Hot Topics:

Online Sales Tax: Whose Side Are You On?

eBay and Amazon each have a stake in this issue—and very different opinions.

Lately, one of the biggest discussions among e-commerce merchants is the topic of collecting sales tax for online purchases. In fact, if you Google the phrase “sales tax law,” you’ll get more than 291 million results.

Most e-commerce business folks have been registered in their own states and collecting online sales tax since they became business owners. However, as the budgets of cities, counties and states became tighter, and bankruptcy options began to be considered by these entities, they began scouring their tax laws to find new sources of revenue and enforce old laws that have been on the books for years without any “teeth”—such as the use tax laws most states have.

Use tax: recouping lost sales tax revenue

What is a “use tax?” Well, that is the tax you are supposed to pay to your state when you buy something on the Internet and don’t pay any sales tax. I’ll bet many of the folks reading this article have neither heard of this law nor knew what it was until they read this.

I didn’t have a clue until I heard Cliff Ennico speak at an eBay event a few years back. He explained what a use tax is, and suggested that the best way to avoid an audit is to at least estimate and send in $50 a year to cover purchases if you hadn’t kept track. It seems that as far back as 2009, many states began to contact small businesses and ask about their use tax, and even perform audits based on this. It was the state’s way of recouping some of its “lost revenue” when you purchased out of state to avoid paying the state sales tax.

In addition, three separate Internet sales tax bills now before Congress would eliminate the current requirement that an online seller collect sales tax in those states where they have a physical presence (called a “nexus”), and instead require businesses to collect sales tax across all states.

Three separate Internet sales tax bills now before Congress would require businesses to collect sales tax across all states

Taking a stand on sales tax

In the face of this growing threat to the Internet’s “tax free zone,” the two largest seller platforms, eBay and Amazon, have started going public with their positions and making moves toward Congress and state governments. Interestingly enough, they have very different opinions of how this debate should be settled. It is true that Amazon has its own product to sell, whereas eBay is “just a venue” for sellers to sell their own merchandise. This, to some extent, explains their different positions. I’d like to know which position you favor.

eBay Main Street is eBay’s political arm, if you will. The organization recently sent a group of 20 sellers to Washington, D.C. to speak to the politicians. If you are an e-commerce merchant, I highly recommend joining the eBay Main Street program to keep informed on this and many other issues.

eBay makes its position on sales tax very clear on the eBay Main Street site with this introduction:

“No matter what you call it, eBay Inc. opposes raising taxes on the Internet or its users, as well as any attempt to impose Internet sales tax collection burdens on the small businesses who least can afford it. This is certainly not the time to impose a major new tax burden on Internet vendors working to implement successful new business models, nor is it wise macro-economic policy to impose what is effectively a tax increase on American consumers.”

Amazon, on the other hand, has a different position. After initially opposing online sales tax, Amazon now states that it supports “a simple, nationwide system of state and local sales tax collection.”

Where do you stand?

So, what do you think? Most of us shop both online and at offline, brick-and-mortar stores. Do you feel, as eBay does, that any kind of sales tax levied on Internet merchants would be too difficult for small business to handle? Or do you take Amazon’s position, which seems to be that some kind of sales tax law is inevitable, so let’s try to get a fair federal law instead of waiting for each state to make its own?

To learn more about how the sales tax issue affects Fulfillment By Amazon sellers, sign up to receive information about an upcoming book Introduction to Sales Tax for Amazon Fulfillment Sellers.

About the author

Kat Simpson
Respected as a trusted e-commerce speaker, educator and entrepreneur, Kat Simpson has been a successful e-commerce merchant for more than 10 years. Simpson is an eBay education specialist and Silver PowerSeller, who also maintains stores on Addoway, Bonanza, Buy.com and iOffer. She is the co-host of the popular weekly e-commerce podcast, eCom Connections. Connect with Simpson on Twitter and Facebook. Opinions expressed here may not be shared by The Online Seller and/or its principals.

  • Sten Wilson

    There is no administrative burden for any business of any size. Modern technology actually eliminates any burden  removing existing remittance burdens created by legacy tax procedures so many falsely admittedly defend. Modern technology available freely on the Internet actually makes sales tax calculation, collection and remittance simpler than processing shipping. Furthermore, last I checked, tax evasion is illegal so therefore I will continue to vote for and support legislation enabling states rights to efficiently collect tax legally due.

    • Scott H

      There would be more of a burden. Even though there are technologies available for the calculation and collection, the remittance for each state (or each county) will not be simple. In fact, it would require having a separate collection account for EACH state. It takes me about 45 minutes per month to submit for my own state…so please do the math (if you can). 

      I can only imagine that you are a bureaucrat or part of a large automated business. 

      • Ron

        The government should have a VAT charged to all out of state sales. Amazon put “Circuit City” out of business because of CC’S stores had to charge sales tax. Our stupid Congressmen could help solve the debt problem by a VAT tax.

        •  Ron I don’t believe any business goes out of business only because of competition. IME that is a cop out. However, I am interested in your VAT tax idea if you care to explain more?

      • Or you could use a service which automatically reports and remits on your behalf.

