This post is by Mark Faggiano, founder and CEO of TaxJar.
There’s been a revolution in sales tax and it affects online sellers everywhere, including on eBay.
First, the Supreme Court ruling in South Dakota v. Wayfair meant that states could require sellers to collect taxes based on sales rather than just physical presence. Most states quickly took advantage and introduced new “economic nexus” laws.
Then, many states brought in “marketplace facilitator” laws that require sites like eBay to collect sales tax for third-party sellers, rather than relying on the sellers themselves.
On the face of it, these changes should help simplify sales tax for eBay sellers. They can just sit back and let eBay take care of it for them. But eBay does not collect sales tax for every state where it could be due, and your buyers still care about sales tax – and how much you appear to be charging them – even if you don’t.
Does eBay charge sales tax on purchases?
Yes, eBay charges sales tax on many purchases on behalf of the seller, without the seller setting up anything at all. This is to comply with marketplace facilitator laws, and happens automatically during the checkout process. If the buyer is located in one of the many states that have introduced these laws, then eBay will charge sales tax.
Here’s how it looks:
eBay collecting sales tax has been a great relief to many sellers, who no longer have to worry about receiving sales tax from the buyer and then remitting that sales tax to the state.
Why is there sales tax on eBay now?
Buyers on eBay, and other marketplaces, used to have something of a free ride when it came to sales tax. It would only be added if the seller had set up their eBay account to charge sales tax in the buyer’s state. So, most of the time, buyers could avoid sales tax just by purchasing from sellers outside their own state.
The Wayfair decision changed the sales tax landscape by introducing the concept of economic nexus, and paved the way for individual states to pass “marketplace facilitator” laws.
Long story short, states are always on the lookout for sales tax revenue. States use this revenue to pay for things like schools, roads and public safety. And the states realized that they had a better chance to get that revenue from online marketplaces like eBay, Amazon or Walmart than they do from small sellers who might not understand their sales tax obligations.
The state of South Dakota went so far as to take a case regarding ecommerce sales tax all the way to the Supreme Court. And the Supreme Court agreed with the states. This means states now have much more leeway when it comes to requiring online sellers to collect sales tax. Individual states can now require sellers to collect sales tax based on the number and value of sales to the state, called economic nexus, not just physical presence.
Another way states have now exercised their new right is by requiring the big marketplaces like Amazon, eBay, Walmart and Etsy, to collect sales tax from buyers on behalf of third-party sellers. The states win, because they receive large sales tax payments from marketplaces. And, in many cases, sellers win because they no longer have to worry about collecting sales tax from buyers in states with marketplace facilitator laws.
Do I have to collect tax on my eBay sales?
That depends. eBay collects sales tax for most, but not all, states. If the buyer is located in a state with a marketplace facilitator law, then eBay will add sales tax to the purchase.
In states with no marketplace facilitator law, like Florida or Missouri, sellers with sales tax nexus (an obligation to collect sales tax) are still required to collect sales tax from buyers via eBay. In those states, it is still down to the seller to set up their eBay account to charge sales tax to buyers, to pay the correct amount to the state, and to file returns.
Bear in mind, however, that the Wayfair decision also changed what nexus means for online sellers. States are now allowed to pass economic nexus laws, and many have done so already. States can set a sales and transactions threshold and if an online seller exceeds that threshold, then the seller is required to collect sales tax from buyers in that state.
The most common threshold is $100,000 and 200 transactions per year in sales into the state but this number varies widely. Therefore, if you have nexus in a state (including economic nexus) and eBay isn’t collecting sales tax on your behalf, then you are still required to collect sales tax from buyers in that state.
Which states is eBay charging sales tax for?
eBay is currently collecting sales tax on orders shipped to buyers in the following states:
- Alabama
- Arizona
- Arkansas
- California
- Colorado
- Connecticut
- District of Columbia
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Mississippi
- Nebraska
- Nevada
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Pennsylvania
- Rhode Island
- South Carolina
- South Dakota
- Texas
- Utah
- Vermont
- Virginia
- Washington
- West Virginia
- Wisconsin
- Wyoming
Tennessee’s marketplace facilitator law is in effect from October 1, 2020 and it’s expected that eBay will begin collecting sales tax on behalf of buyers that day.
Other states could pass marketplace facilitator laws, so check eBay’s page for the latest information.
