eBay Sales Tax: Everything You Need to Know [Guide]
Estimated reading time: 19 minutes 30 seconds.
Ah, sales tax. The ultimate Pandora’s box has come for ecommerce sellers.
In 2019, US online retail sales of physical goods reached an astronomical $343 billion. By 2024, they are forecast to reach $476 billion.
Physical presence in a state used to be a parameter for tax, but times have changed. With billions of dollars floating in the digital space, governments everywhere, not just in the US, have needed to change tack.
On top of that, the COVID-19 pandemic has increased online spending by up to 30%, leading some states to make up their budget shortfalls by reviewing their sales tax rules for ecommerce.
Sales tax is notoriously complex, and can make or break businesses that risk non-compliance. So you need to know your sales tax obligations, regardless of where you sell. If you’re here, you probably already know that.
So, here it is: the ultimate eBay seller sales tax guide.
In this guide, we’ll give you everything you need to get started strong with sales tax.
With sales tax for ecommerce sellers a relatively new and evolving concept, please use the below as a guide only, and consult with an accountant for the most up-to-date and relevant laws and how they apply to you.
We’ve also included a comparison table of states with links to their official sites for more information.
In this guide:
Table of Contents
Looking for something different? Check out our other guides for eBay sellers:
- The Ultimate Guide to eBay VAT
- eBay Income Tax Guide
- The A2X eBay Accounting Hub
- The A2X Ecommerce Sales Tax Accounting Hub
What is Sales Tax?
A Brief History of Sales Tax
“…in this world, nothing is certain except death and taxes.” - Benjamin Franklin.
Human beings have been dealing with taxes since the dawn of civilization. Even our ancestors as far back as Mesopotamia, around 4500 years ago, paid some form of tax (most likely in cows rather than cash). And evidence suggests that ancient Egyptians taxed 10% on property transferred after death - an ancient death tax.
History is littered with creative taxes to fund wars, build cities, recover debts and, in many cases, to take from the poor and give to the rich. With these creative taxes have come equally creative (and comical) strategies to avoid them, often followed by a reciprocation from the government to pave over the cracks.
For example, the English decided to tax hats in 1784. Hat-makers stopped calling their products ‘hats’, to avoid the tax. So, in response, the tax was extended to headwear in general. It was then repealed in 1811 - presumably when common sense prevailed.
Tax law has compounded over the years to meet inexhaustible variations in circumstance, so it’s no wonder that today, it’s incredibly complicated - particularly in the US.
It was just after the Revolutionary War that Congress was granted the right to impose taxes on the general American public, which began mostly with excise taxes on products like alcohol and tobacco. States were made responsible for collecting and remitting the tax on behalf of their residents because, well, that’s a whole lot easier for the government than targeting individuals.
Sales taxes came into play in West Virginia in 1921. By 1940, 18 states had followed suit. Today, every state has its own requirements and rates - and now, with the epic rise of ecommerce, a whole new set of rules have come into play. Lucky you!
Why and How does Sales Tax Impact Ecommerce Sellers?
“We have seen sales tax literally destroy businesses, so this is something you cannot ignore” - Ledger Gurus
Changing the laws: Quill & Wayfair
Online sellers had it pretty breezy for a while there. Since 1992, the law referred to as Quill (after the case Quill Corp. v. North Dakota), stipulated that taxes could only be imposed on businesses that had physical presence in a state. This was enough back in the day, when everything was bricks and mortar, but not so much in the digital age. With the explosion of ecommerce, Quill became outdated.
45 states and their respective governments were losing around $33 billion every year by not taxing remote sellers. In 2018, judges ruled in favour of South Dakota over Wayfair in what became known as ‘the Wayfair decision’.
The Wayfair decision challenged two things; the inequality of taxes between physical retailers and digital ones, and the money lost by states in not charging ecommerce sales tax. No longer were sellers required to have physical presence in a state to be eligible for tax.
This move fundamentally changed the nature of the game for ecommerce sellers for good.
Meeting the threshold for nexus
Fortunately, not every state where you might conduct some business can charge you sales tax. This is the first step in figuring out who you should be paying, and how much.
In order to be eligible to pay tax to a state, you need to meet a threshold, or have substantial nexus in that state. This might be your physical address, or location of inventory, volume of sales conducted there, whether you have employees, any affiliates and more.
Each state has a different threshold (laid out in our table under Sales Tax by US State). So start by making a list of the states you need to check, and figure out which thresholds you meet. These are your nexus states. And watch out, if you sell on multiple platforms and one of them meets nexus in a state, your other businesses automatically do, too!
Ultimately, when it comes to eBay sales tax, you are both responsible and in control. If you have nexus in a state, you can choose whether you meet your tax obligations or not. Of course, the risk in not paying is getting slapped with a nasty tax bill by an auditor when you least expect it.
