Topic: Member Workshop: Sales Tax, Use Tax – The “Other” Taxes for eBay Sellers
Host: dkennedycpa Date: Wednesday 07/11 Time: 10:00 a.m. to 11:00 a.m. Pacific Time Location: Workshop Board
Description: When do you have to charge sales tax and for what state? Sales and use tax continue to be the most confusing taxes. Please join best selling-author and CPA Diane Kennedy as she guides you through the ins and outs of the maze of sales tax regulations in this one hour workshop.
Hello. My name is Diane Kennedy. I’ve been a CPA and Tax Strategist for over 25 years. My specialty is working with small business owners and real estate investors. My tax education company, Tax Loopholes, LLC, teaches people through books like Tax Loopholes for eBay Sellers, tapes and seminars on how to take advantage of the legal tax-reduction strategies that available to everyone. Please remember that laws and practices vary from state to state and if tax, accounting, legal and other specific expert advice is required, the services of a professional should be obtained. Diane Kennedy, CPA www.taxloopholes.com
When the government wants to promote a specific public policy it often uses tax breaks to get the public interested. After all, who doesn't want to pay less taxes? There are two things that the government wants you to do: (1) Start a business and (2) Invest in real estate. So, to encourage you, the government offers all kinds of tax breaks. Because these tax breaks are sponsored and created by the government, they're safe, legal, and meant to be used. Diane Kennedy, CPA www.taxloopholes.com
eBay has generously set aside time for us to present these business-related sessions designed to help you make more and keep more money. We have a new workshop every month. Mark your calendars! Diane Kennedy, CPA www.taxloopholes.com
Today we're talking about taxes: sales tax and use tax - how are they calculated, when are they calculated, and more importantly - how and when should they be paid. Diane Kennedy, CPA www.taxloopholes.com
And, just before we begin I want to tell you about this month's free offer. The first 10 people who post on this workshop will be entitled to receive a free copy of my product, Business Structures for Business. We'll be tracking posts throughout the workshop and will announce the recipients at the end, together with instructions on how to get your free product. Diane Kennedy, CPA www.taxloopholes.com
Operating through a business structure or just as a Schedule C business, when you're selling things on eBay you’re going to have to think about sales and use tax. The first thing to think about and get really clear on is your "nexus" - where you’ll be taxed and where you need to collect tax. Diane Kennedy, CPA www.taxloopholes.com
Determining Nexus. Nexus is a fancy term that means “where your business is located.” From a tax perspective, nexus is your geographical taxing district. If you live in Chicago and your business was incorporated in Illinois, your business nexus is Illinois. That means you’ll be subject to Illinois tax law when it comes to your sales on eBay. Diane Kennedy, CPA www.taxloopholes.com
Typically, this means that you’ll have to charge Illinois residents who buy items from you state sales tax, collect that tax and send it off to the local government (or in some cases governments - plural). Diane Kennedy, CPA www.taxloopholes.com
Many people are under the impression that they can avoid tax issues by incorporating in a state with no sales or use tax. Unfortunately, this isn't true. The problem is, no matter where you incorporate you're still sitting and working in Chicago, Illinois. That’s where you're sitting when you order wholesale merchandise for resale, where you go out looking for items and where you package and ship your sales from. Diane Kennedy, CPA www.taxloopholes.com
In the eyes of most states, your physical presence, combined with the work you do in your business is enough to be considered doing business in that state. That means you are automatically subject to that state's tax laws and rules, no matter where you might have incorporated your business. Diane Kennedy, CPA www.taxloopholes.com
Sales Tax. Sales tax is assessed against all sales of tangible, or real, personal goods. It doesn’t matter whether or not the goods are brand new or used. If they are being sold, they become subject to sales tax, unless you live and operate your business in a state that has no sales tax (like Oregon). Diane Kennedy, CPA www.taxloopholes.com
When you buy things from a retail store and pay sales tax on your purchase, you are usually paying a blended overall tax that covers your state, county, and city. What you pay at the register is the total of all of these tax percentages. For example, in California the statewide sales tax rate is 7.25%, but when you add on local supplementary taxes that rate can go as high as 8.75%. Diane Kennedy, CPA www.taxloopholes.com
