eBay is Already Prepared to Collect Sales Tax for Sellers
Reading Time: 3 minutes On Wednesday eBay released its 2018 Q2 earnings. During the earnings call with Wall Street analysts, eBay’s CEO Devin Wenig discussed the recent decision by the US Supreme Court in South Dakota v. Wayfair, Inc. that effectively changed the way out-of-state or remote sellers may have to collect and report sales tax.
READ MORE: Supreme Court Decision on Sales Tax – But What Does It Mean?
Wenig stated that eBay believes the $100,000 threshold South Dakota’s law requires remote sellers to reach before merchants must collect and report sales tax “is far too low” for more populous states.
He did say that internal data shows that over 80 percent of eBay sellers would not be affected by the sales tax ruling, even if the $100,000 threshold becomes the most common standard threshold used by other states.
However, Wenig did not make mention of the other metric South Dakota used to establish Nexus or the requirement by remote sellers to collect and remit sales tax.
In the South Dakota law the requirement also included an alternative threshold of a minimum number or transactions, which for most sellers may apply well before the Dollar threshold is reached.
READ MORE: The Fuzzy Math by States in Sales Tax Case South Dakota v. Wayfair
Therefore, it is not entirely clear if eBay considered this alternative minimum transaction threshold in its internal research on how many sellers may be potentially impacted by the South Dakota standard if copied by other states.
“In the Supreme Court case South Dakota set a small business exemption threshold of $100,000, which we believe is far too low for states that are more populous. However, hypothetically if that threshold were applied to each individual state, approximately 80% of our GMV would be excluded from sales tax.”
Devin Wenig, CEO, eBay, Inc.
eBay Appears to Have Technical Ability to Collect Sales Tax
To date, two states, Washington State and Pennsylvania, have enacted so called Marketplace Facilitator laws that require marketplaces, such as eBay, to collect sales tax on sales from remote sellers going to customers in those states.
Amazon and Etsy already follow these laws for their sellers, but eBay does not as the existing Marketplace Facilitator laws are based on the previous standard of physical Nexus, which eBay does not have in those states.
Although, Etsy doesn’t have the physical presence Nexus as required by those two states, but they apparently have decided to voluntary follow those requirements.
eBay apparently is waiting for more clarification by states or Congress, but Wenig revealed that eBay is prepared to collect sales tax for sellers, if it becomes necessary.
“Regardless of how it plays out eBay sellers currently have the ability to collect applicable taxes on their eBay transactions, and we will have the capability to collect and remit sales tax on behalf of our sellers should that become a requirement.”
Devin Wenig, CEO, eBay, Inc.
To the best of our knowledge, this is really the first time that eBay has acknowledged that the platform is ready to collect sales tax and remit those monies to states for sellers.
Even before the Wayfair decision, many in tax community have argued the easiest way to solve this sales tax problem is for marketplaces to take on sales tax collection on behalf of sellers.
It would simply the process, provide one point of contact for both sellers and revenue departments, and bring in more of the “lost” sales tax revenue states claim they are missing.
So, this begs the simple question, why isn’t eBay at least voluntarily conforming to Washington State and Pennsylvania as its biggest rivals are already following the Marketplace Facilitator laws in those states?
Are current changes on the platform creating too much friction among its base of existing buyers and sellers that preemptively adding sales tax collection for those two states may result in a significant drop of sales?
As it stands today, it seems this is just a matter of when, not if, marketplaces must collect sales tax on behalf of sellers.
We end this article with questions and look forward to hearing your thoughts. Head over to our Facebook Discussion Group or use the comments section below.
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Richard Meldner
Richard is co-founder of eSeller365. He has over 17 years of experience on eBay which includes tens of thousands of sales to buyers in over 100 countries and even has experience with eBay’s VeRO program enforcing intellectual property rights for a former employer. And for about two years Richard sold products on Amazon using Amazon FBA in the US.
To “relax” from the daily business grind, for a few weekends a year, he also works for IMSA as a professional race official.
More taxes never good. For proof look at places like Illinois. More more more broke broke broke broke. Take a drive around town. I see more business than ever before forget this crybaby brick and mortar story. If there is damage it’s from the likes of bigger box stores moving in or discount stores. This is nothing more than a bunch of broke states trying to shore up their pension funds. Outlaw public unions would be a great first step.
I can’t even look at this with a straight face. With the way current tax law is, eBay would have to be turned inside out for sellers to be able to charge the right tax amount (origin vs. destination, charge on shipping cost or no, tax brackets, etc.). If this gets enforced, I’m ditching the platform. The only way they could prevent me from doing so would be:
– if taxes were calculated *after* eBay seller fees were deducted
– if eBay automatically deducted seller fees from the final payout at the time of purchase
– if eBay automatically withheld both sales and income tax for me
I’m already being double-taxed as is, so at least make it less of an administrative pain. I’m losing my money left and right here. At least give me a reason to stick around…
The only tax eBay would collect is sales tax which is based on the gross sales amount and depending on the law of the state may or may not apply to shipping charges. If applicable to a sale, Sales tax laws define the amount eBay needs to collect and it is pretty straight forward. All other issues you are mentioning are part of income tax calculations and not part of sales tax collection.
