Ina Steiner EcommerceBytes Blog
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by Ina Steiner, Editor of EcommerceBytes.com
Mon Oct 5 2020 21:38:38

Sellers Fear eBay Will Err in 1099 Reports to IRS

By: Ina Steiner

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eBay sellers are uncertain whether eBay will report their 2020 sales accurately when they file 1099K forms with the IRS in January, some indicated on a recent thread on the eBay discussion boards.

A seller who started the thread titled, "Does eBay include sales tax when determining 1099 filings," wrote: "Sorry, can't seem to find a definitive answer as to whether eBay includes the sales tax collected when determining the gross amount of sales that may then be used to determine whether a seller has reached the $20,000 limit."

The question arose because many states now require eBay to collect sales tax from buyers under Marketplace Facilitator laws - and now that eBay processes payments on behalf of sellers ("managed payments"), it's required to file a 1099K with the IRS for sellers who meet the reporting threshold.

An eBay moderator responded with an excerpt from an eBay help page: 

"I was able to find a Help Page on this (link here). To quote from it:

"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).""

The Help page from which he quotes links to this page, where it references the Marketplace Facilitator laws that require eBay to collect and remit taxes and states:

"Once eBay starts to collect tax in the above 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."

However, eBay has since made a major change that appears to make that statement out-of-date. Previously for orders eBay processed through Managed Payments, it charged a Final Value commission fee (FVF) on the sale (not including sales tax) plus a payment-processing fee on the total amount (including sales tax).

But this year, eBay now DOES charge sellers a fee on the total amount of an order including sales tax. 

While companies charge fees to process payments on the total amount of a transaction including sales tax, it's unheard of to charge commission fees on sales tax, and it's unclear how state lawmakers would feel about eBay doing so. 

eBay specifically states the that under the new selling fees, it charges a single final value fee, and "Sellers will not pay third-party payment processing fees." 

A seller in the discussion thread said this year's change to eBay's fee structure makes the moderator's answer incorrect: 

"Since MP (Managed Payments) brings the amount for sales tax into our MP accounts to begin with (nothing to do with the 1099k, but eBay also at that time, when the money is in our account, charges us a FVF on it) and then MP removes it and remits it to eBay for processing to the appropriate states. 

"Because it comes into the MP accounts, it HAS TO BE ACCOUNTED FOR. As you can see from the excerpt from the IRS requirements for this form, there is no deductions from the Gross Receipts. It is suppose to be the GROSS amount of money coming into the account without deductions for anything. Excluding transfers of money into the account to cover some expense or negative balance."

At a minimum, eBay needs to change its Help page where it states, "there will be no charges or fees for eBay automatically calculating, collecting and remitting sales tax." 

eBay also needs to clarify if it will include sales tax on sellers' Form 1099K when it submits them to the IRS in 3 months - and as the seller above stated, provide information to sellers so they can reconcile their books.



Comments (28) | Leave Comment | Permalink

Readers Comments

Perminate Link for Sellers Fear eBay Will Err in 1099 Reports to IRS   Sellers Fear eBay Will Err in 1099 Reports to IRS

by: smallstuff This user has validated their user name.

Tue Oct 6 00:47:03 2020

Why should this be any different from what PayPal ended up doing in 2019?  Starting in October 2019, sales tax was included in line 1a - Gross amount of payment card / third party network transactions.  The trick is to identify how much of that is sales tax which was not actually received - meaning you need to adjust it out somewhere as an expense or correction.  I keep a spreadsheet of all sales so I can do exactly that.  

Perminate Link for Sellers Fear eBay Will Err in 1099 Reports to IRS   Sellers Fear eBay Will Err in 1099 Reports to IRS

by: notfunanymore This user has validated their user name.

Tue Oct 6 07:41:34 2020

GOOD LUCK!! You’ll need it!