    • Sten, as a small biz owner currently registered to charge, collect and remit sales tax in 10 states, PLEASE tell me about these wonderful technologies that will remove my burden of time as it is currently taking about 30 min per state per remittance to gather the data, fill out the form, write the check (for those that are not online enabled for payments) and mail.

  • Wanita S

    In my state, I not only have to file my sales/use tax form monthly, but I also have to file my business tax form annualy.  Would I have to pay a business tax to all 50 states?  That would be a financial burdon on me, since, in the state I currently live, I not only have to pay a MINIMUM of $22 to the County, but I have to pay a MINIMUM of $22 to the City I live in as well, and if I have to do that for each an every municipality that I have to collect taxes in, I wouldn’t be able to stay in business, not to mention how long it takes me to fill out the forms every month in the first place, since I have to go through each and every sale (I sell online AND in a physical location) and figure out how much money was received via interstate commerce and how much money was received from my in-state buyers.  It takes me nearly an hour every month to fill out a one page form.  I hope this does NOT pass Congress, because then small businesses would be forced OUT of business since the tax burden alone would be too much, not to mention, if they would have to pay for an accountant just to be able to keep up with the form for each and every municipality that their goods go to.  And what about International sales?  Would we be taxed on those, too?

    •  Wanita, interesting question. As I mentioned previously, I am registered in 10 states. Only one required me to get a business license also as an ‘out of state’ retailer. It did, however, cost me over $120 to register in these 10 states.

  • Collecting sales and use tax for every state presents a very severe burden for the very small business. First, it’s very complicated.

    — Start with the state sales tax. In some states, it isn’t the same state-wide.
    — Then add in the various local taxes: county, city, MSA, etc.
    — Then add in the various (and differing from state to state) exceptions and exclusions for non-taxable items.

    Yes, technology can make the calculations easier. But imagine having to write a check to 30 or 40 states! Also, even with online payment to the states, there is a record keeping obligation associated with each state.

    I know of a medium sized business with offices in about a dozen states that was audited by 5 in the same year. The cost of going through the audits (employee time in meetings, travel, copying of documents, etc.) was about $18,000.

    Another burden is competition from overseas vendors. They already have an unfair advantage in that their cost of manufacture is lower, and even subsidized in some countries. Add to that sometimes misleading pricing. Their prices do not include the full cost of purchase in some cases – that is, they are missing the import/export fees that the recipient has to pay when the shipment arrives.

    All that said, I do believe that sales to someone in a state should have the sales tax collected and sent to that state. But, it has to be made simple enough for the small “EBay” vendors to be able to manage.

    I’d suggest:
    — Ignore some of the rarer exceptions, and come up with a list of 30-100 categories that are exempt in all states.
    — One tax rate per state!

    — Have a way that sales outlets/venues (Amazon, Ebay, etc.) can (but not be required) help the small biz collect and remit the sales tax.

    I’m not sure if the fed is the right entity to take this on. It might take an agreement between the various states for some parts, with an overall law at the fed level.

    • Motorhome


      Add to that sometimes misleading pricing. Their prices do not include the full cost of purchase in some cases – that is, they are missing the import/export fees that the recipient has to pay when the shipment arrives.”

      It5 is not up to a Chinese, British or American citizen to know the laws in every country around the world to whom they may ship! That would be impossible! 

      I’m with Ebay on this issue. We are in an economic depression and now is not the time to raise taxes in any form.

    •  Sloan – thanks for taking the time to reply. I really like your suggestion of coming up with a cohesive list of NonTaxable categories across all states.

  • Eva

    Internet sales tax collection is not an “if”, but a “when”.  Local businesses suffer – we know that.  State and local governments suffer, we also know that. 

    Sales and Use taxes have been a reality for decades.  Meant to encompass those big ticket items like vehicles and machinery, items that it is worth crossing the state line to get, those laws never could foresee our ability to order an oddball lightbulb or a pair of used jeans from the other side of the country and pay no tax.  Until recently, the relatively small amount of sales taxes lost through mail order sales did not warrant the cumbersome efforts that would have been needed for collection. 

    Collection and disbursement to the various states is a simple operation however, remarkably similar to that performed by truckers with apportioned plates.  Don’t tell me there isn’t a team at Paypal right now, developing the additional software bits to make application for a tax license for each state a single form and collection by state a simple 50 column spreadsheet AND the option for a fee of having those sales taxes collected remitted directly to each state – annually, monthly, or even daily.  We expect the services that our governmental branches provide, complain when those services are curtailed, yet resist paying our way.  This is not a new tax, simply a matter of starting the machinery that should have been operational all along but is now only a click away.

    •  Eva – I’m putting you down for an ‘amazon’ vote as you feel this is inevitable.

      I totally disagree that this is not a new tax. Of course it is. In 10+ years of doing business I have never collected nor paid sales tax on items sold to out of state customers and if one of these laws pass I will. That, in my book, qualifies as new.

