eBay Fees on Buyer-Paid Sales Tax

[swarmee]

Originally Posted by D. Bergin

I’m pretty sure they started collecting from states and countries they didn’t even have to, once they figured out they were making money hand over fist collecting taxes from their sellers.

There are some other companies that seem to be doing this as well, making the assumption that all states with sales tax will at some point pass legislation mandating the collection and remittance of the use tax under Wayfair. I think Florida was one of the last few holdouts, but are going to begin requiring it July 1.
If the company is collecting *and* remitting the actual tax back to the state (even when it's not technically required), I don't think they're technically doing anything illegal. If they are collecting "tax" and not remitting it back to the state, then report them to the state in question. That would be a clear cut case of tax fraud, I believe.

[D. Bergin]

Originally Posted by swarmee

There are some other companies that seem to be doing this as well, making the assumption that all states with sales tax will at some point pass legislation mandating the collection and remittance of the use tax under Wayfair. I think Florida was one of the last few holdouts, but are going to begin requiring it July 1.
If the company is collecting *and* remitting the actual tax back to the state (even when it's not technically required), I don't think they're technically doing anything illegal. If they are collecting "tax" and not remitting it back to the state, then report them to the state in question. That would be a clear cut case of tax fraud, I believe.

Yeah, I'm sure they're remitting the appropriate amount back to the states/countries when they collect. What should stick in everybody's craw is they're also collecting a 12.55% to 15% vig from the seller, on the sales and VAT taxes they collect. That's a bit more then a 2 to 3% merchant processing fee, which should be enough to cover their "accounting".

They went from lobbying against individual states sales tax collection as being onerous on business's and detrimental to inter-state commerce, to embracing and even advancing it as a way to increase revenue and claiming they aren't hiking your fees in the process.

That doesn't even account for their "final value" money grab on the shipping costs also.

[Jobu]

Collecting fees on the tax doesn't really end up hurting the seller that much though.

Ebay also figures out the appropriate taxes for us, collects them, and remits them on the seller's behalf for every jurisdiction. Certainly it is worth it to everyone who sells on Ebay to pay an additional dollar to not have to do that ourselves, no? In addition to the fact that we shouldn't expect Ebay to do that for free, as the new agent responsible for the money (including the tax portion) in the transaction, Ebay should be able to charge a % on that as I don't know of any organization which will process money for you, and take risk associated with sales guarantees, and just exempt a portion of it and do that bit for free. All of the above is certainly worth a dollar, isn't it?

An example of the new system vs. the pre-tax system from a recent sale:

Sale price: $985
Price + tax: $1,044.10
12.35% of price + Tax: $128.95
Fixed final value fee: $0.30
Total fee: $129.25
Total payment to me: $855.75

Under the pre-tax, pre-managed payments system, I would have paid 10% of the $985 to Ebay ($98.5) + 3% of the $985 to Paypal ($29.55) = $128.05 in total fees. So the new system, where Ebay handles all of the tax stuff for me, costs me an extra $129.25-$128.05 = $1.20.

[HexsHeroes]

I recently sold an item on eBay and noted in terms (before listing) how the Final selling fee was calculated. Not a fan of how done but do not think unreasonable to conclude that buyers might take inclusion of state sales tax and shipping cost, along with winning bid, into determination of fair value of item. In that case, not unreasonable for eBay to use that logic of fair value to base final selling fee on. Again, I am not a fan of that logic, but accepted it before listing my item.

When I bid in major auctions, I determine my absolute max cost (max fair value) for item, and back out estimated costs for shipping & insurance, state sales tax, and commission to arrive at my max ceiling bid amount. eBay final fee calculation not far removed; except the base final sale fee (commission) after inclusion of all sales costs. Just hope auction houses do not change on amount (before or after sales taxes and shipping/insurance) they base commission on. A change to the later might reduce amount to consignors based on my logic of how I calculate fair value.

[BobC]

Y

Originally Posted by Jobu

Collecting fees on the tax doesn't really end up hurting the seller that much though.