Equally, in some states, that bill may be less than paying the tax in the first place - so it’s a balancing act. This is where accountants come in handy.
- Taxes have been around almost as long as we have.
- The US law known as Quill specified that sellers with physical presence in a state were liable for tax.
- The Wayfair decision overturned this in 2018, enabling governments to target online sellers for sales tax.
- There are economic nexus thresholds which sellers have to meet in order to be eligible to pay tax to a state - this protects sellers from having to pay in every state they might have business.
- Start your sales tax journey by figuring out your nexus states.
Sales Tax by US State
Figuring out your nexus states is the first step in a rather long and winding journey.
How the States Determine Tax
Once you have figured out your potential nexus states, you’ll need to delve into what the regulations in these states are. There are a handful of states that do not charge sales tax, but the rest each have their own rate.
On top of this, most states have multiple jurisdictions within them that charge additional unique rates too.
States charge sales tax based either on the origin or destination of the sale. This means you could either charge buyers a tax rate relevant to your location, or theirs.
Unfortunately, another layer of niggly detail exists here. A state might treat you differently based on whether you live there or not.
When selling within your home state, if it’s origin-based, your tax rate depends on your location, as the seller. Any additional local taxes in your county/district etc. are applicable to all your buyers within your home state. Here’s an example:
“You live and/or sell out of Carlisle, Pennsylvania. Since Pennsylvania is an origin-based state, you charge all customers located in PA the same sales tax rate (6 percent) no matter where they live. If you live and/or sell out of Philadelphia, PA, you’re required to charge that same 6 percent PLUS a local tax of 2 percent to all of your customers in PA.” - TaxJar
In these states, your tax rate depends on your buyer’s location. This bit gets messy, because your buyer won’t just have applicable state sales tax but the additions for their local area too. Here’s an example:
“Let’s say you live and/or sell in Columbia, South Carolina. You sell a taxable product to a customer in Chesterfield, SC. According to the State of South Carolina Department of Revenue, you are required to charge that customer 8% sales tax. That 8% is the sum of the state rate of 6% [South Carolina] PLUS a 2% local tax [Columbia].” - TaxJar
To make managing this easier if you’re not using an accountant or a tax app, you can refer to maps like the one below.
These give you combined totals for the average tax rate within a state.
Average rate of all jurisdictions within the state + state rate = average combined total
Source: Tax Foundation
You could charge the average combined rate for all buyers in a particular state, rather than calculate the exact amount for every location. You might have a little that you owe at the end of the financial year, but you will have got close enough to remain compliant and hopefully not break the bank.
There are, of course, tax apps that can automate this process for you so that you do get it right the first time and don’t owe anything. We’ll chat about those in the section about creating your eBay sales strategy.
A Comparison of the US States for Sales Tax
Using this table, you will be able to see where you may qualify for nexus, what that will mean for you regarding rates, how the states compare to each other and where to find more information.
Where there are more factors to consider for tax rates, we have included a link to an eBay sales tax calculator to give you the most relevant answer.
|State||Tax Basis for Home Sellers||Tax Basis for Remote Sellers||Nexus Threshold in $/per Annum*||Link to Official Site||Average Combined Tax||No. of Jurisdictions||Shipping & Handling Tax||Register for Tax Permit|
|District of Columbia (DC)||Destination||Destination||$100,000+||DC||6.00%||1||✅||Here|
|Kansas (KS)||Destination||Destination||(All sellers)||KS||8.05%||594||✅||Here|
|New Hampshire (NH)||Destination||Destination||$50,000+||NH||0.00%||0||Here|
|New Jersey (NJ)||Destination||Destination||$100,000+||NJ||6.63%||2||✅||Here|
|New Mexico (NM)||Origin||Origin||$100,000+||NM||Calculate||145||✅||Here|
|New York (NY)||Destination||Destination||$500,000+||NY||8.19%||78||✅||Here|
|North Carolina (NC)||Destination||Destination||$100,000+||NC||6.90%||106||✅||Here|
|North Dakota (ND)||Destination||Destination||$100,000+||ND||5.51%||154||✅||Here|
|Oregon (OR)||Destination||Destination||(All sellers)||OR||0.00%||0||Here|
|Rhode Island (RI)||Destination||Destination||$100,000+||RI||7.00%||1||✅||Here|
|South Carolina (SC)||Destination||Destination||$100,000+||SC||7.36%||46||✅||Here|
|South Dakota (SD)||Destination||Destination||$100,000+||SD||5.60%||258||✅||Here|
|West Virginia (WV)||Destination||Destination||$100,000+||WV||6.10%||62||✅||Here|
*There may be more nexus criteria than revenue each year alone. For example, in many states where the threshold is $100,000, it is in fact either this revenue or 200 transactions. So please refer to the relevant authority’s website, as linked, for more information.
