How Post-Wayfair Sales Tax Laws Affect eBay
Devin Wenig, CEO of eBay, says his concerns about the new, post-Wayfair sales tax situation have turned out to be all too true. “One emerging challenge for our small business sellers in the US is the rapidly evolving landscape for internet sales tax,” he said in an earnings call. “At the start of the year, only a handful of states had active legislation requiring marketplaces to collect sales tax. By the end of the year, that number will grow to more than 30 states, and it’ll cover the majority of US GMV [gross merchandise volume].”
CFO Scott Schenkel added, “This is exactly what we said would happen, which is small US businesses are being disfavored, the impact is disproportionate… It’s favoring larger businesses and retailers and it’s also favoring international businesses. So, we again will call for a federal legislation on internet sales tax and a small business exemption. And I’ll say that you’ll continue to hear me say that because what we’re seeing is exactly what we had feared and what we had said.”
EBay automatically calculates, collects, and remits sales taxes on behalf of its sellers. This is part of eBay’s role as a marketplace facilitator. EBay sellers are generally pleased that they don’t have to deal with the complexities of remote seller sales tax on their own. However, they don’t have the option of limiting which states they’ll sell to.
Sellers we spoke with were not aware of the changes, and they can’t see how sales tax affects their sales. They know they’re seeing a drop in sales, and one seller told us he thought he should adjust his prices. But he can’t track the effects of sales tax.
The result, according to Wenig, is a dip in sales. Overall, he says, sales are down by 1 percentage point. He attributes the change to the higher prices created by the new sales tax rules.
Are the new sales tax regulations a price hike?
No, the states will say. Buyers at eBay have always been required to pay use tax, the equivalent of sales tax, on their purchases. If an online merchant doesn’t collect sales tax, the consumer is supposed to calculate what he should have paid and add it to his income tax return.
Almost nobody does this.
That’s why eBay can describe the new tax collection as a price hike. Deciding that consumers are also seeing it as a price hike and blaming it for a 1% drop in sales in Q2? That’s more imaginative. EBay’s data set is large enough to provide data to work with, but connecting lower spending with sales tax may be too much of a leap. Data from the Bureau of Economic Analysis shows that consumer spending grew in Q2, with particularly robust increases in ecommerce and restaurant meals.
Outside of eBay
EBay takes care of sales tax compliance for its sellers. Who’s looking after other remote sellers? No one, really. From small to medium size online retailers to manufacturers who sell direct to consumer as well as wholesale, companies are getting frustrated.
- In which states are your goods taxable? The definition of taxable items is different from one state to another. Just in the category of clothing, states determine taxability on the basis of price, use, where it’s bought, whether it has a protective purpose, material, and even what it’s worn with.
- What’s the sales tax threshold? Many states exempt sellers with less than $100,000 in revenue. However, some states base the threshold on the number of transactions, which can cause companies to reach the threshold with much lower revenue. Some states also include a company’s total revenue, including wholesale as well as retail sales.
- What’s the sales tax rate? Some states have a flat rate for remote sellers, but some allow cities and counties to add their rates to the state sales tax rate.
Multi-state sales tax compliance can be frustrating. Before you stress out enough to throw in the towel, let Sales Tax DataLINK help. You can outsource the entire process to our team of experts.
The Wayfair decision Four years ago, the Supreme Court's decision in South Dakota vs. Wayfair changed everything about sales tax compliance for businesses with revenue from multiple states. Instead of being responsible only for transactions in states...
The new nexus Before the Supreme Court's decision in South Dakota vs. Wayfair, remote sellers only had to collect sales tax when they had a physical presence in a jurisdiction. A store, a warehouse full of your products, affiliate sellers -- these...
a The Barter Life It used to be that businesses only had to collect and file sales taxes if they had a physical presence in a state: an office, a store, a warehouse, or a factory, for example. A small business using e-commerce to sell in other states or...