may not be fully reportable on your tax return. You should consult with your tax advisor to determine how best to use the information on your Form 1099-K.

Starting in 2019, any sales tax collected by eBay on sales made by you in the various marketplace states will not be on your Form 1099-K. This is because eBay automatically collects and remits such sales tax directly to the state (i.e. the sales tax for these states isn't paid to you).

Please see 1099 forms and income tax on eBay sales for more information.

However, it's not clear that page offers the most up-to-date information. As we wrote in May 2020, eBay began charging FVFs on the total amount processed, including sales tax. "Under the new fee structure, instead of paying a Final Value Fee (commission) on price-plus-shipping and a payment processing fee on the total transaction amount (including sales tax), sellers will pay a single percentage fee on the total transaction amount, including sales tax."

That's confirmed on this eBay help page where it states:

"We charge one final value fee when your item sells, and you don't have to worry about third-party payment processing fees. This fee is calculated as a percentage of the total amount of the sale, plus $0.30 per order.

"The total amount of the sale includes the item price, any handling charges, the shipping service the buyer selects, sales tax, and any other applicable fees."

But on another eBay help page about tax policy, it states: "Once eBay starts to collect tax in the required states, no action is required on your part, and there will be no charges or fees for eBay automatically calculating, collecting, and remitting sales tax."

It appears that eBay may not be updating help pages when it makes changes in the way it handles sales-tax collection and fees, leading to seemingly contradictory information. 

A thread on the eBay discussion boards shows our reader wasn't the only seller wondering how eBay was handling tax on 1099Ks.

Another issue that sellers raised in the thread: when should they expect eBay to make Form 1099Ks available to sellers for tax year 2020? Colleagues pointed to the same help page as above where it states:

If you're a managed payments seller, we'll mail you a Form 1099-K by February 3rd if you exceed both of the following thresholds:

- You received more than $20,000 in gross payments from the sale of your items.

- You had more than 200 payment transactions.

Sellers should also be aware that some states have instituted lower threshold amounts, such as Massachusetts and Vermont, which require payment processors to send them Form 1099Ks for sellers who have processed gross payments as low as $600 (the last time we checked).

Sellers would be wise to proactively check all payment processing services they use, including marketplaces like eBay and Etsy as well as PayPal and credit card merchant accounts - and seek tax assistance from a professional if you need help with Form 1099K.

Update 1/25/2021: A reader posted the following in a comment below: "The Payments Team has confirmed "Seller collected sales tax will be included on the 1099-K form. eBay collected sales tax will not be included on the 1099-K form.""



Comments (21) | Permalink

Readers Comments

Perminate Link for How eBay Handles Sales Tax on 1099Ks   How eBay Handles Sales Tax on 1099Ks

by: acc756 This user has validated their user name.

Sat Jan 23 23:03:23 2021

FYI for your reader and anyone else - the private Managed Payments board on the eBay community has been closed/locked and Charles is no longer the main point of contact in the community for payments related questions.

They have replaced him with a new tag for the payments team, @payments_team@eBay

https://ebay.to/3qZe0v1

Perminate Link for How eBay Handles Sales Tax on 1099Ks   How eBay Handles Sales Tax on 1099Ks

by: acc756 This user has validated their user name.

Sat Jan 23 23:15:19 2021

I asked the community payments team to clarify if eBay collected sales tax will be included on the 1099K.

The answer was "we don't have an answer to this specific question so we've requested more information. When we know more then we will share it here."

It is certainly concerning that this close to the deadline to issue 1099Ks, the payments team does not have an answer to that specific question.

https://ebay.to/2Y78wlt

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by: COVID-19 This user has validated their user name.

Sun Jan 24 00:44:14 2021

"Charles", just like "Trentin" or whatever his name is, is just one of many bots that corporations use to give generic responses so customers think they are actually getting answers and go away.

Perminate Link for How eBay Handles Sales Tax on 1099Ks   How eBay Handles Sales Tax on 1099Ks

by: acc756 This user has validated their user name.

Sun Jan 24 10:08:02 2021

I think the answer may come down to the technicality of whether Marketplace Facilitator taxes are paid to the seller and then deducted back out to eBay *or* go directly from buyer to eBay to the state.

eBay is presumably using some customized version of Adyen's services, likely built upon their Platform solution.  Interestingly,  Adyen's publicly available info about the Platform solution shows they have the capability to allocate and transfer funds to a "seller account" and "platform account" separately.  https://ebay.to/2MmExD7

In that scenario, it's at least possible that the Marketplace Facilitator tax is allocated to the "platform account" and flows from buyer to eBay to the state without ever being paid to or received by the "seller account".

Based on the wording of eBay's 1099K help page which explicitly says "the sales tax for these states isn't paid to you", it would not surprise me if that's exactly what they are doing.

