Updated on May 4th, 2016
We have a new, updated post about collecting sales tax on eBay post Wayfair decision. Read that here.
We get a lot of questions about how to collect sales tax on eBay the right way. The short answer is that it’s literally not possible to collect accurately on eBay in a lot of cases. This post will show you how to get around that and protect your business.
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.
Take the case of TaxJar customer Charlotte (name changed) for example. She ran into this exact problem recently. She was collecting what she thought was an adequate rate for Wyoming. When she went to file her most recent return she noticed the WY efile system telling her she had not collected enough sales tax. It turns out that two Wyoming counties in this destination-based state have a higher rate than the others. Because eBay only allows her to choose a single, flat rate for the state, she had under collected sales tax in those two counties.
As a result, Charlotte had to pay the difference out of her own pocket.
So, eBay sellers, given eBay’s simplistic tax collection “system,” what are you supposed to do?
Use TaxJar to Determine Which Rates to Charge Your eBay Customers
If you’re running into a situation where you can’t decide which sales tax rate to charge, TaxJar has your back! Our eBay Sales Tax Rates chart, based on the millions of eBay transactions we’ve run through the TaxJar system, will help you determine the sole sales tax rate you should set for each state.
Just find your nexus state (or states) on the chart and determine the rate you should charge.
Find out a whole lot more about how to use TaxJar’s eBay sales tax rate chart here.
How to Setup Tax Collection on eBay
Once you’ve determined the sales tax rate to charge your customer in your state (or states) it’s time to set up sales tax collection on eBay.
1. Sign into eBay and head to the My eBay page.
3. In the “Payments from buyers” section click the Show link.
4. In the “Use sales tax table” area click the Edit link.
5. Here’s where you’ll fill in the information you got from TaxJar’s eBay sales tax rate chart. Make sure you also pay attention to shipping & handling tax if the state requires it. There’s a box titled “Also charge sales tax on S&H” to click if you do find you need to collect tax on shipping. TaxJar’s eBay sales tax rate chart provides this information, too. (You can also read more about states that require sales tax on shipping.)
6. Click Save.
Now when you make a sale through that particular state, eBay will collect based on your new sales tax table. Naturally, if you have sales tax nexus in more than one state you’ll need to make sure you’ve entered sales tax collection information for all of them.
TaxJar is Here to Help
Totally confused about how much sales tax you collected versus how much you should have collected? TaxJar’s “expected sales tax due” report will straighten you out.
Just login to TaxJar and make sure you’ve added all the states where you have sales tax nexus to your TaxJar dashboard.
If there’s a discrepancy in the sales tax you’ve collected vs. what TaxJar expects you should have collected, the state will appear in yellow. You can mouse over the yellow exclamation point to see a quick breakdown of how much sales tax we think you should have collected vs. how much you did collect.
From there, it’s up to you to decide whether you want to pay extra sales tax out of your own pocket. It will also show you if you collected too much sales tax.
EBay doesn’t make collecting sales easy for sellers who need to collect variable sales tax rates within a state. We hope this guide has helped to ease your mind a little when it comes to making eBay work for you.
For much more info on eBay sales tax, check our our eBay Sales Tax Guide, or start the conversation in the comments!
Ready to automate sales tax? To learn more about TaxJar and get started, visit TaxJar.com/how-it-works.