As a seller, you are responsible for assessing the correct amount of tax and collecting it on each sale that you make. You are responsible for holding these funds until it is time to send them in to your local tax authority, which is done on a weekly, biweekly, or monthly basis, depending on your state’s regulations. You are also usually responsible for preparing and submitting a report detailing the total amount of your sales in each county and/or city, so that tax collectors can confirm and verify that you have charged enough tax and have submitted the entire amount due. If you make a mistake and charge too little sales tax, you will wind up paying the balance, so it is in your best interests to make sure that you know the rules for your state. Diane Kennedy, CPA www.taxloopholes.com
The good news is that plenty of software programs are available to help you calculate sales and use taxes. In fact, eBay can help out with special software. When you are setting up your sales descriptions, you can choose to turn on the sales tax module provided by eBay, and by selecting the state where your business is located, you can ensure that the proper tax is calculated for purchasers who also live in your state. Diane Kennedy, CPA www.taxloopholes.com
Sales Tax and the Internet. An argument has been raging for years about whether Internet sales should be subject to state sales taxes. Those opposed to the idea say that as the Internet knows no borders and belongs to no specific state of country, no taxes should be paid on Internet sales. On the other side are the state and local governments which are trying to tap into all of that potential revenue. Diane Kennedy, CPA www.taxloopholes.com
eBay recommends that sellers contact a tax professional to determine whether it is necessary to charge sales tax on sales. eBay does not provide tax advice, nor does it warrant that its sales tax features will address all tax requirements. Diane Kennedy, CPA www.taxloopholes.com
Use Tax. The use tax is an odd little tax imposed by most states to discourage shopping in more tax-advantageous states. Basically, use taxes make up for the sales taxes you would have paid in your home state. They are levied on goods that you purchase in one state and then bring back home to use. For example, assume you are a Californian who traveled up to Oregon to purchase goods (Oregon has no state sales or use tax) and then took those goods back to California. You would owe a use tax equal to the amount of sales tax you would have paid in your home state of California. Diane Kennedy, CPA www.taxloopholes.com
Use tax may also be imposed if you buy goods using a wholesale or resale certificate for resale by you, and then you wind up keeping and using the items yourself. If you imported designer handbags, for example, using your wholesale license to avoid paying sales tax on your purchase, and then decided to keep a few for yourself, you would owe use tax equivalent to the sales tax you would have paid to buy those items at a retail store. Diane Kennedy, CPA www.taxloopholes.com
And what about supplies you buy to use in your business? Well, if you bought packaging supplies over the Internet from California to use in your Illinois-based business, ideally you should be reporting the cost of those supplies on your sales tax return each month and paying Illinois use tax. Headache? Absolutely! The good news is that it’s a deductible expense—you can deduct all use taxes that you pay for items that you use in your business. Diane Kennedy, CPA www.taxloopholes.com
Use Tax Rate. In most states, the use tax rate is the same as the sales tax rate, because effectively the use tax is going to replace the sales tax that would otherwise have been charged. It is usually calculated and reported on the same form that you use to calculate and report your sales tax, and it would be paid at the same time. Diane Kennedy, CPA www.taxloopholes.com
Sales Tax on Consignment Sales. Some people expand their businesses to sell items on eBay for other people. People who sell on consignment using eBay are deemed trading assistants or trading posts. People and companies with merchandise to sell who don’t want to sell it themselves can contact a trading assistant or trading post and arrange to have their goods listed and sold by that person. Diane Kennedy, CPA www.taxloopholes.com
In terms of tax issues, consignment sales are usually treated the same as if you owned the merchandise personally. If you sell the merchandise to someone in the same state as your eBay business, you will be required to collect and remit sales tax on the sale. If you sell to someone outside your state, you won’t need to collect sales tax, but you should carefully document the sale to prove that you were not required to collect or remit the tax. In either case you are responsible for paying any sales tax that arises. Diane Kennedy, CPA www.taxloopholes.com
Sales Tax on Out-of-State Sales. Generally speaking, you are not required to collect or remit sales tax on items that you sell to eBay buyers who don’t live in the state where you live and operate your business. But keep good records of your sales! It's not just the IRS who audit, and if you are chosen by your state or local tax agency for an audit, underreported sales tax is an area that will be looked at closely. Diane Kennedy, CPA www.taxloopholes.com
Sales Tax and Drop-Shipments. Something else to think about is drop-shipping from a location outside your state. What do you think would happen if you lived in Oregon but your items were drop-shipped from New Jersey? Well, as long as your buyers didn't live in Oregon or New Jersey you'd be fine - but if a buyer lived in New Jersey, you'd have to collect sales tax on that item and send it to the New Jersey tax authorities. That could involve registering your business in that state and paying even more in taxes and fees! Diane Kennedy, CPA www.taxloopholes.com