Ebay also figures out the appropriate taxes for us, collects them, and remits them on the seller's behalf for every jurisdiction. Certainly it is worth it to everyone who sells on Ebay to pay an additional dollar to not have to do that ourselves, no? In addition to the fact that we shouldn't expect Ebay to do that for free, as the new agent responsible for the money (including the tax portion) in the transaction, Ebay should be able to charge a % on that as I don't know of any organization which will process money for you, and take risk associated with sales guarantees, and just exempt a portion of it and do that bit for free. All of the above is certainly worth a dollar, isn't it?

An example of the new system vs. the pre-tax system from a recent sale:

Sale price: $985
Price + tax: $1,044.10
12.35% of price + Tax: $128.95
Fixed final value fee: $0.30
Total fee: $129.25
Total payment to me: $855.75

Under the pre-tax, pre-managed payments system, I would have paid 10% of the $985 to Ebay ($98.5) + 3% of the $985 to Paypal ($29.55) = $128.05 in total fees. So the new system, where Ebay handles all of the tax stuff for me, costs me an extra $129.25-$128.05 = $1.20.

I don't sell anything on Ebay so I may not know all the nuances, but not sure your logic is entirely accurate. First off, Ebay buyers living in states with a sales tax know the sales tax will get tacked on to their winning bid, just like when bidding on AH auctions they know they'll have to add the buyer's premium to their top bid if they end up winning. So you have to assume that most bidders are going to factor in that sales tax or buyer's premium into what they are willing to bid. So in the case of your example where the top bid was $985, you wouldn't be wrong to assume the buyer would have actually paid $1,044.10 for it as a top bid if they knew no sales tax was being charged. So under the old pre-tax system in your example, the combined 13% Ebay and Paypal fees would have cost you $135.73, which is even higher than the $129.25 figure you came up with in your example. However, that total fee comes off the higher sales price of $1,044.10 so that you now end up with net proceeds of $909.37, which is significantly higher than the $855.75 you netted in your example, for a total difference of $53.62 more it costs the seller, not $1.20.

Secondly, these new sales tax rules really only apply to Ebay sellers whose sales are to buyers not in the same state(s) they are in. So technically, even under the old rules, anyone selling something on Ebay going to a buyer in the same state they are in (assuming that state has a sales tax) should have been charging and remitting sales tax on all those in-state Ebay sales from day one. These new rules are simply to extend that obligation of sellers to now collect and remit sales tax in those states they are not physically in, and per the Supreme Court ruling it is now based on a seller's sales amount and volume. And that threshhold is not that small for a seller to become responsible for collecting and remitting sales tax to a state they don't reside in. Per the Supreme Court a seller crosses that threshhold once they've reached an annual total of $100,000 in sales or 200 transactions in a particular state. And remember, those threshholds aren't just the annual amounts for the seller. A seller on Ebay can easily surpass these numbers in total, but not necessarily for any one particular state, and therefore under the law would not be required to collect and remit sales tax on Ebay sales to any state (except potentially for the state the seller actually resides in).

So yes, there are going to be some large Ebay sellers that are going to cross those sales tax threshholds, but I'd be willing to bet the vast majority of Ebay sellers never come close, and therefore wouldn't be required to do any of this (again, except maybe for their resident state). Also, Ebay chose to take on this sales tax responsibility by choice, not by any specific legal requirement I'm aware of. These sales tax laws are for the actual product sellers. Ebay doesn't physically sell anything, they simply provide an online platform for those that do. But the states are also willing participants in all this by allowing Ebay to act as an agent for all these sellers. Remember, most all of these sellers aren't actually required to collect and remit sales tax, and you know that virtually none of the buyers of those Ebay items on which no sales tax was charged are going to volutarily remit the use tax they should then be paying to the states they live in. So the states obviously view this as a huge win as they get sales tax revenue they normally wouldn't collect, and don't really have the time or resources to go after otherwise.