Perminate Link for Sellers Fear eBay Will Err in 1099 Reports to IRS   Sellers Fear eBay Will Err in 1099 Reports to IRS

This user has validated their user name. by: Ina

Tue Oct 6 09:13:42 2020

"Why should this be any different from what PayPal ended up doing in 2019?" PayPal charged a fee for payment processing. It did not charge a *commission* fee for payment processing.

But to your point, eBay should report on sales tax amount on 1099K, so why is it saying it won't? Very confusing, and January is only 3 months away!!!

Perminate Link for Sellers Fear eBay Will Err in 1099 Reports to IRS   Sellers Fear eBay Will Err in 1099 Reports to IRS

by: Vigilant Eye On eBay This user has validated their user name.

Tue Oct 6 13:36:30 2020

One of a myriad of reasons why I will never sign up for managed payments.

Simply put, PayPal works, while eBay is completely dysfunctional.

Perminate Link for Sellers Fear eBay Will Err in 1099 Reports to IRS   Sellers Fear eBay Will Err in 1099 Reports to IRS

by: Fleabayer This user has validated their user name.

Tue Oct 6 22:31:08 2020

I have not signed up for managed payments,I sell very little but like paypal sending me a check,which has a 1.50 charge.As I understand oct 15 you will be forced to. Does this go for everyone?Small sellers.I will stop selling on ebay and buying also if they do this. Any answers? Is there ant better platforms to sell.I have already started the facebook sellers account and shipping process.It has been doing well.

Perminate Link for Sellers Fear eBay Will Err in 1099 Reports to IRS   Sellers Fear eBay Will Err in 1099 Reports to IRS

by: kjk This user has validated their user name.

Thu Oct 8 00:17:27 2020

Small and large all will be on managed payments eventually !! Ugh!!  

Perminate Link for Sellers Fear eBay Will Err in 1099 Reports to IRS   Sellers Fear eBay Will Err in 1099 Reports to IRS

by: 1st Armored Division 1971-1973 This user has validated their user name.

Thu Oct 8 00:37:56 2020

Ebay tells you the amount it collects for sales tax on its download for sales for the month. You just expense it like any other expense. That is what I do. I keep it simple, the sales tax is income and I just expense it same.

Perminate Link for Sellers Fear eBay Will Err in 1099 Reports to IRS   Sellers Fear eBay Will Err in 1099 Reports to IRS

by: Tiffee Jasso This user has validated their user name.

Thu Oct 8 00:53:06 2020

Sales taxes are not gross income. They are not a deduction. If they are included in the gross amount of sales, you will have to remove that amount from the total and then file an adjustment as to why your 1099 and gross income on your 1040 tax form does not match. If you have someone to your taxes for you, you will need to give them the sales tax amount to remove from income. Otherwise you will be paying taxes on the taxes.  

Perminate Link for Sellers Fear eBay Will Err in 1099 Reports to IRS   Sellers Fear eBay Will Err in 1099 Reports to IRS

This user has validated their user name. by: cfrphoto

Thu Oct 8 01:24:35 2020

eBay does not include site collected sales tax in Payments transaction reports. Site and seller collected sales tax reports can be found in the Orders report which goes back only 90 days. Will the eBay 1099-K reflect total amounts reported in the Payouts transactions report? Would eBay include site collected sales tax in 1099-K reports if amounts cannot be downloaded at tax time?

While eBay has been negligent about reporting sales tax collected by state to sellers who must file out-of-state sales tax returns, I do not believe that eBay collected sales tax will be included on 1099-K forms. Why would eBay risk a confrontation with the IRS?

Perminate Link for Sellers Fear eBay Will Err in 1099 Reports to IRS   Sellers Fear eBay Will Err in 1099 Reports to IRS

by: RibbonDr This user has validated their user name.