**This data was true when compiled in November 2020. Please see the relevant authority’s website for the most up-to-date information.
- US sales tax is notoriously complicated and still evolving.
- Each state charges its own tax rate, with local municipality rates applicable too.
- There are N.O.M.A.D. states which don’t charge any sales tax.
- To know whether you need to pay tax to a particular state, you need to figure out whether you meet the threshold of economic nexus in that state.
- Each state that does charge sales tax, either operates on an origin or destination basis.
- What this means for sellers will depend on whether they live in the state too, or not - the rules are different for home vs. remote sellers.
- To make it easier, sellers can use the average rate across a state if they have multiple buyers in multiple locations - but tax apps and accountants are more accurate.
eBay Sales Tax
Why is eBay charging sales tax now?
eBay charges sales tax in order to comply with marketplace facilitator laws. After the Wayfair decision was passed, states became able to target ecommerce sellers deemed to have sufficient business in their state for tax.
Taxes on eBay sales are required by most states, as is the case for ecommerce platforms in general. Tax experts Vertex reported in June 2020 the pace at which these rates change, and what they expect to see in the coming months and years:
“Through the first five months of 2020, sales tax rates at the city level are on pace to notch their highest number of changes in more than a decade: 150 city sales tax rate changes have occurred to date with 68% of them occurring in the second quarter. It is all but certain that all types of taxes will play a major role in the post-COVID-19 economy. Sales tax represents the second-largest source of state and local revenue behind property taxes, according to the Tax Foundation.” - Vertex
Taxing online sellers is lucrative, and with ecommerce certainly here to stay, these tax requirements probably are too.
What is the eBay sales tax policy?
“When you sell on eBay, you’re responsible for complying with all applicable tax laws. If you’re selling to buyers outside the US, you should inform them about the potential import charges they’ll need to pay when they receive their item.” - eBay.
The two main points from their policy relating to eBay and sales tax are:
- Based on applicable tax laws, eBay will calculate, collect and remit sales tax on behalf of sellers for items shipped to customers in certain states. See those states here.
- Once eBay starts to collect tax in the required states, no action is required on your part. There will be no charges or fees for eBay automatically calculating, collecting and remitting sales tax. The collection process will apply to all sales with delivery in the required states whether the seller is located in or outside of the United States. Sellers offering delivery in the US are not able to opt out of eBay automatically collecting sales tax.
Some other key points to be aware of:
- Tax may be added on the listing price or at checkout, depending on item location and buyer’s shipping address.
- Sellers should charge tax in states where they are authorized to do so, and only the legally authorized amount.
- Sellers in the US can specify each state in which they’re required to charge sales tax by setting up a tax table. Sellers must provide eBay with permits to collect sales tax.
- Depending on the buyer and seller’s location, VAT, GST or similar may be applicable to items sold on eBay internationally. Sellers should contact their local tax office for information on paying tax on items exported overseas.
Find the full eBay sales tax rules and policy, including dealing with overseas transactions (which we briefly mention below, too), on their website.
Does eBay collect sales tax for sellers?
If you’re asking yourself, ‘so, do I have to charge sales tax on eBay myself?’, the answer is that it depends.
If your buyer lives in a state that has marketplace facilitator laws, eBay will automatically charge them sales tax for that state at checkout. eBay will collect and remit the tax to that state on your behalf, so for these states, you are not required to do anything.
There are some states, like Florida and Missouri, which do not have these marketplace facilitator regulations. If your buyer lives in one of these states, eBay will not collect and remit the tax for you. If you have economic nexus in these exempt states, it is up to you to collect and pay the taxes there.
How does sales tax on eBay work for overseas orders?
Sales tax on overseas orders depends on which country you are dealing with.
eBay categorizes the below only, recommending that for any other countries, buyers seek advice specific to that location:
- Europe: VAT may be automatically added to items where appropriate. Click here for more information.
- Australia: GST applies to goods imported into Australia. For orders up to AUD $1,000, eBay will add this at checkout. For orders over that, this is generally collected by Australia at the border - so ensure your buyer is made aware of these possible import duties.
- New Zealand: As with Australia, orders up to NZD $1,000 have GST added and collected by eBay, anything over that will typically be collected at the border.
If you use eBay’s Global Shipping Program, eBay will inform your buyer about their applicable charges and include them at checkout.
Does eBay charge sales tax on used items?
Yes. The policy of eBay sales tax on used items is the same as all other items sold on the platform.
If a buyer lives in a state that requires eBay to collect sales tax by law, it will do this automatically - whether the item is used or new.
