Does eBay Charge Sales Tax?

As an ecommerce platform, eBay connects buyers and sellers from around the world. With millions of transactions taking place every day, properly charging and remitting sales tax can get complicated quickly amid evolving nexus laws and reporting requirements.

In this comprehensive 2600+ word guide, we’ll equip both buyers and sellers with insider knowledge to master sales tax on eBay, including key factors like:

• Multi-state marketplace facilitator laws
• Sales tax thresholds impacting Form 1099-K and 1099-NEC filings
• Tax exemptions for certain products, buyers, and sellers
• Special considerations for international transactions
• And much more

Let’s dive in.

What is Sales Tax on eBay?

Sales tax refers to a state, county, city, or other jurisdiction-level tax that is charged on the sales of goods and services. Sales tax rates vary widely across the United States from 0% in states like Delaware, Oregon, and New Hampshire to over 9% in certain California counties.

On eBay, sales tax may or may not be charged to buyers on transactions processed through the marketplace:

• For buyers, you may see sales tax added at checkout depending on the seller‘s specific tax nexus and registration status along with your state‘s tax laws.

• For sellers, you may or may not be required to collect and remit sales tax to state and local governments yourself, depending on factors like:

  • Whether you have nexus or a physical presence in the buyer‘s state
  • Your state‘s economic nexus and marketplace facilitator laws
  • Your sales volume from eBay and other channels

So whether sales tax applies on eBay can vary widely depending on the specifics of each transaction. Next we’ll break down exactly when and how eBay charges sales tax.

When Does eBay Charge Sales Tax?

eBay charges sales tax on eligible purchases when required under state law. The two main scenarios are:

Nexus States

If a seller has physical presence or “nexus” in a state, they must register with that state’s tax authority, obtain a sales tax permit, and begin collecting and remitting applicable sales taxes on orders shipped into that state.

Some common triggers establishing sales tax nexus include:

• Having office spaces, warehouses, employees etc. in a state
• Storing inventory in Amazon/eBay fulfillment centers located in a state
• Having an affiliate marketing relationship driving sales from state residents

For nexus transactions on eBay, the seller is responsible for properly configuring tax rates in their account settings and charging the correct sales tax rate based on the buyer’s location.

eBay does NOT automatically calculate, collect, and remit sales tax on nexus orders – it falls fully on the seller to manage.

Nexus laws can differ substantially by state. For example:

• In California, having any sales activity sourced from the state can create nexus and sales tax obligations.

• In Florida, you need physical presence from things like property or employees to necessitate collecting and remitting their 6% state sales tax.

Ensure you familiarize yourself thoroughly with nuances if selling high order volumes into multiple nexus states. Consider working with a ecommerce tax specialist or CPA if you have questions.

Marketplace Facilitator Laws

In recent years, over 30 U.S. states have enacted marketplace facilitator laws that require platforms like eBay to calculate, collect, and remit sales tax on behalf of 3rd-party sellers – even if those sellers don‘t actually have nexus themselves in the destination state.

As a marketplace facilitator, eBay now handles all sales tax rate calculations, collection from buyers at checkout, and remittance to appropriate state authorities for most transactions. Sellers on eBay do not have to take any additional actions and can count on taxes being automatically processed if required.

Per eBay as of January 2023, they currently manage sales tax filing and remittance in over 40 states with marketplace facilitator laws now enacted.

However, sellers may still need to collect and remit taxes independently for orders shipped to certain states not covered by eBay‘s facilitator status:

You can check eBay‘s sales tax collection page linked above for the most up-to-date list of areas where they handle taxes vs. where sellers need to self-manage based on nexus.

How Sellers Can Check if eBay Charged Sales Tax

As an eBay seller, here‘s how you can check if sales tax was calculated and collected on a transaction:

• Review order invoices to see if tax charges are listed
• Check if taxes paid show up under “Legal and tax” fees in your seller account
• Verify within your monthly sales report for tax charges
• Look for a “T” next to orders in your Sold list denoting tax was collected

If you ever have uncertainty around whether the expected amount of taxes were charged on an order, you can contact eBay customer support for clarification based on that specific buyer‘s location.

Understanding eBay‘s Tax Reporting Thresholds

In addition to collecting sales tax where legally required, eBay also issues 1099 tax forms to sellers meeting certain thresholds for gross transaction volume and total sales.