We won't know for sure until either the payments team is given permission from the legal department to actually answer the simple direct question I asked them, or more likely until 1099Ks are finally released and sellers will have to figure out for themselves what was or was not included.

Perminate Link for How eBay Handles Sales Tax on 1099Ks   How eBay Handles Sales Tax on 1099Ks

by: acc756 This user has validated their user name.

Sun Jan 24 10:10:20 2021

Also, if the Marketplace Facilitator tax flows from buyer to eBay to the state and is not included in the 1099K because of that, it could open up a can of worms with eBay charging the full "simplified" Managed Payment fee on the total sale *including* eBay collected Marketplace Facilitator taxes.

One common argument for why eBay is justified in including those taxes in the fee calculation is that the entire amount including those taxes is processed into a seller's account - just like it was with PayPal - but what if that isn't really the case?

Perminate Link for How eBay Handles Sales Tax on 1099Ks   How eBay Handles Sales Tax on 1099Ks

This user has validated their user name. by: Ina

Sun Jan 24 10:12:58 2021

Thanks for those links and info, acc756 - surprisingly few threads showing as having a response from an eBay staff member.

As eBay's former CEO said about its rollout of Managed Payments back in 2018, "Obviously the devil will be in the execution."

http://bit.ly/2Ogprgn

Perminate Link for How eBay Handles Sales Tax on 1099Ks   How eBay Handles Sales Tax on 1099Ks

by: acc756 This user has validated their user name.

Sun Jan 24 11:37:45 2021

You're welcome Ina!

Sellers have certainly had a devil of a time getting responses from eBay staff or in depth, accurate information on many things related to Managed Payments.  

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by: smallstuff This user has validated their user name.

Mon Jan 25 00:24:15 2021

Sales tax was included in the PapPal gross total even though the tax went directly to eBay.  I assume it will be the same with eBay MP.  I keep track of the tax amount included in each sale, so I'll know for sure when I see the 1099K.

Perminate Link for How eBay Handles Sales Tax on 1099Ks   How eBay Handles Sales Tax on 1099Ks

This user has validated their user name. by: cfrphoto

Mon Jan 25 01:11:16 2021

The eBay statement "Once eBay starts to collect tax in the required states, no action is required on your part..." is a lie. Amounts collected by eBay must be reported in states like Connecticut, Washington, and potentially any state where the seller must file sales tax returns for non-eBay sales.

The good news is that eBay's addition of sales tax collected by the seller and eBay, the state and country is retroactive to the beginning of 2020 but 2019 is now inaccessible in Payments transaction reports. I do not believe that eBay would include site (eBay) collected sales tax in the 1099-K total but seller collected sales tax would be. With the updated reports it should be possible to tell. I track the amount received, the gross amount, and fees from each Managed Payments Payout, same a PayPal. Accounting becomes a mess if eBay reports must be used in place of cash received and expense amounts deducted from bank deposits.

Perminate Link for How eBay Handles Sales Tax on 1099Ks   How eBay Handles Sales Tax on 1099Ks

This user has validated their user name. by: Marie

Mon Jan 25 02:06:13 2021

Yes the MP detailed transaction downloadable report recently updated.  You can now go back further than just 90 days and it now includes the Ebay collected sales tax.  So this will help a great deal for sellers that use the report.

As to IRS.  Their definition of the Gross Receipts that is suppose to be reported on a 1099K is very clear.  And it is what PP does too for those they question it.

Box 1a. Gross Payment Card/Third Party
Network Transactions
Enter in box 1a the gross amount of the total reportable
payment card/third party network transactions for the
calendar year. Gross amount means the total dollar amount
of total reportable payment transactions for each participating
payee without regard to any adjustments for credits, cash
equivalents, discount amounts, fees, refunded amounts, or
any other amounts. The dollar amount of each transaction is
determined on the date of the transaction.

https://www.irs.gov/pub/irs-pdf/i1099k.pdf

Perminate Link for How eBay Handles Sales Tax on 1099Ks   How eBay Handles Sales Tax on 1099Ks

by: acc756 This user has validated their user name.

Mon Jan 25 06:12:37 2021

If the Marketplace Facilitator tax flows from buyer to eBay to the state without ever being paid to or received by the seller, should it be included in "total reportable payment transactions for each participating payee" assuming the payee in question is the seller?

If that scenario were in play, could there at least potentially be a difference between "money never paid to or received by the seller" and "adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts"?

What PayPal does may not necessarily be relevant to Managed Payments and I think it would be a mistake to assume they must operate in exactly the same way.

Here's a hypothetical example based on the screenshot from Adyen's info about their Platform service. https://ebay.to/3pfazji

*If* the money flows in a similar fashion to what is shown in that screenshot from Adyen, I suspect cfrphoto is correct that seller collected tax will be included on the 1099K (because it was paid to the seller) but eBay collected Marketplace Facilitator taxes won't be included on the 1099K (because they weren't paid to the seller).

