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.
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