Here’s a handy chart you can refer to when the question of sales tax arises:
If you: Buy items in your home state - You Pay: Sales tax in your home state
Buy items in another state that charges sales tax - You Pay: Sales tax in the state where you buy your supplies
Buy items in a state that doesn’t charge sales tax - You Pay: Use tax in your home state
Sell and ship goods on eBay to a purchaser who lives in your state - You: Charge sales tax on the purchase price (before shipping and handling charges are added) and remit to your state tax authorities
Sell and ship goods on eBay to a purchaser who lives in another state - You: Are not required to collect or remit sales taxes on the sale
Sell and ship goods on eBay as a trading assistant, where both the original owner and the purchaser live in your state - You: Charge sales tax on the purchase price (before shipping and handling charges are added, in most states) and remit to your state tax authorities
Sell goods on eBay as a trading assistant, where the original owner lives in another state and the purchaser lives in your state (goods are drop-shipped from original owner’s location) - You: Are not required to collect or remit sales tax on the sale
Sell goods on eBay as a trading assistant, where neither the original owner nor the purchaser live in your state (goods are drop-shipped from original owner’s location)- You: Might have to collect and remit sales tax, if the original owner and purchaser live in the same state
Sell goods on eBay as a trading assistant, where the original owner lives in your state and the purchaser lives in another state (goods are shipped from either your or original owner’s location) - You: Are not required to collect or remit sales tax on the sale Diane Kennedy, CPA www.taxloopholes.com
Reporting and Paying Sales and Use Taxes. The monthly sales volume from your company and your state’s requirements will determine how often you will need to complete sales and use tax reports. Reporting could be required monthly, quarterly, semiannually, or annually. There is information available on our website, www.taxloopholes.com/ebaysellers, to help you find out where you need to go in your state. Diane Kennedy, CPA www.taxloopholes.com
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The views expressed in this presentation are those of the presenter and not those of eBay Inc. The presentation of this information at an eBay event does not indicate endorsement or sponsorship by eBay Inc. Participants should consult with their accountants or tax specialists for professional advice.
Hi! I live and operate my business in Georgia. Can you name a resource or help guide that will help me learn the basics about calculating taxes to charge and taxes I'm responsible for paying? Also, does it really make a tax difference for a company to incorporate in a state that doesn't charge sales and use tax? I'm a little confused about this. Thanks so much!
Assuming my business has "Nexus" only within my state. (incorporated and conducting
business with my state. Also assuming that I am not using any shipping vendors):
For the purpose of discussion, let us assume that I am doing business in the city of
Minneapolis, Minnesota state.
1) How would the tax charges vary?
a) ship orders to customers living within my city (Minneapolis) b) ship orders to customers living within my county c) ship order to customers living outside of Minnesota, say to California.
Hi Diane, Generaly speaking, if the customer is standing in front of me, but, wants me to ship the purchase to their home in another state, would I still need to collect sales tax in Arizona ? Thanks
You touched on this already in the "sales tax" section:
"It doesn’t matter whether or not the goods are brand new or used. If they are being sold, they become subject to sales tax. . . "
If I own a used item and paid full retail and tax on it, do I still pay sales tax and other taxes; what about an item purchased from out of state at full retail plus tax, same answer?
As a seller, you have to collect and pay sales tax on the sale. So, although it sounds like double dipping (and actually is), you will still have to charge sales tax.
As a hint for the future, make sure you show your sales/use tax certificate when you purchase so you don't have to pay sales tax when you buy. Diane Kennedy, CPA www.taxloopholes.com
Hi! I live and operate my business in Georgia. Can you name a resource or help guide that will help me learn the basics about calculating taxes to charge and taxes I'm responsible for paying? Also, does it really make a tax difference for a company to incorporate in a state that doesn't charge sales and use tax? I'm a little confused about this.
Please check out www.taxloopholes.com/ebaysellers. We have a link to all of the state's websites there. You should find a help guide for GA through this link.
If you incorporate in another state, that won't impact the taxes. The issue is where you are located and where you are making the sale. Diane Kennedy, CPA www.taxloopholes.com
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