Do I have to file a tax return for taxes on eBay sales?
If eBay automatically collected taxes on eBay sales from within states that require it to by law, then no, you do not have to file a tax return for those sales.
If eBay did not collect taxes on sales to states with which you have economic nexus, then yes, you will need to handle those taxes yourself.
How do I avoid sales tax on eBay?
Not all sellers have to pay tax on their eBay sales, but most do.
“According to the IRS, if your online auction sales are the internet equivalent of an occasional garage or yard sale, you generally do not have to report income from those sales. If you sell and buy articles on eBay in order to earn money, the IRS will likely classify your sales activities as a business. This means you will have to report net income from eBay sales.” - TurboTax.
Assuming that you are an ecommerce seller by trade, or at least regularly on the side, you will need to pay attention to taxes.
eBay’s tax policy has this to say about sellers avoiding their tax obligations:
“Activity that doesn’t follow eBay policy could result in a range of actions including for example: administratively ending or canceling listings, hiding or demoting all listings from search results, lowering seller rating, buying or selling restrictions and account suspension.” - eBay
In some cases, buyers may be eBay sales tax exempt and can provide eBay with documentation to prove this.
Ultimately, you are required to pay your taxes by law. Whether you comply with this law or not is up to you. Some sellers with economic nexus in numerous states strategize about where they risk not paying and where they comply, based on what the penalties would be. Pick your best route that won’t keep you up at night!
How does paying taxes on eBay sales compare to other ecommerce platforms?
One complication when it comes to collecting taxes is simply keeping track. If you integrate your ecommerce platform with accounting software, your finances will be automatically recorded and updated, which is great.
What isn’t so great is the lack of clarity around how much sales tax you collected on each transaction. This detail is not recorded in your bank deposits, and this is where A2X can help.
- eBay is required to pay sales tax on your behalf, by law, in most US states.
- Where this is the case, eBay will do this automatically and you don’t need to do anything.
- In states where eBay is not legally obligated to collect tax, it won’t do this for you, so if you have nexus in these states, you will need to collect and remit the tax.
- You can choose not to pay tax if you want to, at your own legal risk.
- Paying taxes for eBay sales is essentially the same if not similar to other marketplace facilitators, as the rules are set by the state and federal governments rather than the platforms.
The Best eBay Sales Tax Strategy
If you’ve read this far, you will have seen just how labyrinthine the world of ecommerce sales tax is. For this reason, we would strongly recommend adding tax automation apps to your toolkit.
Alongside your accounting software and your connector app, syncing with a tax app will mean that interpreting all these inconvenient rules and regulations can become a distant memory.
Let a computer figure it all out for you! App features could include:
- Real-time rates for thousands of US jurisdictions
- Custom rules and exemption management
- Multi-channel tax management
- Advice with determining nexus
- Reporting and auditing trails
- International tax management and help
Alternatively, consult with an accountant. Ensuring that you have the best sales tax strategy as early as possible is paramount to meeting your obligations, and these resources will help you do that.
- Tax apps exist to make your life easier.
- By adding tax automation to your business operations, you don’t have to worry about all the changing rules, regulations and rates in every state.
- Alternatively, seek expert help as early on as possible.
In order to be tax compliant as an ecommerce seller, you need to:
- Find your nexus states
- Register for a sales tax permit in these states
- Ensure your channels are collecting the correct amounts from buyers
- File sales tax returns when due in the states where you have nexus
Or, integrate a tax automation app with A2X and your accounting software for ultimate peace of mind!
Stay on Top of Sales Tax with A2X
Without A2X, you have no visibility over the sales tax collected within your bank deposits.
If you have synced your accounting software with your eBay Managed Payments account, you’ll notice that transactions are sent automatically and individually from one to the other.
This is helpful for you as a seller in one respect - it eliminates some of the manual data entry - but not so helpful in terms of next steps.
As a seller, you want a little more detail than matching orders and deposits. You need to know what fees were taken before that money got to you - what reimbursements were added, profit margins, maybe fulfilment charges and, crucially, the sales tax collected.
A2X integrates with Managed Payments to ensure your eBay sales tax collection is correct and consistent. Plus, if you choose to use a tax app as well, you will be able to ensure that every taxable transaction has been correctly processed and accounted for. This is excellent preparation for a tax audit and accurate eBay sales tax report.
Don’t lose any more sleep over taxes - try A2X for eBay today for free!
Also on the Blog
- The A2X eBay Accounting Hub
- eBay Income Tax Guide: the Definitive Resource
- The Ultimate Guide to eBay VAT
- Ecommerce Accounting and What Makes It So Different
- Ecommerce Accounting Principles
- Find an Ecommerce Accountant
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