Sales Tax Fundamentals
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How to Collect Sales tax on eBay Post-Wayfair
byMarch 9, 2021
Up until just a couple of years ago, eBay was one of the more difficult online sales platforms on which to collect sales tax. However, a 2018 Supreme Court decision in favor of South Dakota changed all that. This blog post will explore how and why eBay sales tax got so much easier, and how to handle eBay sales tax in two states that still give eBay sellers sales tax trouble.
A Brief History of Collecting Sales Tax on eBay
eBay was revolutionary for it’s time. It was one of the first online platforms to allow everyday people to buy from and sell to total strangers over the internet. If you were on the internet in the 90’s, chances are you remember frantically checking to see if you’d been outbid on some vintage vinyl or a must-have Beanie Baby. (Remember those?)
At the time, charging sales tax on the internet was a wild west. Many eBay sellers were not or didn’t yet consider themselves to be businesses and had no idea they were even supposed to charge sales tax. And eBay’s sales tax collection method was, and still is, extremely basic. For example, they only allow sellers to collect a single sales tax rate in each state.
For this reason, eBay’s tax collection works fine if you have nexus in a state that has a single tax rate. But if you have nexus in a destination-based sales tax state, sell in multiple states or have some other reason to collect a variety of sales tax rates (i.e. you sell products like groceries or clothing that are sometimes taxed differently) you could run into trouble very quickly on eBay.
Because of that, TaxJar actually, in the past, created a table to help sellers determine which single sales tax rate to collect. This was helpful – sellers could set up their eBay accounts to charge the average sales tax rate in destination-based sales tax states. But that still had problems.
Then South Dakota v. Wayfair rode in to the rescue.
That 2018 SCOTUS decision allowed states to require big online marketplaces like eBay to collect sales tax on behalf of 3rd party sellers. States began jumping at the chance to pass “marketplace facilitator sales tax laws.” These days, every US state with a sales tax, with the notable exceptions of Florida and Missouri, requires that marketplaces like eBay collect sales tax when a sale is made by a 3rd party seller using their platform.
How Sales Tax Collection Works on eBay Today
When a seller sells an item to a buyer in the US on eBay, eBay collects sales tax on the transaction. Where, before South Dakota v. Wayfair, it was the sellers’ job to collect and remit sales tax, eBay now takes care of that administrative hassle.
Except in two states.
As of this writing, Florida and Missouri have both not yet passed a marketplace facilitator law. What does this mean for eBay sellers?
It means that if you have sales tax nexus in Florida or Missouri, and you sell taxable items on eBay to buyers in Florida or Missouri, then you are required to set up sales tax collection on eBay and collect sales tax from those buyers.
Let’s look at an example.
Katherine sells vintage comic books through her eBay store. She lives in Florida, has an employee in Missouri, and has economic nexus in Texas, New York and California due to her high volume of sales in those states. This means that when she makes a sale, either through eBay or through other online sales channels such as her website powered by BigCommerce, she (or the marketplace on which she sells) is required to collect sales tax from buyers in these states.
When Katherine makes a sale through her eBay store to a buyer in California, eBay collects sales tax on her behalf due to California’s law that requires marketplace facilitators like eBay to collect and remit sales tax on their 3rd party sellers’ behalf.
But if Katherine makes a sale to a buyer in Florida, she is still required to collect sales tax on that transaction through her eBay store. This is because Florida does not require online marketplaces like eBay to collect on her behalf. Katherine is still responsible for collecting Florida (and Missouri) sales tax and remitting it to the appropriate state’s taxing authority.
When it comes time to file sales tax, Katherine does not have to account for her eBay sales when filing sales tax returns in New York, California and Texas. eBay remits sales tax on her behalf to those states. But Katherine is still responsible for tallying up the sales tax she collected via eBay from her customers in Florida and Missouri and including those sales when she files her sales tax returns.
To sum it up, the good news is that eBay collects sales tax on behalf of 3rd party sellers in most states.
The less good news is that eBay sellers with sales tax nexus in Florida and Missouri still need to use eBay’s sales tax collection system to collect from those Florida and Missouri buyers.
TaxJar Ensures You Remit the Right Amount of FL and MO Sales Tax
Another issue with eBay sales tax has always been that while most states have multiple sales tax rates depending on the buyer’s ship to address, eBay only allows sellers to collect one flat rate.
And this is still the case with Florida and Missouri, both of which have multiple sales tax rates all over the state.
TaxJar is here to help. Just connect your eBay account to TaxJar and we’ll determine how much sales tax you should have collected had eBay allowed you to collect the exact right percentage of sales tax from every one of your Florida and Missouri customers. This way, you can be sure to file and remit the right amount of sales tax with each state. Underpaying the state can lead to fines and penalties. And if you over collected from customers (even though eBay makes it difficult not to), this still allows you to avoid any penalties for overcollection by remitting the excess to the state.
In a perfect world, eBay’s sales tax collection engine would allow 3rd party sellers to collect the exact right sales tax rate from each customer. But since that isn’t possible, having TaxJar calculate how much sales tax you should have collected is the next best solution.
The Future of eBay Sales Tax
While we can’t predict the future, it seems likely that both Florida and Missouri will eventually pass a law requiring big online marketplaces like eBay, Amazon, Walmart and Etsy to collect sales tax on behalf of the 3rd party sellers who use their platforms.
In the meantime, eBay sellers should continue following applicable sales tax law in Florida and Missouri.
Do you have questions about collecting sales tax on eBay post-Wayfair? Start the conversation in the comments.
Ready to automate sales tax? To learn more about TaxJar and get started, visit TaxJar.com/how-it-works.