What would an eBay Fulfillment Service Mean for eCommerce Sales Tax?

by TaxJar November 1, 2020

As reported by eCommerceBytes, Instagram account “Rockstarflipper,” recently posted a seller survey about a potential eBay fulfillment service. It sounds like the service would world similarly to Amazon FBA where sellers send inventory to eBay, and eBay warehouses it and then ships it out to buyers with competitive pricing and a 1-3 day shipping guarantee.

But would this mean that sales tax for eBay sellers who use this service would become as complicated as sales tax for Amazon FBA sellers? Let’s dig into the details.

eBay Fulfillment Service and Sales Tax

Sellers who use 3rd party fulfillment have complicated sales tax obligations. For example, Amazon FBA sellers can have sales nexus in up to 24 U.S. states because their inventory is stored for sale in an Amazon fulfillment center.

If eBay provides a fulfillment service, eBay sellers could find themselves in the same predicament. We don’t know how eBay plans to structure their potential fulfillment service yet, but we can speculate. Here are a couple of theories:

eBay becomes the “seller of record”

This would be the best case scenario for eBay sellers who use the fulfillment service (at least when it comes to sales tax). In this case, eBay takes responsibility for collecting the sales tax. This means they consider the sale to be their sale and the sales tax to be their responsibility. However, this would also most likely mean higher fees for the seller since eBay is taking on responsibility for sales tax collection.

This is also unlikely simply because this is not how eBay currently operates. Right now, eBay sellers are responsible for collecting sales tax, so acting as seller of record would be a huge departure for the platform.

eBay provides sellers a way to collect sales tax

This is more likely how a fulfillment by eBay scenario will play out. eBay already provides a state-level, if not robust, way for sellers on the platform to collect sales tax. If eBay chooses not to collect sales tax on behalf of 3rd party sellers as the seller of record, then it would be up to eBay fulfillment users to decide if they have sales tax nexus in a state and to set up sales tax collection via eBay from buyers in those states.

Every state, with the notable exception of New York states, that storing inventory for sale in a 3rd party fulfillment center creates sales tax nexus. In this case, sellers would need to know where their inventory is stored in order to determine if they are required to register for a sales tax permit and collect sales tax from buyers in that state. It’s worth noting that once a seller has nexus in one state, they then have nexus in that state for their entire business. So for example, if selling via fulfillment by eBay gives an eBay seller sales tax nexus in California, that seller would be responsible for collecting sales tax not just via eBay, but via Etsy, or Amazon, or any other online sales channels they happen to use.

Another issue is eBay’s sales tax collection system. eBay only allows sellers to collect one sales tax rate per state. This system isn’t ideal for sellers based in a destination-based sales tax state or sellers who have sales tax nexus in more than one state. That’s because most states have dozens or hundreds of different sales tax rates. eBay would have to soup up their sales tax collection system in order for eBay fulfillment users to collect the right amount of sales tax from buyers in every state. We talk more about workarounds for collecting sales tax on eBay here.

But right now, we can only speculate. We’ll keep an eye out for more news from eBay on their potential fulfillment service. In the mean time, are you interested in a “fulfillment by eBay”? Would sales tax troubles make you leery of such a service? Start the conversation in the comments!Please note: This blog is for informational purposes only. Be advised that sales tax rules and laws are subject to change at any time. For specific sales tax advice regarding your business, contact a tax advisor.

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