Thu Oct 8 01:38:36 2020

Why is this discussed before eBay has done anything wrong?  Etsy's 2019 IRS reports included sales tax as part of our income without showing a line item for us to deduct it from the reported income. The only way to get an accurate net amount would have been to go through each invoice to come up with the amount that Etsy included in our net income that actually (or supposedly) went to each state.

I had over 4500 sales & had to get an extension in order to find the time to get this accurate #. I'm sure I probably missed a few or included a few twice. It's hard to look at a bunch of #'s at the end of a busy day filling orders & answering customers questions about what ribbon matches another ribbon.

How come this actually happened but was never written about on eCOMMERCE BYTES?

Perminate Link for Sellers Fear eBay Will Err in 1099 Reports to IRS   Sellers Fear eBay Will Err in 1099 Reports to IRS

This user has validated their user name. by: Marie

Thu Oct 8 02:18:40 2020

@Ina and Smallstuff

PP ALWAYS has reported sales tax on a 1099K.  Even before Marketplaces became responsible for sales tax and then the Ebay/PP decision to run it through PP.  Back when sellers collected the sales tax for the states we are in, it was included on the 1099Ks.  Ebay is just currently incorrect in their position on this subject.

Perminate Link for Sellers Fear eBay Will Err in 1099 Reports to IRS   Sellers Fear eBay Will Err in 1099 Reports to IRS

This user has validated their user name. by: Marie

Thu Oct 8 02:24:06 2020

It isn't however a good reason for not going into MP.  A problem they need to fix, but now one that should prevent anyone from not wanting to go into MP unless they are just looking for an excuse not to go into the program.

@Tiffee Jasso

1099Ks do not report "gross income", they report Gross Receipts.  The two are not the same.  By the IRS rules they are to report ALL monies coming into the account from buyers without exception or deduction for anything.  Then you reconcile and deduct the appropriate costs and refunds to arrive at your Gross Income.

The sales tax is a deduction because it comes into your MP account [or PP] and then is removed by Ebay [or PP].  So yes it is a deduction from your Gross Receipts.

The Schedule C tax form is pretty detailed on this.  If you review it, it may make more sense to you.

Perminate Link for Sellers Fear eBay Will Err in 1099 Reports to IRS   Sellers Fear eBay Will Err in 1099 Reports to IRS

by: wrslss1222 This user has validated their user name.
Web Site

Thu Oct 8 06:46:29 2020

If you look at the new sales report in the seller hub, it looks like the seller's gross sales include sales tax collected.  If this is correct, then I think there is a good chance, since we are talking about eBay, that the 1099's they send will include sales tax in the gross sales. Experience with eBay shows that if there is a way they can mess up something they will do it.

Perminate Link for Sellers Fear eBay Will Err in 1099 Reports to IRS   Sellers Fear eBay Will Err in 1099 Reports to IRS

by: Mamak This user has validated their user name.

Thu Oct 8 11:01:19 2020

I use Go Daddy Bookkeeping and am having a problem MP.  Paypal would show line items of the tax coming into and going to eBay from my sales allowing me to determine the amount of taxes ebay paid on my behalf and broken down by state but also showing it deducted from my income.  

Now since August 11 and the implementation of  MP I am seeing nothing on my bookkeeping imported from eBay about taxes.  This creates an accounting nightmare for me because California requires that on my state tax filing that I identify all sales made in CA and report the ones that ebay paid on my behalf.  Since they are not properly adding them as part of our sale then deducting them as paid by them BY STATE, I have no way of getting this information to file my quarterly sales tax return to the State of California.  I will be forced to manually go through each sale and account for this information which defeats the purpose of having a accounting program that automatically draws information from eBay daily.  Ebay needs to get their stuff together so we have better understanding and can protect ourselves by properly reporting the taxes sent in on our behalf.  If not we have no proof of what was paid by them to each state in the event one comes after us for taxes.  

Perminate Link for Sellers Fear eBay Will Err in 1099 Reports to IRS   Sellers Fear eBay Will Err in 1099 Reports to IRS

by: toastedmutt This user has validated their user name.

