How to collect sales tax on eBay
by March 9, 2024
Please note: This blog was originally published in 2020. It’s since been updated for accuracy and comprehensiveness.
Historically, eBay was one of the more difficult online sales platforms on which to collect sales tax. However, the 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 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 antique lamp.
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.
TaxJar ensures you remit the right amount of 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.
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 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.
How TaxJar can streamline your compliance
As you can see, sales tax compliance is challenging. There are so many important details that businesses must be aware of to stay compliant and avoid penalties. TaxJar can make compliance easier, by managing all the different aspects, including keeping you updated on where you have nexus, registering for sales tax permits, and automating sales tax filing and remittance. To learn more about TaxJar and get started automating your sales tax compliance, start a free, 30-day trial today.