But who actually pays for all this? Let's look at your example in another way. The added cost to a seller from Ebay collecting sales tax, based on your example and using my additional assumptions, came out to be $53.62 on a proposed sale of $1,044.10. Well if that is the only sale that seller has to an out of state buyer, they clearly aren't legally liable to collect and remit sales tax on that sale. But what if we bump up the out of state sales to sellers in that same state from $1,044.10 to $99,999.99, just under the sales tax threshhold (and assume still under 200 transactions for the seller)? Assuming the Ebay fee percentages remain the same as in your example, you are now talking about a potential additional cost to the seller of around $5,000.00. Not such a small amount anymore. I'm not saying this is right or wrong, or that it is 100% accurate, just that based on how most things are being done by buyers and sellers on Ebay that this presents a more accurate view of the additional cost to the average sellers on Ebay. And in the end, Ebay appears to end up with more revenue in their pocket from doing this.

I assume that for a seller there is no choice in deciding if you wanted Ebay to collect sales taxes for you or not. As stated before, I don't sell on Ebay, so don't know for certain. So I wonder what happens to those sellers who previously did collect and remit their own sales tax? Don't believe Ebay lets the states know on whose behalf they are remitting sales taxes, so what happens if some state also comes calling on some seller because their sales tax returns and payments suddenly changed drastically because of Ebay involvement? Is Ebay going to reimburse them for the time and hassle in dealing with that state? Or what about a seller that doesn't sell everything on Ebay alone, they now have to keep records of Ebay sales by state anyway to go along with non-Ebay sales to see if they hit the sales tax threshholds somewhere and now have to collect sales taxes for non-Ebay sales in those certain states as well. So the thinking that Ebay taking over the responsibility for sales taxes is doing all sellers a great service they should be more than happy to pay for, at a very nominal cost, isn't necessarily that true. The vast majority of Ebay sellers aren't even subject to these non-resident state sales taxes. And for the much larger Ebay sellers that would be subect to them, they are most likely big and responsible enough to take care of their sales taxes themselves. And in some cases for these large sellers, Ebay taking over part of their sales tax collection and reporting requirements can actually end up creating more work and hassles for them, not less.

And as to why Ebay would voluntarily take on this sales tax collection and reporting requirement, there can be many possible reasons. For one, if the large sellers on Ebay get caught up in now having to collect and remit sales taxes, whereas the average seller doesn't, that suddenly puts the large sellers at a disadvantage as things they sell will cost their Ebay buyers more due to the sales tax. So a large seller could end up dropping Ebay, partially or entirely, and moving to other platforms, or doing their own online platform, all so the disadvantage isn't so evident. So by Ebay making sales taxes the same for all sellers, it can help to keep their larger sellers happy and less likely to sell elsewhere than on Ebay. For another reason, Ebay may have looked ahead and realized that with all these forthcoming sales tax law changes, and because of the huge number of sellers and overall amount of sales on their platform, that they would eventually get approached by multiple states to start providing them with more and more info about all their sellers and their respective Ebay sales. Can easily imagine Ebay thinking proactively and deciding that if they would eventually have to do all this extra work and reporting anyway, why not figure out a way to get paid for it? And yet another reason for possibly doing it is to potentially create another profitable service they can provide. Not only does it solve the possible issue of Ebay trying to get large sellers to pay them for providing info to states they'd end up probably having to do anyway, but by adding in the collection and remittance function of sales taxes they can not just try to break even on the additional reporting costs, but turn sales taxes into a potential profit center and end up charging all sellers for it. Going back to the original example, the earlier poster came up with an additional $1.20 of Ebay fees on a sale (plus sales tax) totaling $1,044.10 under the new sales tax/fee system versus the old system, which is roughly about 0.1% more it ends up costing the seller in fees. Don't remember exactly from where, but seem to recollect hearing or reading somewhere that total annual Ebay sales for just sports cards and memorabilia and such in a recent year was around $340M. So 0.1% of that would come to around $340K, which in itself isn't that much, but that is for just one small part of Ebay. So I'm guessing that Ebay is easily getting millions of dollars a year in addditional fees from this new system to cover the cost to handle the sales tax work, which frankly, after the initial setup in the 45 states that do charge sales taxes, is programmed into their automated system and likely not very difficult and time consuming at all. After recouping their initial costs to do sales taxes, can easily see Ebay profiting from it every month thereafter. And that leads to even another potential reason for Ebay wanting to do this. Monies collected for sales tax by Ebay are held until due to the individual states. So while in their hands, Ebay is free to invest this money, and make more off of it. Granted, interest rates being paid on short term investments nowadays are next to nothing, but most knowledgeable people feel confident that interest rates will be rising at some point in the future due to a lot of factors, and if/when they do, this would be found money to Ebay.

