posted on March 6, 2003 10:38:39 AM new
slhsato asked:
Who needs to have a sellers permit in order to sell on eBay, and do you collect taxes from customers within your state and then pay that back to the gov at the end of the year?
The short answer:
For legal reasons, anyone who conducts business sales in their own state, anyone with a business bank account or who wants to buy wholesale without paying sales tax, and yes.
The long answer:
1.) Most states require that if you are in business that you have a sales tax permit, and collect sales tax on sales in your state. That is obtained in my state from the "state comtroller". There is a fee for the permit, usually in the $25 - $50 range. This permit allows you to buy wholesale without paying sales tax on items FOR RESALE ONLY. You still pay sales tax on items for in-house or personal use, even if bought from your wholesaler. You must file returns and remit tax either monthly, quarterly, or yearly, depending on your volume. Unless you are just selling off a few personal items, you should definitely get this.
2.) If you are going to open a bank account under the business name, you will need a "DBA" which stands for "Doing Business As". It is a notarized form from the county clerks's office that authorizes you to legally do business under an "assumed" name (a name other than your legal name). Banks require it here in order to open a business account. There is a fee from the county clerk, usually $25 - $50.
An aside - this legal filing of your name also prevents anyone else in your county from registering under the same name. If you wish to incorporate under that name, or someone else does later, your state will do a nationwide search to see if a similar named corporation exists. If it does, that corporation must give you their permission via your state (in writing) for you to use the name you have picked to incorporate under (I have been through this). This would be unimportant for most small sellers.
If you are going to be bringing in income above a certain level, you need to bear in mind that you will be required to pay estimated income tax quarterly since you are self employed. Contact the IRS for the amount above which they require this. It will likely be at a higher income level than most hobby sellers are bringing in on Ebay.
Ebay does not specifically "require" any of the above, although there is a portion of their user agreement that states one must not use Ebay for illegal activity, which would include meeting government legal requirements as well as participating in an honest manner as well.
posted on March 6, 2003 10:50:34 AM new
Assessing the sales taxes would be done just like it is now. The buyer will have to go through a check out process and enter data that will determine his/her taxing jurisdiction and amount. All large internet retailers already do this for several taxing jurisdictions. All it takes is the software and the customer does the data entry.
The problem with venues such as eBay will be who collects the taxes and how the taxes will be remitted to the buyer's taxing authority.
Internet sales that are done via credit card would be easy to collect and pay taxes. The seller would never touch the tax money, it would be paid directly to the state via the credit card transaction.
Sales venues such as eBay, where many transactions are done by check and MO are problematic. They may force the sellers that don't take credit cards to do each tax transaction the hard way.
In any event, the major hurdle in taxing vendors that do not have a physical presence in the jurisdiction is the US Constitution.
States can not tax interstate commerce UNLESS either the buyer or seller is in their state. So far most states have a voluntary sales tax collection system placed on the buyers, and constituionally they can not touch the out of state sellers.
Short of a constitutional amendment, what can they do? Create a legal fiction or make buyers pay a mandatory sales tax either at point of purchase, or some other way.
The legal fiction path would involve a handy way to overlook the physical determinations of commerce and create a fiction as to where the transaction takes place. A New York court has ruled in an internet gambling case that an offshore company was illegally running internet gambling in the Sate of New York. The court said that wherever the customer hits the computer keys to place the bet is where the gambling is taking place. Eventhough the servers and company were offshore, the gambling took place in the state of new York. I believe there are also sales tax cases that ruled if the company had a traveling salesperson making sales in the state, it is a physical presence and sales are taxable.
So a ruling may be had that creates a fiction of physical presence by sending data into and receiving data out of a taxing jurisdiction via a buyers computer.
In any event, it is not a matter of 'if' there will be universal sales taxes on the internet, it is only a matter of 'when' and 'how'.
posted on March 6, 2003 12:03:59 PM new
Thank you, meadowlark! That is exactly the type of info I wanted to know.
One more question- who is considered a "hobby" seller and who is considered a "business" seller? Is it based on a certain amount of income you make as to whether the IRS see's you as a business or hobby seller??
:::What Im not understanding is how you small hobby sellers get you're merchandise without a license.How do you buy you're merchandise and then sell it for way below wholesale prices?::
With the economy tanking a lot of mom and pop organizations are going under, you can pick up quantities of items at liquidation from these types of groups. There are also state and federal auctions of seized merchandise, or the ever present swap meet. Also internet wholesalers ask generally only for a federal tax id number which does not require a sellers permit to aquire. An enterprising person can do nearly find a way. I have one friend that partnered with a retailer to buy. Together they could get case price discounts from the retailers supplier.
AHC - ::I know I can technically go to someplace like Sears in other states like California and not pay sales tax if I am taking my purchases back to Oregon.::
I don't think thats actually true. You are only saved the sales tax if you have them ship the item back to Oregon for you.
Rusty - I think you re very correct. There are two ways to collect an internet tax and I don't see either working.
1) Charging individual state sales taxes. This would open the door to indiviual city and even counties to start demanding the further collection of their sales taxes. It would be impossible for small sellers to keep accurate accounting of such things and even more difficult for enforcement. The meer thought of it would scare of thousands of small sellers which companies like ebay, UPS, fed ex, even the USPS would lobby hard to keep.
2) Single blanket sales tax. The would be a single set percentage to be paid into a parent fund and divided between states. This would end up being a whole nother nightmare of each state fighting for a larger percentage not to mention the govermental spenind excess that would probably drain the account as fast as it fills.
