Ina Steiner EcommerceBytes Blog
News and insight focusing on ecommerce.
by Ina Steiner, Editor of EcommerceBytes.com
Sun Dec 31 2017 16:27:32

Seller Says Sales Tax Fraud Is Rampant on eBay

By: Ina Steiner

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As lawmakers and tax agencies across the country look for ways to force out-of-state sellers to collect sales tax, they appear to be overlooking a related problem that is angering merchants - cases of sellers collecting sales tax but not remitting it to the states. 

In other words, some sellers appear to be overcharging buyers and keeping money that doesn't belong to them - and getting a discount on eBay fees to boot!

An eBay seller who contacted us about the problem said it hurts sellers like himself, because offenders are able to list the same products he lists but at a lower price (most likely helping their listings appear higher in search results), yet they are able to charge more money for the item:

"The prices they are listing their items at should be losing money but they are keeping sales tax as profit. In a nutshell there is a lot of sales tax fraud happening across eBay. Many sellers have begun realizing that there is extra money to be made by charging sales tax in states they are not registered in. 

"Some sellers like myself are legally registered in multiple states because of nexus but more and more foreign (and even domestic) sellers are using it as a way to pad profits and drive ethical sellers out of business."

The seller, who wished to remain anonymous, provided us with a list of 9 sellers, 8 of them from Asia (mostly from Hong Kong), and one from Egypt. 

Most of the sellers on the list charge rates ranging between 11 and 13 percent for all states - that's twice the rate Massachusetts charges, not to mention some states like New Hampshire charge no state sales tax at all. Only one seller on the list charged what appears to be accurate rates, but one seller charged a straight 12% for every single state!

What the EcommerceBytes reader was upset about the most, he said: "eBay is knowingly turning a blind eye to illegal sales tax being charged at overpriced rates by foreign sellers."

Many international sellers already have a legitimate advantage over domestic sellers who collect sales tax - according to TaxJar, international sellers are not required to collect or remit sales tax unless they have nexus.

We took a look at the completed sales of the Egyptian seller on the list who charges 12% across the board. He (or she) sold 189 items in the last month ranging from $4.82 (58 cents in sales tax) to $146.63 ($17.60 in sales tax). 

Such sellers get a break on eBay fees, too, since eBay charges a commission (final value fee) on the selling price not including sales tax.

The reader, who called himself a "medium-sized" seller on eBay, said because he uses Amazon FBA to store and fulfill his items, he has registered for each state where he is required to collect sales tax and remits the taxes collected monthly or quarterly, a process he called challenging.

He told us that it's impossible to compete with sellers who have an 8-12% advantage over him. "eBay doesn't do anything about it when you call and even if by chance someone is removed then they just make a new account and keep going. Until they put a procedure in place then it will keep happening over and over again until the law steps in."

Update 12/31/17: A reader spotted a thread on the eBay boards started in February where an eBay moderator explained the company's stance:

"Due to the volume of varying tax laws in different locations this is not something we are qualified to take action on. We advise our sellers to work with a tax specialist to determine the appropriate amount to charge and if you run into anything you feel is excessively inflated you are welcome to report this to your local tax authorities. They will be able to review and take appropriate action."

On page 2 of the thread, an eBay user pasted a screenshot that showed an item where the seller was charging 25% sales tax for every state, including New Hampshire, which has no state sales tax. As they say, a picture says a thousand words - take a look.

Comments (49) | Leave Comment | Permalink
Readers Comments

Perminate Link for Seller Says Sales Tax Fraud Is Rampant on eBay   Seller Says Sales Tax Fraud Is Rampant on eBay

by: Studiolines This user has validated their user name.

Sun Dec 31 16:54:58 2017

Stupidity at it's worst if they are doing this. I hope they enjoy there time in jail. How would another seller be able to know they are not turning the tax into the state though?

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by: Studiolines This user has validated their user name.

Sun Dec 31 16:58:16 2017

Just finished reading the rest, International sellers? How can you charge more than the state tax anyhow. I would think that in itself to be illegal.  

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by: FeelingFroggy This user has validated their user name.

Sun Dec 31 18:16:32 2017

Where is the proof that these sellers aren't paying their taxes to the states. I would think that information is between the government and the seller and no one else's business. Even Fleecebay wouldn't have access to that information.

As for international sellers charging taxes I would think that its illegal but again unless you are the government you wouldn't have the information to say that they aren't paying their taxes.

Other more important things to worry about with ebay than if a seller is paying his taxes or not. ITS NON OF YOUR BUSINESS ANYWAY,

Perminate Link for Seller Says Sales Tax Fraud Is Rampant on eBay   Seller Says Sales Tax Fraud Is Rampant on eBay

This user has validated their user name. by: The End

Sun Dec 31 18:32:51 2017

FOR THE 5th TIME > IT IS ILLEGAL TO COLLECT SALES TAX ON ITEMS SHIPPED OUT OF STATE.
GET THAT THROUGH THEIR THICK HEADS.
YES, I'M YELLING.