1099-K Tax Form

You‘ll receive a 1099-K reporting your gross transaction amounts for sales tax purposes if you exceed both:

• $20,000 in gross merchandise sales on eBay during the tax year
• 200 separate transactions on eBay

The 1099-K provides gross transaction data that various state agencies can use to verify sales tax was properly collected and remitted.

Historically the federal 1099-K threshold had been set at 200 transactions and $20,000 in gross sales. However, as part of the American Rescue Plan Act passed in 2021, the IRS must now start issuing 1099-K forms for amounts over either $600 in gross sales or 200 transactions across all payment settlement entities.

So you may receive a 1099-K from eBay for much smaller total sales amounts than previous years.

1099-NEC Tax Form

With new 2021 IRS reporting rules, payment settlement providers like eBay now issue a 1099-NEC when you exceed either:

• $600 in total compensation from sales and other earnings on eBay
• 200 transactions

This form reports gross earnings/compensation for federal income tax purposes.

Note: As an eBay seller you may receive both a 1099-K and 1099-NEC if you go over the thresholds for each.

So in summary:

• 1099-K for gross sales (sales tax reporting)
• 1099-NEC for gross earnings (income tax reporting)

While you‘ll automatically receive tax forms once exceeding the benchmarks, you still must file and pay estimated taxes even if you fall under the 1099-K and 1099-NEC thresholds.

Sales Tax Exemptions on eBay

Some buyers and sellers may be eligible for sales tax exemptions, meaning no sales tax is due on otherwise taxable transactions.

Common scenarios where sales tax exemptions come into play:

Tax Exempt Buyers

Certain buyers are exempt from paying sales tax. Common categories include:

• Wholesalers & resellers: Those purchasing products for resale, rental, or leasing instead of end-use consumption may be exempt. States issue resale certificates/exemption certificates/seller’s permits with documentation.

• Tax-exempt organizations: Public schools, colleges, churches, charities, 501(c)(3) nonprofits, and similar entities can make tax-exempt purchases. Requires tax exemption ID number.

• Agricultural & manufacturing businesses: Farmers, manufacturers, processors may be exempt from sales tax on certain materials, equipment, services, or utilities used in production.

As a seller, you are not required by eBay to collect exemption documentation. However, states may require you to maintain certificates on file for audit purposes.

Tax Exempt Sellers

Seller scenarios exempt from collecting sales tax include:

• No nexus: Sellers with no physical presence, inventory, staff, or affiliate referrals in the buyer‘s destination state.

• Low selling volumes: In some states, sellers making less than a set gross annual revenue or transaction count threshold in that state do not need to register and collect local sales taxes. These thresholds can be as high as $100k+ in gross merchandise volume.

• Out-of-state transactions: For sales into states where you have no nexus and no marketplace facilitator laws requiring tax collection.

Tax Exempt Products

Certain product categories are exempt from sales tax charges by default per state laws, such as:

• Most food and groceries
• Prescription medicine & medical devices
• Basic clothing & footwear

eBay indicates common tax-exempt products during listings, so sales tax should not be charged provided the seller categorized them accurately.

Checking for tax exemptions. As a buyer or seller, make sure to closely review listings and order details to ensure taxes are handled correctly based on exemptions. Reach out to your trading partner or eBay support with any questions.

Special Considerations for International eBay Transactions

eBay facilitates millions of cross-border purchases between buyers and sellers globally. Sales tax applicability on international transactions involves additional complexity.

Imports into the United States

If you are a US buyer importing goods from an overseas seller, sales tax should not be charged at checkout, but you may end up paying other taxes:

• Import duties – Tax paid to U.S. Customs on foreign goods based on factors like item type, country of origin, and value.

• Use tax – Tax on imported out-of-state purchases similar to sales tax. You technically owe use tax even if not collected at time of sale, but it is rarely enforced on consumer goods.

US Sellers Exporting Products

As a eBay seller shipping items overseas to foreign buyers, you do not charge any local or VAT taxes during checkout. However, customs fees and import taxes may be incurred when the package reaches its destination country.

Recommended Sales Tax Best Practices on eBay

Properly handling sales tax on eBay involves staying up-to-date on changing nexus laws, properly exempt orders, adjusting settings accordingly, and thorough record-keeping.

Follow these best practices:

• Review tax rates often: Routinely check your Tax tables in Seller account to confirm they align with latest state and local rates. Misconfigurations can lead to interest and penalties.