The only other way eBay, PayPal or other payment processors would hold back any monies from online sales is through an IRS requirement which has to be disclosed on the W-9 form a seller files with the payment entity. But that has nothing to do with sales tax and only applies to a very small number of sellers with specific IRS tax problems. And this unique situation has been around for many years if it is applicable to a seller.
Richard
…After eBay seller fees? Hell, eBay is the one who tacked seller fees onto shipping costs; something that none of us profit from. So eBay gets to profit off of shipping and make money hand and fist off of something that is break-even for sellers. You think eBay cares about sales tax AFTER your fees are paid? Looks like you’re definitely ditching the platform.
One would think that ebay could just send each buyer from those (two) states, a monthly invoice stating what State Sales Tax they charged them for their purchases that month, and take it out of the buyer’s paypal /pymt account automatically; WithOUT getting the Sellers involved at all ~ ???
I just noticed ebay put a Washington state sales tax charge on an invoice I was preparing to send out to a buyer,.. and I’m trying to figure out why I need to be in the middle. Seems to me I will get charged fees from paypal, at least, if not from both ebay & paypal (it just doesn’t seem right!)
The lawmakers are putting eBay in the middle of these transactions and the marketplace facilitator laws some of these states pass requires eBay to deal with the seller. eBay doesn’t really have a choice as they are following the requirements of the laws being passed by the states.
Richard
What concerns me most is eBay sellers that collect sales tax and never send the remittance to the state they charged the tax to. Now eBay is collecting for some states, but other states, it’s up to the seller to collect and remit. So, what is to stop them from collecting, but never sending the check to the state’s revenue department? Who is going to catch them doing this?
It’s a legal requirement by those states and eBay is legally responsible for the funds in those states.
Richard
If someone charges you sales tax on a purchase on-line there’s NO WAY you will ever know if they didn’t just pocket the money- that’s not your problem whether they did or didnt. The state is never going to know either, like how is Maine going to know a small seller in Colorado sold something on their web site to a Maine resident in the first place! they can’t know.
In the states that want businesses to remit customer names and what they bought, that’s a blatant violation of people’s privacy rights and I see someone filing a suit of some kind about that at some point. You buy some adult items or something you bought in private and then the state sends you a bill for tax due of the viagra or something you bought- that’s a violation of the person’s privacy rights no question about it.
You bring up a good point about how states may find out about sales. The issue is really one of cross-state cooperation, which many states appear to be ready to do. There is so much data already shared between states such as driving and criminal records. Is sharing individual sales legal if the data shows what a person purchased? That is very valid point. But, consider this. If a state does a sales tax audit to an individual in-state business, they effectively get to see what people buy through the examination of individual business records. That is not new and very common, but also part of an investigation, not normal operation. Because it has received little notice to date, you may be right that it could end up in federal court at some point that sharing individual sales data just for tax purposes is a violation of privacy laws. Of course, that could be mitigated if the data shared is somewhat anonymized sales data by only including zip code and total sale amount…
Richard
The $100,000 threshold doesn’t matter because Ebay is now as of Feb 1 apparently adding the tax as a separate paypal charge on EVERYTHING no matter who is selling it.
I bought a $20 item night before last from a seller whose 10 years on Ebay had only 2500 feedbacks, there’s NO WAY they could have hit $100,000 in sales to my midwest state selling garage sale type items like that.
They pissed me off and I called Ebay and also filed a complaint with Paypal, in the end I told the Ebay CSR to CLOSE my Ebay account after being there for 20 years as a seller and buyer. I deleted my few listings that were active, removed my payment info etc and walking away from Ebay and will be selling exclusively on my own web site without all the BS and fees too, Ebay sales have dropped like a stone- LOADS of “watchers” and page views but nobody BUYS any more. For 22 years I haven’t paid sales tax on internet purchases I’m not going to start now, it’s an illegal DOUBLE taxation to tax people on income when they earn the money and then taxing them AGAIN, TWICE, on the same money they already paid taxes on- when they do the only thing they can do with it- SPEND it.
I saw this coming and over the last year I bought large bulk amounts of a lot of things I use or go thru such as paper towels, socks, tee shirts, 2 air conditioners, 2 generators, 2 vacuum cleaners, 2 years worth of laundry detergent, a new washing machine and dehumidifier, various computer parts and many more things.
I’m no longer going to buy ANYTHING I don’t absolutely HAVE to have, and when I do I’m researching out small sellers and private parties and I don’t care if it costs more for the items or that I have to pay shipping for it- that’s a direct service to me to get the item TO me.