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This user has validated their user name. by: The End

Sun Dec 31 18:37:20 2017

Article 1, Section 9, Paragraph 5
https://www.archives.gov/founding-docs/constitution-transcript>"No
Tax or Duty shall be laid on Articles exported from any State."

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This user has validated their user name. by: The End

Sun Dec 31 18:42:08 2017

Hear Ye, Hear Ye, Hear Ye :
"No Tax or Duty shall be laid on Articles exported from any State."
Article 1, Section 9, Paragraph 5 of the United States Constitution.
You are committing a CRIME if you are collecting the tax on items sold to other states.
Cease and desist.

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by: HappyOne This user has validated their user name.

Sun Dec 31 20:40:54 2017

This a partial  copy of the email I sent an executive of Ebay 10/4/16. I was ''rewarded'' with a $25 gift certificate. Yet it appears NO ONE has done anything. I would have thought by now a few cash hungry States would have been in contact with the ''Venue'' Ebay.  

Mr. XXXXX
Hello again.
During previous conversation  you said if I had a concern to contact you. My concerns are: Ebay is ALLOWING collection of sales tax in excess of % requires by most States AND is collecting sales tax in the few States with NO sales tax. Is seller collecting and remitting these ''false'' sales taxes?  If not is EBay liable to States in due course because they failed to see an obvious fake charge and failed to ''check/vet'' seller was registered to collect sales taxes in States other than their ''home State''. The item # of item I found this is: XXXXXXXXX.  I am sure there are more; is this a wide spread problem/concern /liability to EBay? I was not able to properly report this via the report listing box on the listings.

Ebay Moderators have suggested along with ''Griff'' to reach out to this seller.

My comment '' I am not reaching out to a seller to tell him/her few states have a 10% Sales Tax; nor am I going to tell him/her five states do not have a sales tax - Alaska, Oregon Delaware, New Hampshire and Montana. Somehow I would think a tech company like EBay could have a program to weed these erroneous charges out?
If everytime I buy something on Ebay I have watch for a seller gimmick; maybe? Years ago the shipping and handling got way out of hand. Something EBay did has made it so there is less price gouging on shipping now.'' I stand by my statement.  

Thank you

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This user has validated their user name. by: RKTOYS

Sun Dec 31 21:58:48 2017

Not surprising.  We've had a faction within this country champion anything a business does as "free enterprise" and therefore good while labeling all taxes levied to pay for services demanded of government as "theft."  Further, as government drops even the pretense of representing anybody but the rich, working people will no doubt find ways to resist.

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This user has validated their user name. by: Ina

Sun Dec 31 22:23:01 2017

State taxes are not a federal issue, unless Congress makes it one.

I wonder what will happen when eBay becomes the merchant of record - will they start remitting sales tax to states directly? If not, what will happen if they allow the practice described above to continue?

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by: Studiolines This user has validated their user name.

Sun Dec 31 22:43:06 2017

Certainly interesting information. Maybe Ebay will end up wanting to be more Venue and less managed as it would seem that they would be assuming some liability for fraudulent tax collection if they are properly managing. I cannot conceive that international sellers would attempt to collect US state sales tax unless they have a physical presence such as a warehouse within a state. Collecting the wrong amount ( particularly a larger amount) surely would have the attention of any state department of revenue. Should be interesting to see how that plays out.  

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by: pace306 This user has validated their user name.

Sun Dec 31 23:53:26 2017

I would bundle it all up and send it to one of those busy body Attorneys General - like CA or NY and let them go at it.

2018 is an election year .... let 'er at him boys!

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This user has validated their user name. by: Ming the Merciless

Mon Jan 1 00:05:01 2018

Ebafia could easily develop an AI or whatever that identifies sellers charging state sales tax and REQUIRE them to submit a copy of their state tax certificate for everywhere they have nexus.

A few weeks ago, I questioned an ebay seller charging me sales tax from another state. His reply was he drop ships from several locations but could not demonstrate that any of his so called drop shippers are physically located in my state. I had already purchased the item, but I won't be buying from him again.

I called ebay and complained. They couldn't have cared less which is exactly what I expected from a corporation totally lacking in ethics that thumbs their nose at the rule law.

Just last night I was looking for a new tire pump. The seller with the lowest price showed the item location as the "United States" and charges sales tax which suggests to me a high probability of scam. I didn't follow through with this sale and chose another seller whose price was slightly higher but who didn't charge sales tax and whose listing showed his location.

I will no longer buy from any seller in another state who charges sales tax or who charges sales tax without disclosing their physical location.

I only charge state sales tax for instate buyers. It costs me sales, and thanks to PreyPal, I remit sales tax money at a loss every quarter.

My state has has several hundred taxing jurisdictions each charging varying amounts so I have to go the state website and submit a form to calculate the correct amount to charge. It is illegal in my state to charge more or less than the actual amount due.