      Of course there are teams working all over to address this issue. Teams at Amazon, Paypal and probably eBay. In addition I would suppose there are several programmers out there ready to serve this niche and make a buck. And THAT is the point. None of this development will be free. There will be a cost to the small business person. I don’t think it will be as dreadful as some are painting it (i.e. 50 plus hours per month or putting 50,000 businesses out of business) but there will be a cost and it will be burdensome to small business owners.

      so – tally so far is Amazon view  2 – eBay  view 1

  • Phil S

    Why not just collect the base sales tax for your own state on all sales?  What could be simpler?

    •  Phil – thanks for replying but that can’t work as each state has a different ‘base rate.’

  • Eric

    What about those of us who do not have an online business?  Those of us that have a bicycling jersey, a pair of used soccer cleats, and a brand new Rokenbok toy to sell?  I have to keep extra tax records just to clear out my garage?

    • as long as you don’t sell more than $500,000 in sales outside of your state, you would be completely unaffected by the proposed legislation.

      •  David – that number has nothing to do with whether you are required to collect sales tax currently on your in state sales, however, just wanted that out there. I am glad to see a number on the legislation being considered but just like the $10K number that was put out there for PayPal 1099s this year, we know those numbers are very easy to change.

    •  Eric, there is no lower amount for ‘having a business.’ That is a fairly common misinterpretation. Basically, if you take in money, that is income. How that affects your tax situation is dependent on many other factors.

  • Anonymous

    I used to have a Brick & Mortar Business.  It was an Auto Repair Business.
    I didn’t send in my quarterly Sales-Tax because I didn’t COLLECT them.
    It seems that the Law Required a Business that “re-sold” Auto parts at a Mark-up to charge & account for “Sales Tax” on those Parts.
    Mind the matter that Labour wasn’t Taxed.
    They sent a Field Interrogator to me who demanded that I produce my Invoices (So much for having the Burden of Proof on their sides FIRST while trampling upon my right NOT to Self Incriminate).  I produced the Invoices because I knew what they were after: The Collected “Sales Tax” Column was BLANK anyways.  I didn’t collect sales tax.
    I didn’t “Up-Sell” the Auto-Parts, either.

    He asked me why I wasn’t collecting Sales Tax.  I asked him to show me the law that REQUIRED me to do so, just to do so.

    It’s like the Theory that one “HAS” to have a SSN just to Have one when the SS Administration clearly outlines that a person DOESN’T Have to have a SSN just to have one NOR is it a requirement for Work (Go Read it for yourself: http://www.ssa.gov/pubs/10023.html) .

    I also told him that Collecting “Sales Tax” also made me into an “Acting Revenue Collection Agent” who merely forwarded the collected “Taxes” back to the State & that, while he might be doing his job of enforcement for “Free” that I would not perform the job of Tax Collector for “Free” & that the State would have to PAY Me to do so or I simply would not do it.  there is a Clause in the Constitution AGAINST “Involuntary Servitude” or Working without due compensation.

    Oh, & Eva?  Re: “Local businesses suffer….State and local governments suffer…”

    No business or State/Local Gov’ts “Suffer”.  Money is Power & they increase their POWER over “We the People” by such Skulduggery-thuggery of ever & over-reaching on streams of Income “Taxes” with which they INCREASE the tyranny of control over Businesses & people.

    That’s Like Saying ATM’s Cause Banque Tellers To Suffer…..nope, they merely offer another level of convenience & service to Customers.

    Re: Eva’s “Collection and disbursement to the various states is a simple operation” would be true if it was a Privatised Non Governmental Operation.  What you propose with respect to Gov’t is an oxymoronic idealistic pie-in-the-sky assessment.  Gov’t NEVER makes things a “Simple Operation”…..well, except maybe for the final plan & for those Trains to Auschwitz I guess.

    Gov’t is BEST when it rules the least.

    But what do I know??, I’m just one of those really DUMB English 2nd. Language LEGAL Emigrants.

    egads, no wonder this Country is going to socialistic BIG-G hell so quickly.

     

  • Don

    My problem is simply ebay charging me a FINAL VALUE FEE on the Sales tax I collect for my home state which I pay like clock work.

  • Frankiew0143

    I am with Ebay on this topic, as I cant afford the additional cost that I would encouter to cover this process. Its hard enough to makes ends meet in this economy and more taxes is to much. I pay my share of taxes which I already feel is to much, but I follow the law and hope this is not implimented.

    •  Frankie – thanks for that ‘vote.’ From the comments – seems like it is 50/50 right now

  • BUTCH

    Reduce government spending and no sale tax.  I will not do the work for the state. After all the other taxes that I have too pay now already.. Reduce government spending, that could be done like a busyness has to do and they would have all the money they need to operate..

  • Benzgemz

    I’m alright with paying my state’s sales tax on in state sales. In fact I am just opening a brick and mortar store so they will be getting substantially more than they do currently. I have been registered to collect sales tax for many years and the state actually refunds a portion of the taxes as a fee for collecting them. I would take issue with collecting for another state. I don’t have an out of state physical presence, if a citizen of another state comes to my shop they don’t pay their state’s tax. If states want to collect taxes from out of state businesses the only fair way is to eliminate state sales tax and replace it with a federal VAT.



Newsletter Signup

Subscribe!