So the thinking that Ebay isn't getting much of anything out of this may not be entirely accurate.

[Exhibitman]

Those who think eBay is engaged in some scheme of collecting taxes and then not turning the money into the states, that is not a serious discussion. eBay is a public company with audited financials. Where exactly on its financials would it hide millions in sales taxes collected each reporting period but not remitted? Also, that sort of crap would require a grand conspiracy among the C-suite people, the accounting staff, and the outside auditors. eBay may be remitting unnecessarily but it is undoubtedly remitting. In that vein, I have no complaint with paying eBay to handle the sales taxes for me because tracking all of the interstate sales taxes, including keeping up with the laws for every jurisdiction, is an unbelievable pain in the ass. Even if you owe nothing, once you are registered in a jurisdiction and issued a resale # you must do the return every reporting period, even if you have nothing to report. I have clients who have to do that for their businesses and it is a Herculean effort every quarter. I will gladly pay a small fee to avoid it. It even simplifies my sales tax remittance for Cali; instead of my collecting and remitting CA sales tax I just post all of the eBay sales in one spot on the return and done. No district tracing, no county tracing, no tracking the funds, just done. The few quarters I've done it so far it has cut substantial time from my sales tax work, at my hourly rate it is definitely more time saved than the amount eBay has taken from me for the fee.

[Gusturd]

Ebay likely is reporting all the sales tax remitted, but that doesn't change the fact that they are collecting who knows how many dollars worth of unnecessary sales tax and collecting a nice fee for themselves off it. I'm not even referring to the sales thresholds previously mentioned. I'm talking about the people like my wife that sell 10-20 items a year to clean out the garage/closets. These types of transactions don't require the collection of sales tax. How many of these sales are made on ebay each year?

[BobC]

Originally Posted by Gusturd

Ebay likely is reporting all the sales tax remitted, but that doesn't change the fact that they are collecting who knows how many dollars worth of unnecessary sales tax and collecting a nice fee for themselves off it. I'm not even referring to the sales thresholds previously mentioned. I'm talking about the people like my wife that sell 10-20 items a year to clean out the garage/closets. These types of transactions don't require the collection of sales tax. How many of these sales are made on ebay each year?

First off, your statement that sales like your wife's aren't subject to the collection of sales tax may be inaccurate. It depends on what state the seller is in, and if that state has a sales tax. And then it further depends on if any of those 10-20 sales were to a buyer(s) that lives in the same state as the seller, because if so, that state may require the seller to collect sales tax on any same state sales since the seller is physically present in the state in which the item is shipped to.

However, I would still suspect a lot more sales that really don't require the collection of sales tax by the seller occur on Ebay than people might think or ever realize. Would not be surprised if far more than half of all Ebay sales are technically NOT legally subject to sales tax collection by the actual seller, and would not be shocked if it turned out only about 20%-30% (or maybe even less) of all Ebay sales would actually be subject to sales tax collection by the true seller.

What I wonder is how did Ebay get all sellers to agree to let them do this sales tax collection on seller's behalves in the first place. Remember, Ebay doesn't actually sell anything. Did they have a special update in their Ebay rules/contract for sellers where they effectively had all sellers sign off and agree to grant Ebay the exclusive right to act as their agent for sales tax collection? This was a very well thought out idea and plan by Ebay that does also benefit them. As some posters to this thread mentioned, they are not upset to pay a little something to Ebay to take care of the sales tax for them, so they don't really tick off all their sellers. And like another earlier poster mentioned, a lot of sellers likely feel the additional cost is very nominal. But as I tried pointing out in an earlier post, if you feel that buyers do take sales tax into consideration when making Ebay purchases now that effect the final bid/price they're willing to pay, the actual cost to sellers is likely much higher than they imagined. They just don't realize it, which is their loss and Ebay's gain.