FYI, When eBay adds sales tax for some states, it is because those states have marketplace laws making it a legal requirement for eBay to collect sales tax on ALL orders, regardless of the size or location of the seller. It has nothing to do with the sellers and is a separate issue from the various state sales tax laws that impacts some larger sellers.
I believe over time all states will enact marketplace laws as that is the simplest way for them to collect sales tax. In those situations, the seller never sees the tax money and eBay is required to file and and submit the taxes.
Richard
As I understand nexus, it’s all about states wanting sales tax revenue for online retail sales. If a seller has product in a warehouse, that the seller has a physical presence in the state (nexus) where the warehouse is.
“Maintaining, occupying, or using permanently or temporarily, directly or indirectly or through a subsidiary, an office, place of distribution, sales or sample room or place, warehouse or storage place or other place of business.” – salestaxinstitute.com
A certain well-known e-commerce company has warehouses in half the states in the U.S. so that creates nexus for the seller in up to 26 states. The seller has pay for a sales tax license for each state where product is warehoused and collect the tax for each sale and know when the state, county or city changes its rates and file with the state according to the policies of each state sales tax rules. It’s a nightmare.
Because Ebay doesn’t warehouse products, the only nexus is from the seller’s physical locations (sell out of VA and have a warehouse in MD and the seller has nexus in those two states).
Except the S. Dakota Wayfair decision changed that. The new definition of nexus extends to the gross sale of taxable items delivered over $100,000 or over 200 transactions in a state. So, one $100,010.00 transaction and the seller has nexus in that state; 201 $1.00 stamps and the seller has nexus in that state.
(Some states use $250,000 as the minimum so the seller has to know the rules for each state’s nexus)
“Gross sales from the sale of taxable items delivered in this state exceed $100,000; or 2. The seller sold taxable items for delivery in this state in 200 or more separate transactions” – salestaxinstitute.com
Does this mean the seller collects taxes on the every sale that exceeds the first $100,000 of gross sales in that state and sales after the first 200 sales are made? Or does it mean that once the seller exceeds $100,000 or 200 hundred sales, the seller is responsible for having collected tax on the total gross sales for the year in that state?
But it could explain why ebay is collecting sales tax (and greedy states tax some services and shipping charges) – they don’t know when a seller will generate sales to exceed the minimums. If they don’t charge tax and the seller hits the quota, that seller is stuck paying uncollected taxes. If they do collect taxes and don’t hit the quota, they might as well pay them because the alternative is returning it to each customer or keeping it which is illegal.
If eBay charges sales tax on behalf of all sellers, it would seem incomprehensible that their total gross sales wouldn’t be less than the state minimums. Ebay manages the hassle, the seller doesn’t have to, the state collects taxes, and the buyer once again gets stuck paying taxes.
I’m not an accountant or lawyer, but I’ve had a lot of tedious conversations with state sales tax offices.
The Wayfair decision did not create a minimum threshold, the court only said that the threshold used by South Dakota is acceptable (within the context of the Commerce Clause). The court cannot make law and federal lawmakers could create a completely different threshold if they wanted to. So many of the states are trying to stay close to the Wayfair decision’s threshold hoping to avoid getting caught up in another legal fight on sales tax.
To your main point. The individual business thresholds you mention have nothing to do with eBay’s (and other marketplace’s) requirements to collect sales tax on behalf of sellers in select states. Those states have enacted “marketplace facilitator” laws that require marketplaces such as eBay to collect and submit the tax on sales transacted on their platform, regardless of the origin or size of the seller. Some legal folks belief there are legal problems with these “marketplace facilitator” laws. But as it stands today, unless they are legal challenges to them in federal court, eBay, Etsy, Amazon, and others are following them.
You may want to check out our page that gets into this with a little more depth.
http://eseller365.com/state-sales-tax-guide/
Hope this helps a little,
Richard
This information is helpful in understanding what has occurred and why but I am still unclear how it will affect me as a low volume seller on ebay. I understand that ebay will collect and remit applicable state sales taxes on my behalf where appropriate. However, are these sales dollars that ebay remits taxes on aggregated, or individualized? Does ebay report that xyz buyer sold widget A in PA for $19.95? Or, is it more like sales in the state of PA for the month of Feb. on ebay platform were $xxxxxx? E.g., is there any further reporting to state boards of equalization required on my part? Do I need a business license now to sell Grandma’s cup and saucer collection? What are prudent moves on the part of low volume (less than 20K) sellers in view of these new rulings/policies to be in compliance with state laws?
Thank you for any assistance you can provide!
If the state has a marketplace facilitator law, then this means eBay will be responsible for collecting and remitting the sales tax. There are no forms or other work that is required by the seller.
Our sales tax guide explains this a bit.
http://eseller365.com/state-sales-tax-guide/
Richard
It looks like the Marketplace Facilitator Laws do NOT separate international sellers from Domestic any more? Please correct me if I understand wrong. thanks