eBay and US State sales tax collection & payment

[BruceE]

Hi folks. Does anyone know if the eBay post-auction process has a means of determining which county a US-based auction winner lives in for their home State? Most US States require that we as sellers collect State sales taxes from auction winners (or BIN buyers) who live in the same State as we do.

In my home State (Georgia), sellers are required to not only collect and pay monthly State sales taxes collected from auction winners who also live in Georgia, but to also fill a form each month breaking those collected sales taxes down by individual counties - based on the county location of each auction winner who lives in Georgia - so that each Georgia county gets its appropriate share of the sales tax collected.

For a typical "brick front" store, this isn't an issue. The store is phycially located in the same location that the buyer "takes delivery." So the sales tax for everyone who buys there is whatever it happens to be for the county in which that store physically resides.

However, it's a different story when the seller lives in County A and the buyer takes delivery in County Z because the product was bought over the internet.

Collecting and paying an OVERALL sales tax for Georgia wouldn't appear to be such a big deal since eBay offers the option in your personal preferences to automatically include a sale tax for your specific state in each of your your auction listings. However, I don't see any tool in eBay that would break it out by individual counties.

So if an eBay seller were to sell a handful of items each month, this exercise of looking up the buyers' county based on their address would be a minor hassle, but not so bad. However, for those of us trying to make a business out of eBay sales, we certainly hope to be making hundreds of eBay sales each month as our business grows. In that context, manually looking up buyer counties would likely become unmanageable (even if only a small percentage of our auction winners are from our home State).

I assume most States in the US have a similar county-separation requirement as Georgia for handling & paying State sales taxes.

So my question is this: does anyone know of an efficient means of collecting eBay post-auction State sales taxes while ALSO breaking out those percentages by the individual counties in which the buyers took possession of their auction winnings?

I hope that all makes sense. If not, just let me know and I'll respond.

Thank you!

[JohnDoyle]

Bruce,

Your post was clear and asks questions that I am sure many students and even seasoned eBayers have. This is a very complicated area of selling and loaded with potential and possibly some very real land mines. Feelings and passions run high both ways about whether state sales tax is legally enforceable at all. Your questions are valid but the answers are much less clear than federal income tax.

If asked I will tell you the same thing that I believe Sydney has stated in the classes I have been in. That is, "Let your conscience be your guide". I would add that you also need to allow for expert advice to be your guide.

After after all, there is no federal sales tax because even they haven't decided how to implement and/or even enforce it. It may sound like a copout, but you need to ask a qualified CPA or tax attorney in your state what they think. Don't make the mistake of trying to interpret the sales tax code of your state by yourself. Further, don't assume you will get a correct answer either verbally or even in print from your state government. More often than not, the information will be that you owe tax on all sales, regardless of how their made. That may be what they think but it's hardly factual information.

As to my personal feelings and some input I have gotten from customers, some buyers will not bid on auctions that charge sales tax, whether delivery is in your state or not. Further, let's make another supposition. How do you know that your customer is not reselling the bargains s/he picks up on eBay in a retail storefront? That tactic is called eBay arbitrage and many do just that. We will talk about arbitrage probably after the first of the year.

I have both CPAs and attorneys that I retain specifically for both major and minor questions just like you are asking.

I treat it very simply. I charge sales tax to items that are delivered in my state at the highest rate in the state, which aslo happens to be where I live. That is also what I pay to the state. I would rather overcharge a few people than owe the state anything. Does that penalize some buyers? Absolutely. Is is unfair? I definitely think so. Will it prevent any potential buyers from bidding on your auction. Maybe a small number.

I know of many eBayers that have never charged a penny in sales tax. Do I think that what they do is right or wrong? I am not the state, the feds or their mothers, so I am in no position to judge them. If they want to live with their businesses balanced on a tightrope, it is their choice.

With all that being said, I don't know about Georgia's sale tax code. However, how can they possibly monitor any and every sale you make on the Internet? Additionally, how can they legally charge sales tax when the item is being shipped beyond the state's borders? Your state needs to answer those questions for you and your experts.

Hope this is some benefit.

John

[BruceE]

Hi John. Many thanks for taking the time to respond to my inquiry. (I don't know where you find the time... :-)

Based on your response, I do have a few of follow up thoughts and one question at the end.

Like you, I don't want to "live with my business balanced on a tightrope" (i.e. to have to deal with government hassles over taxes) and am inclined to collect and pay Georgia State sales taxes, even though I know fellow Georgians may consequently bypass my auctions. However, I'd rather have the peace of mind. So I will take your advice and seek the input of a CPA to make sure I understand the broader picture in Georgia before drawing a final conclusion.