The updated transaction report does now have a column for "eBay collected tax" but that doesn't necessarily mean that eBay collected tax *must* be included in the 1009K.  That report could just be for informational purposes.

In fact, the Gross Transaction Amount column in the updated report does *not* include eBay collected tax, which may support the idea that eBay collected tax should not be included in the 1099K either.

Perminate Link for How eBay Handles Sales Tax on 1099Ks   How eBay Handles Sales Tax on 1099Ks

by: 1desertrat1 This user has validated their user name.

Mon Jan 25 10:53:59 2021

so i tried to message '@payments_team@eBay' on the community board to get some clarification on the 1099 and i got this error message:
"None of the users have PM enabled. Message will not be sent."

not sure what the point is of having an ebay team to answer questions and provide clarification if you can't communicate directly with them.

Perminate Link for How eBay Handles Sales Tax on 1099Ks   How eBay Handles Sales Tax on 1099Ks

by: toastedmutt This user has validated their user name.

Mon Jan 25 11:03:02 2021

Is the Managed Payments group still functioning on Facebook?  

In the past an invitation to join was sent to new MP members by the group facilitator.  

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by: acc756 This user has validated their user name.

Mon Jan 25 13:35:21 2021

The Payments Team has confirmed "Seller collected sales tax will be included on the 1099-K form. eBay collected sales tax will not be included on the 1099-K form."

https://ebay.to/2LV0Hgh

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This user has validated their user name. by: Marie

Mon Jan 25 13:48:19 2021

@toastedmutt

I'm not aware that the MP team was every active on Facebook.  I know that the Facebook for business team nor the twitter team will answer questions on MP.

Perminate Link for How eBay Handles Sales Tax on 1099Ks   How eBay Handles Sales Tax on 1099Ks

by: acc756 This user has validated their user name.

Mon Jan 25 18:44:48 2021

For those drawing a comparison to PayPal, remember that prior to November 2019 the eBay collected sales tax was a separate transaction that went to eBay directly and was not paid to or received by the seller, so it was not included in the 1099K from PayPal.

While I have no direct insight into exactly how the payment processing partnership with Adyen is implemented, the info I have seen from eBay and Adyen suggests it could at least be possible that the buyer's payment is split and the eBay collected tax is paid directly to the "platform account" without ever touching the "seller account".

If that were the case, it may not be all that different from the way money was processed and flowed with PayPal prior to November 2019.

The buyer facing side might be a little different than it was previously with PayPal (one transaction vs two), but if that transaction is technically between the buyer and Adyen or the buyer and the "platform", with portions of those funds then being allocated and paid separately to "seller account" and "platform account", there could be an argument made that it is correct not to include eBay collected tax on the seller's 1099K.

I don't know if that is how it actually works, but I'm at least willing to entertain the possibility and curious enough to dig further to see if there is any more insight to be gleaned from either eBay or Adyen that could shed more light on the subject.

Perminate Link for How eBay Handles Sales Tax on 1099Ks   How eBay Handles Sales Tax on 1099Ks

by: ebayout This user has validated their user name.

Mon Jan 25 20:13:52 2021

A 1099K reports INCOME. If eBay includes sales tax, it's hard not to imagine some HUGE future Federal lawsuits.
Sellers would be forced to deduct FALSE deductions, or else eat the incremental tax.

Perminate Link for How eBay Handles Sales Tax on 1099Ks   How eBay Handles Sales Tax on 1099Ks

This user has validated their user name. by: Ina

Mon Jan 25 21:59:29 2021

Unlike 1099-MISC (now 1099-NEC), 1099K reports gross payments, not income.


http://bit.ly/36fNB46

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This user has validated their user name. by: Marie

Tue Jan 26 03:50:29 2021

@ebayout

A 1099K does NOT report Gross Income, it never has.  It was never the intent of the form in the first place.

It reports Gross Receipts which is NOT the same as income.  It reports ALL money that comes into your money processing account from customers WITHOUT ANY deductions for anything to include refunds, shipping or anything else.  All your deductions are handled on Schedule C of your Federal Tax return to arrive at what your Net Income is.

https://www.irs.gov/pub/irs-pdf/i1099k.pdf

Box 1a. Gross Payment Card/Third Party
Network Transactions
Enter in box 1a the gross amount of the total reportable
payment card/third party network transactions for the
calendar year. Gross amount means the total dollar amount
of total reportable payment transactions for each participating
payee without regard to any adjustments for credits, cash
equivalents, discount amounts, fees, refunded amounts, or
any other amounts. The dollar amount of each transaction is
determined on the date of the transaction.

Perminate Link for How eBay Handles Sales Tax on 1099Ks   How eBay Handles Sales Tax on 1099Ks

by: ebayout This user has validated their user name.

Tue Jan 26 13:30:18 2021

Line 8 on the 1099-K is for "State Income Tax Withheld".
Stay tuned...

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