Neither is a viable option. Although I expect to continue hearing of movements for an internet tax, I don't think anyone will be able to come up with a way to actually make it work.
posted on March 6, 2003 01:08:06 PM new
According to the Washington Post reporter I spoke to, one of the ideas being considered is that sellers will have to pay for a service where they will access a site over the net and enter the dollar amount of every transaction and the zip code to which it was sold. This site will then calculate what they owe and send them a bill either monthly, quarterly or annually depending on how much is owed. The site will then be responsible for the distribution of the taxes to the various entitites. There are two problems with this idea. One is until accounting programs are set up to automatically feed this information, it would add a data entry load on most vendors. Two is that vendors would be billed for this service and there were estimates that a license might cost as much as $30,000 annually. When someone objected that this would put small vendors out of business, a suggestion was made that the requirement would only apply to vendors doing 5 million or more per year.
Of course, all of this is still up in the air. But you know our government. A lot of the taxes we have today started out as a temporary measure to cover a specific cost (like the war). A lot of taxes, like social security, started out as "let's just charge 1%" and eventually became 7% from the employee and another 7% from the employer. Ebay did not invent "hey, it's only a dollar."
posted on March 6, 2003 01:38:32 PM new
neonmania - It is true, because I go shopping all the time in Washington state (which does have sales tax) and I never pay it (Well, I do if I eat at a restaurant there, but not when I buy merchandise) When I buy from Sears there, they print out a special receipt that requires my signature, that states that the merchandise is being taken back to Oregon. Even small businesses are set up not to charge sales tax to Oregon residents, usually they just write down my name, address and driver's license number. It's kind of strange to go shopping in Vancouver, right over the state line because when you buy something, they always seem to ask if you are a Washington State resident. It's smart though since they get so many Oregon shoppers, and they would not get them if we had to pay tax there.
I'm sure you understand that all income from any source (even garage sales, cash a friend paid you for something, even cash for recycled aluminum cans) is supposed to be reported to the IRS regardless of your amount of sales. I use the term "hobby seller" because it's used by other posters here. I don't know the current "cut-off" amount as to when you would be expected to report estimated taxes and pay them quarterly.
I suggest asking your accountant if you have one, or call the IRS. I suspect the IRS just considers all hobby sellers a smaller business. Income is income, but above a certain level, the IRS knows self-employed people get themselves in trouble if they don't send their taxes in regularly during the year.
I'm glad you found the data useful. Let me know if you have more questions. I'm not an expert in every area, but will refer you to whatever I can if I don't know the answer.
Some of my experience and background:
My husband and I owned a service company in a major city for 16 years we sold in 1998 for six figures. Annual gross ranged from .25 to .5 million. I managed the daily company operations and employees, and all the administrative details. He was the technical, sales and buying end, and had final say as president of the corporation.
My most recent "real job" since then (for 3.5 years) was as a Treasury Secretary for a larger corporation. I quit almost a year ago, the day I was hit twice by the same truck while crossing the street. I decided life was too short for all the stress, and I am still dealing a bit with my injuries. Now I make custom cat pet costumes at home and sell them online.
Good luck!
Patty
[ edited by meadowlark on Mar 6, 2003 01:41 PM ]
[ edited by meadowlark on Mar 6, 2003 01:42 PM ]
[ edited by meadowlark on Mar 6, 2003 01:43 PM ]
posted on March 6, 2003 02:37:39 PM new
The IRS doesn't have a $ amount where you convert from hobby seller to business seller. Its more a matter of intent that determines which you are. Its too your benefit to be a business, even with the extra work like a Schedule C & SE at tax time, because you can claim a loss if there is one (with a hobby seller, you can't). I believe if you have a net profit less than $400, you don't have to pay the Self-Employment taxes.
The IRS has a Publication #535 (I think) that shows the characteristics that make one a Business Seller.
As to my Sales Taxes - since I have so few sales in-state, I just cover them myself as a business expense. The hassle of chasing them down if they didn't pay it is saved. Long as the state gets their $, they're happy (although I don't think my $3 goes very far).
posted on March 6, 2003 05:01:57 PM new
If you purchase any item (garage sale, flea market, Hot Wheels at Target) for the purpose of resale, now or in the future, sales and use tax is due when the item is sold. Period. Whether you're in business or not. The state wants its %. A state just needs a complaint from someone to get eBay to freely disclose your entire sales history.
If the intent is to make money; its taxable. There is no such thing as a hobby seller. If he's intending to make money, tax is due. On $1000 worth of sales, if a seller can't pay the $60 to $65 due on a 6 or 6.5% sales tax, than I think the seller is not taking this into account beforehand.
I don't think any internet tax will kill eBay. I think it will be the increase of shipping rates and lack of rarity. You can see certain collectibles taking a nose dive and it will continue.
posted on March 6, 2003 05:38:48 PM new
When I put on an auction I hope and pray that someone from Wisconsin doesn't bid and win because that requires a sales tax. But, I include it in my auction price. .
When I go to the goodwill or any thrift store or any store in the state I pay Sales tax. 5.5% At my mall space, they charge sales tax but the tax number is in the name of the mall owner or operator so therefor they pay the tax in their name.
At the end of the year I add up my auction sales, what I spend for my items, if there is any inventory left over add and subtract and that goes on my income on the tax form. The state and federal government get their fair share of my profit. darn
posted on March 7, 2003 03:25:12 AM new
I think there may be some confusion about hobby versus business status. If you have a state sales tax, you will most likely be required to collect and remit sales tax whether you consider it a business or hobby (your individual state revenue dept. can provide the details).
The business versus hobby distinction makes a difference with the IRS for income tax purposes. If you incur business losses greater than income, you may be able to offset these against other income. However, the IRS may want evidence that you intend to make a profit. If you claim losses year after year, and cannot prove this intention, they will consider it a hobby business, and deductions will only be allowed up to the income generated, and cannot be taken against other income.
.