I will never understand why our legislators think sales tax should be determined by the buyer's location rather than the seller's like brick and mortar stores. It makes no sense and would only enormously complicate universal online sales tax collection if and when implemented.

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This user has validated their user name. by: eXtinctBay

Mon Jan 1 11:16:26 2018

If the question "How do drop shippers make money??" is asked, here's one answer. They also charge the buyer for shipping when they have their supplier mail it for free- Amazon Prime is a good example.

Since the merchandise they "sell" has a razor-thin profit margin, money has to be made somewhere. No mystery here.

And, also, they probably report to the IRS (or tax agency in their particular country) the cost of the goods sold as an expense, even though they are just acting as an agent, and did not purchase, warehouse, or ship the item.

I do not buy from drop shippers for these reasons. And if anyone attempts to charge sales tax (who does not live in my state) at checkout, I cancel and go buy from another seller which does not. Even if it ends up costing a bit more.

Besides, when you purchase from a seller who has the exact item pictured in hand, the likelihood of "surprises" (out of stock, shipped late / held up in the mail, wrong item sent, merchandise which has damaged packaging or missing parts) greatly decreases.

Just look at the feedback from anyone who drop ships, and the reasons for the many neutrals and negatives if you need any proof.

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by: Studiolines This user has validated their user name.

Mon Jan 1 11:40:22 2018

Just read the update. Since the only thing that Ebay seems to care about is their money, it needs to be reported as fee avoidance. Say that seller in 189 transactions collected even 200.00 in supposed sales tax. That's $20.00 to Ebay. You know they would chase that to the end of the Earth. Also what happens when a International buyer buys from another. Do they pay these sales taxes also?  

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by: RL15 This user has validated their user name.

Mon Jan 1 15:00:52 2018

when I used to buy on fleecebay I ran across the fake sales tax collection sellers and would not buy unless they were actually in the same state as me.

when I used to sell in fleecebay, I only charged sales tax on sales in my state. and yes, I paid the state what was collected.



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This user has validated their user name. by: toolguy

Mon Jan 1 16:45:19 2018

I bought some shea butter from New Jersey

The seller hit me for sales tax and I know they don't have a presence in California, I would've said something but it was so cheap I just let it go!

I can see how this isn't fair to their competition. . .

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by: moonmyst This user has validated their user name.

Tue Jan 2 00:39:21 2018

Whenever someone tries to collect sales tax, I ask for their Sales Tax ID number they have on file for their State. No one has ever sent it to me. So, I don't buy from them. It's simple. Usually they will send me a new invoice with sales tax removed. The biggest red flag is when they don't have a business eBay account but they're collecting sales tax. People collecting sales tax when they have no right to do are stealing from customers and committing tax fraud. But gee, what a surprise . . . eBay's never cared.

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by: dsimporting This user has validated their user name.

Tue Jan 2 01:05:59 2018

Some of the comments are not true. You are required to collect tax in states you have a physical presence in.  That means if you live in Ohio and have a sales tax license in Indiana and Michigan you are required to collect Michigans sales tax from Michigan customers and remit it to Michigan, And the same with Indiana and ohio.
 This is why many sellers who drop ship from Walmart as an example have Walmart collect sales tax from every state Walmart is operating in.

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by: Paul W This user has validated their user name.

Tue Jan 2 01:36:43 2018

Agree completely with Ming's statement:  ''I will never understand why our legislators think sales tax should be determined by the buyer's location rather than the seller's like brick and mortar stores. It makes no sense and would only enormously complicate universal online sales tax collection if and when implemented.''
My business is in the State of Washington.  My inventory is here, my packing and shipping is done here.  I use Washington roads to get to the Post Office located in my city in Washington.  I sit in my office, in Washington, at my computer to list things on eBay and eCrater.  I do not go to New York to sell something to buyer X.  I don't advertise in New York newspapers.  I do not contact buyer X.  Buyer X comes to MY eBay store and buys items that are in Washington.  If ANY tax is to be collected from buyer X it is Washington sales tax, since buyer X electronically came to Washington to buy my items.  The whole transaction is initiated by buyer X coming to my (Washington) eBay store.  The very thought of (my) collecting sales tax for any other State than Washington is just plain stupid.
And I do remit tax collected from Washington residents every year.

If any tax is to be collected from everyone, it should be an agreed-upon flat rate for everyone in every State, and every seller should remit to his or her own State.  Then every State benefits, and it is perfectly simple.

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by: Chicago48 This user has validated their user name.

Tue Jan 2 04:43:29 2018

The stupidity is on the buyer.  Period.  If I pay sales tax added from someone who is clearly from Asia or Egypt - well, that's MY stupidity and loss.  And it's not Ebay's responsibility.  I didn't know that internationals could collect sales tax.  When did that happen?  As for FBAers - I have nothing to say because they are FBAers.  Maybe they should convert back to FBM?

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