Avalara > Blog > Sales Tax > EBay Sellers: Make Sure You’re Not Running an Unintentional Sales Tax Scam

EBay Sellers: Make Sure You’re Not Running an Unintentional Sales Tax Scam

  • Jan 3, 2017 | Suzanne Kearns

Most eBay sellers do all they can to provide their customers with a seamless transaction by writing a thorough product description, offering easy payment options, and shipping products quickly. But when it comes to sales tax, many consumers--and some eBay sellers--are confused. And unfortunately, that confusion is causing some eBay sellers to wrongly collect sales tax from customers.

Such mistakes are no laughing matter: incorrectly collecting sales tax is a crime that could land an unsuspecting eBay seller in serious trouble.

The Unintentional eBay Sales Tax Scam

As a result of confusion, some eBay sellers are collecting sales tax from purchasers when they shouldn’t be--and buyers are noticing. Various forums are filled with questions about whether sellers should be collecting sales tax on some transactions.

Some buyers are concerned that sellers are simply adding the tax to increase their profits, others are sounding off about sellers collecting sales tax for states that don’t even require it. One person complained that a seller from China was trying to charge "U.S. sales tax" for every state. Not only is there no such thing as "U.S. sales tax," but some states don't collect sales tax at all.

To clear up the confusion, we’ve outlined the rules that all sellers should follow when collecting sales tax on eBay.

Watch Out for Nexus

If you don’t have nexus in a state, you are not legally required to collect sales tax for it, although some sellers voluntarily do so. You can have nexus for a variety of reasons such as having an employee, office, or warehouse in the state, or doing business with an affiliate in the state. In some states, you have nexus if you attend a trade show in the state. Using a drop shipper in certain states will also give you nexus.

For example, if you live in Texas, have an affiliate in California, use a drop shipper in New York, and you travel to Illinois once a year for a trade show, you have nexus in all those states. And once you’ve established nexus in a state, you are required to collect sales tax from customers in that state.

It’s Time to Apply for a Sales Tax Permit

Once you’ve determined where you have nexus, it’s time to officially apply for a sales tax permit in those states. Because the process for doing so is different for every state, you’ll need to get in touch with the department of revenue in each state and ask for instructions. You can find a listing of every state’s DOR office on the IRS website.

Set up Your eBay Tax Table

Next, you’ll need to set up your eBay tax table, which determines in which states your customers will pay sales tax. Although eBay will automatically add the sales tax to customer’s invoices based on how you set up the table, you are ultimately responsible for remitting the taxes. You can find an excellent guide on the process on eBay’s help pages.

You want to give your eBay customers the best possible experience when shopping, right? One way to do that is to be clear about where you collect sales tax by stating it on your product page. And if a customer asks for your sales tax ID number, be sure to provide it quickly to prove to them that you are authorized to collect sales tax for the state.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Suzanne Kearns
Avalara Author Suzanne Kearns