As for what sales tax percentage to collect through my auctions, I was thinking similarly to you. The vast majority of counties in Georgia have a 7% sales tax. About 10% of the counties are at 6% sales tax, and the city of Atlanta is at 8%. So I plan to charge 7% in eBay for all Georgia auction winners and eat the cost for any from the city of Atlanta.

Now if that's all there was to the process, I wouldn't have even posted my question. Charge 7% for fellow Georgians, fill the State form, and pay it to the State once per month. No big deal. However, the real headache is this issue of splitting that sales tax collection out by individual counties based on the physical location that the auction winner takes delivery of the product within my home State (i.e. probably their home address, in most cases). If I could send the collected 7% to the State of Georgia and say, "Here it is. Now YOU sort it out by counties.", I would do that in a heartbeat. But they don't offer such an option.

John, based on your response, it sounds like you may be able to do just that in your State...i.e. pay a sales tax percentage to the State and that's the end of it. No administrative hassles sorting it out by county. I hope that's true.

But for those States that do require this sorting out by county, I know there are shopping cart software packages available that will automate this type of State sales tax splitting by county (I have investigated and found them), but the use of such shopping cart software would be for one's own web site, not eBay. Since most, if not all, of us in Sydney's class are simply lil' ol' eBay sellers right now and eBay doesn't offer the use of this kind of county-splitting software for State sales taxes in their post-auction processing, it APPEARS we are left to do the county-splitting task manually.

So the core question in my initial posting is this: For those of us who are required by our State to collect & pay State sales taxes AND the State requires sale tax splitting & reporting by county, is there a means for eBay sellers to automate the sorting & reporting of that type of information for our State in order to save a lot of administrative time? It's a question of whether the process can be automated in an eBay environment and if so, how.

Having raised the question above, I need to clarify that I don't want to get hung up on this issue. Rather, I'm simply seeking to understand available options from anyone who has prior experience with this issue, make a decision, determine how best to follow through on that decision (with consultation from a CPA), and then move on. I definitely don't want to get anyone else in the class bogged down on this either. But most of us will have to think through this issue at some point.

Again, thank you John (and anyone else) who has some feedback.

[HappilyRetired]

Bruce,
Just wanted to give you a few links here that might help. There are some online courses at the official IRS website and a lot of help software also. You may have already checked here, but take a look.

http://www.irs.gov/businesses/small/article/0,,id=97726,00.html

http://www.irs.gov/businesses/small/article/0,,id=101169,00.html

[JohnDoyle]

Hi again Bruce,

I find the time because I am a fanatic about maximizing my time. And you are always more than welcome for the info. I also have a 3rd person that I hired today that will be of big help. These are students and 2 of the 3 are special needs kids. And let me tell you about these kids, I wouldn't trade any of them for anyone else. Most days, I have to kick them out of my home because they are that dedicated. The special needs kids handle much of my shipping and the other teen handles much of my listing work.

Anyway, I took a few moments and looked at the percentage of my Texas sales and it was only 2.37% of my transactions. As I am sure you have guessed by now, I tend to focus on larger ticket items also and international sales, in particular. I have listed auctions before that, had I not made them available to international bidders, would have been dismal failures.

So, I am like you. I would not spend much time worrying about it, nor would I embark on finding some 3rd party seller services or auction management company to break them down either. eBay has no mechanism that I am aware of either for this issue.

Further, you have the Master of all eBay Masters that is in your home state of Georgia. I am sure Sydney can advise you as to how she handles this issue.

Texas and Georgia are definitely much alike. In the Houston metroplex, I can go to one end and pay 7.25% but most places it is 8.25%. The same scenario plays out in the counties. It seems as though everyone is different.

However, that is where the similarities end. I don't have to go though a county by county reporting process. (Thank God!) Personally, I would still charge the rate in Atlanta because taking money out of your pocket for the state is just wrong in my personal estimation. If your customers will pay 7%, 8% is going to make little difference in the success of your auctions. The worst that will happen is that you will overpay Georgia, which I am sure they won't mind at all. I have never had even one complaint about my process with a Texas customer.

I hope that helps. Have a terrific Thanksgiving!

Regards,
John

[BruceE]

Hi Happilyretired. Many thanks for taking the time to provide the two URLs below. I had previously seen the first with the IRS courses (and in fact had gone through about half of them a couple of months ago), but not the second. I looked over the options in each, and both are focussed on federal (not state) taxes. They are helpful in their own right, but unfortunately don't address my core question in this specific discussion string.

As Joe recommended, I'll follow up with a CPA for recommendations. And since Georgia is only 2% of the US States (just like every other State), the tax data collection process & reporting to the State may turn out to be less time involved than I'm thinking at the moment. We'll see as I move forward (as will all others in Sydney's class who have to deal with the same issue in their own State).

Thanks again!