23 Apr Will Online Sales Tax Effect How You Sell On eBay?
If you are an Amazon or eBay reseller, a seller on any platform, or deal with e-commerce in anyway, I am sure you have heard about the Supreme Court case of South Dakota vs. Wayfair Inc. The case is all about states wanting to collect online sales tax.
This case could change the way shopping is done online, which would obviously impact selling on eBay.
In 1992 there was another Supreme Court case Quill Corp vs. North Dakota that determined that states could not collect sales tax on purchases made by their residents from out of state vendors.
So right now when someone purchases an item online, many times they aren't being charged a sales tax because the item is being shipped from out of state.
This is still in effect today, but is now being challenged by several states. They say the old bill is out of date because e-commerce has increased exponentially in the last 26 years, and because the states are losing money. It was estimated that in 2017 the states combined lost a total $13 Billion in sales tax that they couldn't collect.
South Dakota was the first state to get their petition through the lower courts and is now being heard at the Supreme Court.
This is what they are petitioning for:
The Act requires any seller that “does not have a physical presence in the state” to collect and remit sales tax if, during the previous or current calendar year:
(1) the seller’s gross revenue from the sales of tangible personal property, any products transferred electronically, or services delivered into South Dakota exceeds $100,000; or
(2) the seller sold tangible personal property, any product transferred electronically, or services for delivery into South Dakota in 200 or more separate transactions.
So basically they want anyone who does not currently have a presence in the state (if you have items in a warehouse in a different state you reside in, you are currently are required to pay sales tax for that state) to pay a sales tax if they sell over $100,000 or 200 items in the state of South Dakota.
So what does this mean to you as an eBay reseller?
Adding an online sales tax will change the way we do business in the future.
There are two points that small businesses and resellers are upset about with this new case.
First, adding a sales tax makes our items less competitive with brick & mortar businesses. While this is true to an extent, Amazon (not third party resellers), and Walmart have already implemented adding sales tax to their items purchased online. Customers are already getting used to having to pay it so it's not going to be such a big shock to our customers.
Right now it's optional for an eBay seller to charge sales tax or not to the buyer. They can choose to have the buyer pay it or pay for it themselves.
I don't see this being an option in the future. I think it will be mandatory to charge the buyer a sales tax.
We personally don't charge sales tax right now and just consume the cost. Because we don't do as much volume as a lot of resellers, and a lot of our business is out of state, we decided to pay that cost ourselves.
I honestly don't think that adding sales tax to the cost of the item is going to be detrimental to eBay sellers. Consumers still like the convenience of purchasing items online and can still usually get a better discount — at the same time we can still make a profit on our items.
The second piece that has resellers worried is the logistics of how it will work.
This one is a little more of a concern for small businesses and individual resellers.
As the laws are right now, if an item is sold in the same state, then the seller is responsible for paying the tax in that state (if they are required to, every state is different). For example, we are in Florida where the sales tax is 6%, so if we sell an item on eBay to someone in our state for $100, we are responsible to pay the state $6.00.
If we sell an item out of state, we are not responsible for the sales tax because we don't have a presence in that state. If we had a warehouse located in that other state we would be responsible for sales tax to locations in that state as well.
We had to file with the Florida Department of Revenue to get an Annual Resale Certificate for Sales Tax. We are responsible to record and pay the sales tax to the state quarterly.
Like I mentioned before, we don't have a huge number of in-state sales, so the work involved in recording and reporting isn't too crazy. It's extra work, but not insane.
BUT. If we have to file with all 45 states (plus the District of Columbia) that collect sales tax, know all of their tax laws, keep track of what sales were to which state and which states we pay quarterly, semi-annually or annually, things could get a little bit hectic!
Most small businesses/resellers would not be able to purchase the software or have the manpower to keep track of all of it. This is the current argument that is going back against the state.
The above clause in the petition does give some hope though. Not many resellers will be selling $100,000 of inventory to any one state. The 200 items would be a little more worrisome for resellers who sell a high volume of low profit items. Selling 200 items to one state is a little more realistic in a years time, but it's still a high number when you think of how many states and countries we sell to.
And that is just what they are petitioning. The numbers could still be different once the Supreme Court decides what to do.
If you want to read an interesting opposition to the state of South Dakota, check out this government doc.
I'm not worried. (If you don't know me, I don't worry about much. It doesn't ever help anything..) 😉
Business changes as times change. We just have to adapt and roll with it.
Keeping track of the online sales tax for every state would be the most daunting part. But I have a feeling that eBay would want to take care of the software involved to help their sellers. If they don't have sellers they don't have a business.
The Supreme Court's decision about adding online sales tax will come out sometime in June. Then we will have a little more clarity on what is going to happen. If they deny it I think it will only be a matter of time before another state wins. If they approve the South Dakota's petition then over the next year we could be doing business a bit differently.
Not bad. Just different.
Do I still believe in doing this reselling business online. ABSOLUTELY!
I've been doing it for over 20 years and I don't see that stopping anytime soon. The way we do business may change, but there will always be people who under value items, and there will always be people looking to value them again.
Think of how much money goes into starting a traditional brick and mortar business compared to how much goes into starting a reselling business. Essentially you can start a reselling business with no money! We pick up free items all the time to resell!
No matter what happens with the online sales tax issue, starting a reselling business on eBay and other platforms is a fantastic way to make an extra income. Whether you are trying to pay down debt, increase your savings, or pay for the extras like vacations and sports for the kids, starting a reselling business can help you with those goals.
Check out our free 5-day intro to flipping e-mail course to see if this is something you would love to do as well.
What do you think about the potential online sales tax? How do you think it will affect eBay resellers and other online merchants?
Anything mentioned above about taxes and online sales tax is all my own opinion and not legal advice. Please contact a CPA for any advice.