As a seller on eBay, paying sales tax is not a priority on your list although you are obliged to do it. The good news: this publication explains ways to avoid paying taxes on eBay sales. eBay sales tax avoidance is legal but it’s illegal to evade. In fact, in contrast, tax avoidance is perfectly legal, according to IRS. IRS regulations allow eligible taxpayers to claim certain deductions, credits, and adjustments to income.
eBay sees to it that sellers comply with the laws of tax in their various states and where applicable. Sales tax is not charged in every state, therefore make sure you get verified. A seller must also inform the buyer of potential charges or taxes applicable in their specific country.
Also, have it in mind that some states in countries like AU, US, NZ, and EU are subject to Goods and Services Tax, Value Added Tax, Applicable Sales Tax, or any term used to describe the sales tax.
How to avoid paying taxes on eBay sales
So, How do I avoid paying taxes on eBay? Let me show you all the methods to use to avoid paying taxes on purchases on eBay. The following are ways to avoid paying taxes on sales on eBay:
1. Sign up and sell from states with no sales tax
To avoid paying taxes on eBay sales, make sure you sell from a state where there is no applicable sales tax. In some cases where sellers transact with buyers from states where sales tax is applicable, the buyer will be charged sales tax in that country, which shows up in the transaction information.
Sellers registering their services and delivery items in the US will not be able to sign out of eBay or sell items in the required states that collects sales tax automatically.
2. Submit a resale tax exemption certificate
You can submit a resale tax exemption certificate on eBay to avoid paying taxes on eBay sales. Buyer exemption is supported on eBay. Use the buyer exemption system to submit your exemption certificate for purchases without paying tax.
Here is the link https://www.ebay.com/help/buying/paying-items/paying-tax-ebay-purchases?id=4771 to add your state tax exempt certificate to your eBay account.
3. Submit other tax exemption certificates
If you run a charitable entity, you get tax exemption but you need to submit your exemption certificate on eBay. Note that the charity’s tax exemption is on paying tax and not on your sales not being taxable. Your buyers are still subject to the tax laws of their state unless they have a tax exemption.
It is also possible that your state may provide an exemption from collecting sales tax for a charity shop, but that would not apply to sales in other states.
4. Sell through direct payment
You can avoid paying taxes on eBay sales by carrying out the transaction outside eBay. But here, the seller and buyer protection policy does not apply. Furthermore, swindlers may use an opportunity like this to scam you. I recommend you visit eBay’s Security Center to learn about potential scams and how to stay safe.
5. Return items to the buyer
If in any case, a buyer requests a refund of any sort, be it purchase cancellation, full refund, or partial refund, eBay returns the sales tax too. And for this to happen, refunding must take place on the eBay platform.
This is not the case with PayPal as the seller bears the responsibility of refunding the payment and the sales tax applicable to it. The total tax amount to be refunded to the buyer (who requested either a partial or full refund) is usually seen in the original PayPal transaction receipt. Therefore, the seller should review it.
Have in mind that the buyers are usually credited by eBay immediately after the refund is processed.
6. Stay below the IRS limit
Your sales on eBay are considered reportable income once they are over a certain amount. Because eBay processes payments for these sales, IRS regulations require eBay to issue a 1099-K for US sellers who sell $20,000 or more (in 2021) and $600 or more in 2022. You can check here for any updates to the regulations.
7. Stay off eBay
To avoid paying taxes on eBay sales, do not sell on eBay. Also, have it in mind that the state laws might compel other platforms to implement taxes on sales carried out on the internet. So, do well to research to verify whether your alternative platform charges sales tax on sales in your state.
Do you need to pay taxes on eBay sales?
eBay sellers are legally required to declare and pay taxes on income earned from eBay sales. Sales taxes are charged to comply with the marketplace facilitator laws (or whatever your country describes it).
The sales tax is typically applied during checkout. Also, take note that taxes charged by eBay are on purchases on behalf of a seller, and not set up by the seller.
So, what is the tax rate on eBay sales? eBay charges a 12.55% fee on the sales tax that they collect.
Can sales tax be avoided on eBay? Sales tax can be avoided on eBay but you can’t evade it unless you are doing it illegally. To avoid paying taxes on eBay sales, you usually have to submit your tax exemption certificates using eBay’s buyer exemption system. A buyer can also avoid these taxes if their jurisdiction laws do not mandate eBay to collect applicable Internet Sales Tax on purchases.
How eBay sales tax works
Generally, when you sell to eBay buyers in the US, some states may require you to collect applicable Internet Sales Tax on your transactions. As of 2021 46 jurisdictions require eBay to collect sales tax. Thus, eBay gets to collect and remits Internet Sales Tax on your behalf.
eBay is required by most states to get Internet Sales Tax from its buyers. After a buyer purchases goods, the gross order amount is shown in the processed order totals which also includes the sales tax or internet sales tax.
When the tax has been paid, the tax amount applicable for remittance is deducted by eBay for the authority responsible for tax in the buyer’s country. The seller is not responsible for this as everything is done by eBay. A record of the tax portion on sales is contained in the Seller Hub Order details page which can be downloaded from eBay’s Download Order Report.
eBay sales taxes responsibilities
Does everyone pay sales tax on eBay? eBay does not tax every sale and seller. eBay will only collect and remit sales tax on your behalf when it is required of them by law in the applicable state.
As it has been said before, it is the responsibility of the seller to inform a buyer of tax charges applicable to sales, and likewise the responsibility of a buyer to pay taxes applicable to purchases made on eBay. If you want to learn more about eBay’s policies, do well to refer to eBay’s Tax Policy and User Agreement pages.
Does eBay report your sales to the IRS?
Changes to the IRS minimum reporting threshold requires and IRS regulations require businesses that process payments, including online marketplaces like eBay, to issue a Form 1099-K to sellers who receive $600 and above in gross payouts.
Is it Illegal not to pay sales tax on eBay?
Not paying sales tax as required by eBay is illegal if it’s applicable in your state. But avoiding sales tax by tax exemptions or ethical tax exemption practices as discussed in this publication is perfectly legal. Besides, a buyer must pay taxes on purchases carried out on eBay or products shipped into the country.
However, “evading” tax payments on eBay sales is a crime. Nevertheless, the government will not likely suspect an independent seller for ‘evading’ eBay sales tax since they would have to invest too many expensive resources than the tax a seller is evading.
Above are the answers you’re looking for regarding how to avoid paying taxes on eBay sales. The best method is to submit an exemption certificate on eBay.
It is OK for eBay to collect sales tax to comply with the jurisdiction. Taxes are not charged on purchases in states where they are not applicable. Also, a seller doesn’t pay for the tax remittance. So, as a seller, make sure to inform your buyers about potential charges on the items.
Meanwhile, if you know someone or a friend whose eBay account was unfairly banned, perhaps, it’s OK to share with them my guide about making a stealth eBay account that works.