The rules around sales tax on eBay sales can be confusing, especially with new regulations and changing laws. Understanding your obligations is crucial for compliance and peace of mind. ne marketplaces, understanding your obligations is crucial for compliance and peace of mind. This essential guide from Yonda Tax cuts through the complexity, focusing specifically on the pivotal question: Does eBay collect sales tax on your behalf? We'll clarify eBay's role as a Marketplace Facilitator, explain what this means for your business, and outline your remaining responsibilities.
Does eBay Collect Sales Tax?
Yes, in most cases, eBay does collect sales tax on purchases from buyers. This is because eBay operates as a Marketplace Facilitator in the majority of states that have enacted such laws. A Marketplace Facilitator is a platform that facilitates sales between third-party sellers and buyers, and is legally obligated to calculate, collect, and remit sales tax on behalf of its sellers to the appropriate state tax authorities. This significantly simplifies the process for many sellers, as eBay handles the bulk of the sales tax collection and remittance burden.
Does that mean sellers can ignore sales tax? Sadly not.
If you’re selling items on eBay for a profit, you still have to register for a sales tax permit in each state where you have nexus. You may need to report your sales too.
Does eBay handle sales tax for all sellers and all states?
eBay is a marketplace facilitator – it manages transactions between buyers and sellers. As long as your state has marketplace facilitatator sales tax laws in place, you can trust that eBay will handle the collection and remittance of sales taxes.
- If you are selling on eBay as a business: you still need to monitor your nexus obligations and register in states where you pass the economic threshold.
- If you are selling personal items on eBay: used items on eBay and your sales are not for profit (i.e., occasional or casual sales), you are generally not considered a business and may not have sales tax obligations. However, states have varying thresholds and definitions for what constitutes an "occasional sale," so it's wise to be aware of the rules in your state if you sell frequently.
Check out our detailed guide on state-by-state market facilitator laws for further info.
What About Home Rule States?
A “home rule state” is a state that allows local governments (such as cities or counties) to create and enforce their own laws and regulations, including those related to taxes, without needing approval from the state government.
If you have nexus in a home rule state – like Illinois or Colorado – there may be local jurisdictions that do not require eBay to collect and remit sales tax for you. Check with a tax professional if you are obligated to pay sales tax to any of these localities. eBay’s tax policy explains how to set up sales tax for locations where it is not collected for you.
Do Buyers Pay Sales Tax on eBay?
If you’re buying on eBay, you might wonder if sales tax is applied to purchases. It depends on where you live. If you live in a state that requires sales tax on online purchases, then yes, you will pay sales tax on your eBay purchases. eBay automatically adds this to your purchase total.
How do I file eBay taxes and report income?
Navigating tax season as an eBay seller involves two primary aspects: sales tax reporting and income tax reporting.
- Sales Tax Returns: For states where you have nexus and are registered for a sales tax permit, you will need to file sales tax returns. On these returns, you will typically report your total sales, and then designate the sales for which eBay collected and remitted the tax as "non-taxable" or "marketplace sales." This ensures you are not double-taxed and that the state is aware of the taxes collected by eBay on your behalf.
- Income Tax Returns: All income generated from your eBay sales, after deducting legitimate business expenses, must be reported on your income tax return. This includes your gross sales from the year. You can deduct expenses such as eBay fees, shipping costs, packaging materials, and the cost of goods sold to arrive at your net income. If your gross sales exceed certain thresholds (e.g., over $5,000 or 200 transactions in a tax year), eBay will issue a Form 1099-K detailing your sales, which you will use for income tax reporting.
What if I sell on eBay and my own website?
Many sellers diversify their sales channels, using both eBay and their own e-commerce websites. This multi-channel approach introduces additional complexities for sales tax compliance:
- Separate Sales Streams: You will need robust systems to track and separate sales made through eBay (where eBay handles tax) from direct sales made through your own website (where you are responsible for tax collection).
- Nexus Monitoring: Your nexus obligations must be monitored for all sales channels. Sales through your own website can independently trigger nexus in states, requiring you to register and collect sales tax directly from customers in those states.
- Accurate Reporting: When filing sales tax returns, you must accurately report both your direct sales and your marketplace sales, ensuring proper allocation and remittance of taxes.
Example: Imagine you sell custom jewelry. You sell some pieces on eBay, and others directly from your Shopify store. For eBay sales to California, eBay collects and remits the sales tax. However, if your Shopify store also has customers in California, and your activities create nexus there, you would be responsible for collecting and remitting sales tax on those direct Shopify sales yourself. Your sales tax software should help you differentiate these transactions for accurate reporting.
Do I need a sales tax permit if eBay collects the tax?
Yes, in many scenarios, you still need a sales tax permit. While eBay handles the collection and remittance for many transactions, having a sales tax permit is often a prerequisite for reporting your sales, even if they are marked as non-taxable marketplace sales. Your state may require you to register and obtain a permit if your business activities establish nexus, regardless of whether a marketplace facilitator is collecting tax on some of your sales. This permit allows you to properly file your sales tax returns and declare your marketplace sales.
“Many businesses who sell on marketplaces make the mistake of thinking that they can just ignore sales tax. You do still have certain obligations so it’s important to stay informed and keep detailed records.” – Gareth Kobrin, Global Tax Expert
Conclusion
Selling on eBay comes with its own set of tax responsibilities, but the good news is that eBay manages collecting and remitting sales tax. Keep good records, know your obligations, and consult a tax professional if you need some help.
Automate Your Sales Tax as a Marketplace Seller
Sales tax rules can become complex when you operate on more than one marketplace or as an omnichannel seller. Many businesses use automated software to streamline the process.
A solution like Yonda Tax manages everything for you:
- Automatic nexus monitoring
- Registration in each state where you have obligations
- Accurate calculations for each state and jurisdiction
- Reporting that automatically separates marketplace and direct sales
- Integrations with your marketplace for automated filings
- Remittance of any sales tax you’ve collected
- A dedicated sales tax manager to ensure you’re compliant
Book a free tax consultation to understand your obligations as a marketplace seller. We take the stress out of running your business and help you stay compliant as your company grows.