• Learn nexus laws: Carefully track which states you have established nexus in based on business activities and facilities. Review nuances around affiliate, inventory storage, and economic nexus.

• Monitor reporting thresholds: Keep an eye on gross merchandise value and order count totals in your eBay reporting to anticipate approaching 1099-K and 1099-NEC filing thresholds.

• Validate exemptions: Exercise reasonable care in accepting buyers’ exemption claims. Request documentation where prudent to validate before exempting transactions.

• Consult experts: Work with a sales-tax focused CPA or tax attorney to optimize your setup, filings, and savings opportunities. Common pitfalls can trigger expensive audits.

Sales Tax on eBay: Key Takeaways

• As an eBay buyer, you may or may not be charged sales tax at checkout based on factors like the seller’s tax nexus status, your state’s tax laws, and the specific item purchased.

• As an eBay seller, your sales tax collection and reporting obligations vary greatly based on your business’s physical presence across states, sales volumes, and other operational nuances.

• Sales tax on eBay can quickly become complex amid frequently changing nexus provisions, marketplace facilitator laws, varying product exemptions, tax ID verification issues, and evolving Form 1099 reporting rules.

Both eBay buyers and sellers should take time to understandbasics around sales tax applicability on transactions. Carefully review checkout totals and account notices to catch any issues or discrepancies early. Consider enlisting professional accounting or tax help navigating the nuance.

Frequently Asked Questions

Still have questions around eBay, sales tax, and taxes in general for your small business? Here are answers to some commonly asked questions:

Q: Who technically pays sales tax on eBay orders – the buyer or seller?

For fixed-price Buy It Now listings, the buyer pays any applicable state and local sales taxes during checkout.

For eBay auction-style listings, the seller is considered liable to pay any required sales taxes to the appropriate jurisdiction.

However, eBay‘s marketplace facilitator status means they now handle calculating, collecting, and remitting sales tax automatically based on those liability rules in over 40 states.

Q: Does eBay report my gross sales figures or earnings to the IRS?

Yes. By law, eBay must issue Form 1099 tax documents to sellers who exceed certain gross transaction amount and sales volume thresholds each year.

You will receive a:

• 1099-K reporting gross transaction volume for sales tax reporting purposes
• 1099-NEC detailing gross compensation/earnings for federal income tax purposes

So the IRS will be notified of your sales activity if you surpass the minimum 1099 thresholds. Be sure to reconcile eBay 1099 forms with your internal sales data.

Q: What if too much or too little sales tax was charged on one of my eBay orders?

Contact the seller or eBay customer support for assistance. eBay cannot adjust sales tax charges retroactively if too much or too little was collected initially.

You‘ll need to obtain a refund directly from tax authorities or pay uncollected taxes still owed to the destination state. File adjustment forms like California’s CDTFA-101-SSL to correct mistakes.

Q: Are taxes other than sales tax ever owed on eBay sales?

Yes! As an independent ecommerce seller, you likely need to make quarterly estimated income tax payments on your eBay earnings along with other self-employment taxes for Social Security and Medicare.

Sales tax is just one piece of your small business tax obligations. Be sure to work with a CPA or tax professional when first starting out to optimize handling of things like:

• Income taxes – Based on your net business profits
• Self-employment taxes – 15.3% of your gross profit
• Quarterly estimated payments – Required when expecting $1,000+ in taxes owed
• Hobby loss rules – If selling isn’t profitable for 3+ years
• Bookkeeping – Tracking income and deductions from eBay and other channels

Q: As a tax-exempt buyer, do I need to send any special documentation to eBay sellers?

Yes! To allow a seller to waive sales tax on your order, you must first email them acceptable exemption documentation like:

• Sales tax exemption form – For organizations like schools, churches, hospitals, nonprofits
• Sales tax resale certificate – For wholesalers, retailers intending to resell rather than use personally

Provide certificates before checkout if possible to streamline order processing. Keep certificates current as most expire after 3-5 years.

Conclusion

With over 1.5 billion live listings and 159 million active buyers worldwide, properly handling sales tax on eBay requires staying on top of changing nexus provisions, multi-state tax codes, and reporting requirements.

Both eBay buyers and sellers should periodically review setups, account for exemption eligibility, keep clean records, and seek expert guidance when unsure how new laws and thresholds impact tax obligations.

Careful attention to detail around sales tax can help you avoid interest, penalties, and other issues down the road!