Thu Oct 8 12:13:14 2020

Unless eBay definitively resolves this according to IRS specifications and rule of law in each state sales tax is collected for I would expect to see an uptick in IRS audits for online sellers.

Make double sure all of your financials are in pristine order.  

Perminate Link for Sellers Fear eBay Will Err in 1099 Reports to IRS   Sellers Fear eBay Will Err in 1099 Reports to IRS

by: Tiffee Jasso This user has validated their user name.

Thu Oct 8 14:47:04 2020

Not to argue with anyone, but it makes no difference if you call it gross income or gross receipts, if the amount included in the 1099 sent out by Ebay includes the sales taxes collected by Ebay, then you need to remove that amount, and reconcile the difference when you file your taxes. As a side note, you will have to make sure you keep good records as Ebay only keeps your invoices for a limited amount of time.  

Perminate Link for Sellers Fear eBay Will Err in 1099 Reports to IRS   Sellers Fear eBay Will Err in 1099 Reports to IRS

This user has validated their user name. by: Marie

Thu Oct 8 17:27:18 2020

It does make a difference as the two are NOT the same thing.  Gross Receipts is the total received without taking any deductions for anything whatsoever.  

Gross Income is the number AFTER deductions for refunds, taxes, etc. are taken.

On the Schedule C it calls for your Gross Receipts and then has different line items to start deducting from that figure to arrive at your Gross Income for tax purposes.

So it does matter as they have different meanings.

Perminate Link for Sellers Fear eBay Will Err in 1099 Reports to IRS   Sellers Fear eBay Will Err in 1099 Reports to IRS

This user has validated their user name. by: Lightning

Fri Oct 9 00:44:57 2020

In MP, you can get a report of all your activity from any specified time within the past 90 days.  This will include payouts, pending payments, every item sold, sales tax charged and collected by ebay, etc.  I do a weekly csv file that becomes a spreadsheet.  So the information is there for you, if you or someone you know is ok with spreadsheets.

There's even a column for seller-collected sales tax, for your home state I presume, but that has been blank.  EBay seems to collect pertinent taxes from everywhere, and doesn't involve the seller anymore, I believe.  

EBay may have some type of year-end file with all the info, but if they don't, I can create one with the snippets I have.  I also plan to do them every 60 days, since you can customize the report.  That way there are only 6 to stitch together and/or append per year.  If they do send a yearly, I'll drop that step.  

I have a reminder in my phone to do the 60-day thing.  I'd do 90, but now you risk missing part of it if you aren't prompt, since it only holds 90 days of info.  The 60 day reports will be adequate for me.

On the left of your MP dashboard, you will see ''Reports''.  You might want to check it out to see if it is useful to you.

Perminate Link for Sellers Fear eBay Will Err in 1099 Reports to IRS   Sellers Fear eBay Will Err in 1099 Reports to IRS

This user has validated their user name. by: Marie

Fri Oct 9 02:05:46 2020

@ligthning

The Sales tax that Ebay is responsible for collecting and remitting is NOT on the detail report you can get out of MP.  It should, but it doesn't currently have it on the report.  

You can however get it from the report you can get out of the Orders tab of the Seller Hub.  

Right now it takes the blend of the two reports.  It shouldn't be that way, but for now it is.

Perminate Link for Sellers Fear eBay Will Err in 1099 Reports to IRS   Sellers Fear eBay Will Err in 1099 Reports to IRS

by: jbantiques This user has validated their user name.

Fri Oct 9 16:02:52 2020

Whatever the gross that ebay enters on the 1099 is what one should report. as gross sales on Schedule C.  Then one can deduct the sales tax withheld and ebay fees on Schedule C as expenses.  Assuming the ebay 1099 represents one's only business income, then reporting less than the gross on Schedule C would raise a flag with the IRS and might lead to an audit.  

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