Charging Sales Tax when Selling on EBay: What do I need to Know?

So you have decided to sell on eBay.  You’ve been buying things on there for years, and just figured out that you can now sell the soap figurines of great left tackles of professional football that you have been working on all those Sunday afternoons watching your team battle on the tundra in a blinding snowstorm.  You meticulously dust each one, find the right background to use for a photograph, and take a digital picture of each one of your creations to load to your eBay page.  You are ready to upload the image to your page when an old sales receipt catches your eye, and you notice the line for sales tax.  Then you start to wonder, do I need to charge sales tax on these items?  If so, how do I do that?

The first thing you need to do is contact the department of revenue for your state (and any other state where you have “nexus”) and find out their rules for taxing items sold online.  Once you are clear on what you need to do, ask them the procedure for getting a sales tax number.  This is needed if you want to sell items online to the people who live in not only your state, but all the other states where you have a physical presence.  Please translate the “if you want to” to mean “this is something that you must do.”  Additionally, if you resell items on eBay, you should ask about and get resale certificates from these states and use this to report the sales tax collected and so that you can avoid paying sales tax on items bought for resale (say if you purchase the soap sculptures instead of making them).

eBay has something called tax tables that are used to charge sales tax on purchases made on the site.  To set up a tax table on eBay, you need to do the following:

  1. Sign in to eBay (yes, I know you know to do that, but sometimes people forget so bear with me).
  2. At the top of most eBay pages, you will see My eBay.  Click on this link to get started.
  3. Select the Account tab, and then click on the selection for Site Preferences.
  4. In the Payments from buyers section, click the Show link.
  5. In the Use sales tax table area, click the link for Edit.
  6. Fill in the sales tax rate that you got from the state department of revenue. If the state also informed you that you also need to charge tax on shipping and handling for their state, you will also need to check the box titled “Also charge sales tax on S&H”.
  7. Look over everything to make sure all your numbers and rates are correct.
  8. Last but not least, make sure that when you are done, click on the Save button at the bottom of the page.  You don’t want to have to go through this more than one.

Keep in mind that sales tax is charged at the most localized areas that is specified when you entered the rate.  So if the lowest level you entered was a city rate, the city rate will be charged.  But if you entered a statewide rate, eBay will use the statewide rate. States are also either “origina-based” or “destination-based” sales tax states. Find your state on our Sales Tax Resources for Online Sellers in Every State in order to determine which type of sales tax state you live in.

As always, if you have questions, don’t hesitate to contact your local CPA.  They can help clarify any questions you have on how to charge sales tax.

Chris Peden, CPA, CMA, CFM has over 15 years in the corporate world helping companies meet their regulatory compliance requirements.  He also assists small business owners with organizing and making sense of their finance information.  You can reach him at chrispedencpa@yahoo.com.  In accordance with Circular 230 Treasury Department Regulations, we are required to advise you that any tax advice contained in this article may not be relied upon to avoid penalties under the Internal Revenue Code.  If you are interested in a written opinion that can be relied upon to prevent the imposition of tax-related penalties, please contact the author.

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