If you sell goods online, you’ve likely dealt with collecting and remitting sales taxes on customer purchases. But, as a reseller, an option exists to avoid paying sales taxes on your own eBay purchases. By becoming tax-exempt, you can potentially avoid sales tax when you buy goods for resale. As such, we’ll use this article as a complete guide on how to become eBay tax exempt.
Specifically, we’ll cover the following topics:
- eBay Tax Exempt: What is It?
- Why Does eBay Offer Tax Exemption?
- Who Qualifies for eBay Tax Exemption?
- How to Submit an Application for eBay Tax Exemption
- Should I Request eBay Tax-Exempt Status?
- Get Tax Help from Pros
eBay Tax Exempt: What is It?
To be clear, eBay tax exemption doesn’t excuse you from paying taxes. Instead, tax exemption refers solely to sales tax on certain purchases made for your business. With an exemption, when you buy goods you plan to resell or incorporate into your products, you do not need to pay sales taxes on them. But, if you have a tax exemption, you still need to pay federal and, if applicable, state income taxes. Additionally, if your business owns real estate, you’ll still need to pay any associated property taxes.
Sales Tax Overview
Sales taxes exist at the municipal and state – not federal – levels. Currently, 45 states plus the District of Columbia impose sales taxes. And, as the name suggests, these taxes are imposed at the point of sale. When you buy a product in a sales tax state, you will see a tax added on top of the purchase price. For example, Florida has a 6% sales tax on most goods. If you buy a $100 item subject to this tax, you’d pay 1) the $100 for the item, and 2) $6 in sales tax for a total bill of $106. After collecting this tax, businesses must remit the payments to the local taxing authority.
An eBay tax exemption would not exclude you from collecting this sales tax from your customers. Rather, it only applies to qualifying purchases made for your business. Qualifying purchases include:
- Items you plan on reselling for your business; or
- Items used as parts of items sold by your business
For instance, say that you planned on reselling the above $100 purchase. With an exemption, you wouldn’t need to pay the $6 sales tax at purchase. But, you would still need to collect and remit sales tax once you sell the final product to a customer.
Why Does eBay Offer Tax Exemption?
eBay offers a tax exemption to streamline the above exemption process. As discussed, sales taxes exist at the state and local levels. But, eBay handles sales transactions all over the United States (and the world). For tax-exempt buyers, it would be a tremendous hassle to individually submit tax exemption certificates for every qualifying purchase. And, this becomes even more convoluted when you think of how many sales tax regimes online businesses encounter.
The eBay tax exemption process offers an alternative to submitting exemption certificates for each sale. According to company publications: If you are a tax-exempt buyer, we have a buyer exemption system that allows you to submit sales tax exemption certificates to eBay and make purchases without paying sales tax. Instead of submitting a certificate for every purchase, this eBay program collects and applies for sales tax exemption automatically. For online businesses making hundreds or thousands of purchases per year, this automation can save a significant amount of time and money.
Who Qualifies for eBay Tax Exemption?
Charitable organizations (i.e. 501(c)3 organizations) and online resellers/retailers both qualify for the eBay tax exemption. But, we will focus on the latter category, that is, businesses that A) purchase goods from eBay, then B) resell those goods, either on eBay or elsewhere.
eBay Tax Exempt Checklist
The documents required for tax exemption vary state by state. As a result, we cannot outline a detailed checklist for online businesses based in every state. For example, Utah-based sellers must submit the following forms to eBay:
- Utah TC-721 Form
- Sales Tax License
Conversely, Virginia-based sellers must submit the following forms:
- VA ST-10 Form
- Certificate of Registration
Fortunately, eBay has established a consolidated database of each state’s required tax exemption documentation. And, the eBay tax-exempt checklist for each state generally includes some state-specific variations of the following forms:
- A state resale certificate
- A sales tax license or business license
eBay Tax Exempt Criteria Reviewed
State Resale Certificate: This form certifies that a business qualifies for tax exemption for purchases made for resale or incorporation in other products that will be sold. Essentially, businesses use this form to affirm that they will, in fact, sell tax-exempt products. (NOTE: You cannot receive a tax exemption for products used by your business but not for sale. For instance, if you buy office furniture for your employees to use, those purchases do not qualify for tax exemption).
Sales Tax License or Business License: Businesses must submit these forms in conjunction with the above resale certificate. These licenses confirm that your business actually exists as a registered entity in your state. By requiring these forms, eBay helps avoid fraud by confirming that a business has registered with its state. Without this guarantee, individuals could fraudulently avoid sales taxes by saying that they were resellers purchasing tax-exempt products.
How to Submit an Application for eBay Tax Exemption
Once you have gathered the forms outlined in the above checklist, you can submit your application for eBay tax exemption directly on the website. Upload all relevant documents here. According to eBay guidance: Please allow 10-15 business days for processing. We will send you a confirmation email when your tax exemption status has been verified.
Things to Include with Your Application
As stated, the things to include with your tax exemption application depend on where your business is located. Continuing the above example, a reseller located in Virginia would need to upload the following documents:
- VA ST-10 Form
- Certificate of Registration
If unsure of what to include with your eBay tax-exempt application, you can review state-by-state requirements here.
Should I Request eBay Tax-Exempt Status?
If your business purchases goods for resale, you should absolutely request eBay’s tax-exempt status. Additionally, if your business purchases goods to incorporate into other inventory for sale, you should request this status. Doing so can save you thousands of dollars (or more) in taxes every year.
For instance, assume you purchase goods from a Florida-based seller that you plan on reselling through your online store. Say you purchase $20,000 of these goods in a given year. By avoiding the 6% sales tax on those purchases, you save $1,200 in unnecessary sales taxes. And, with the eBay tax-exempt status program, the site automatically handles these exemptions, saving you time and money.
Get Tax Help from Pros
We understand how complicated and overwhelming sales taxes can be for online businesses, so we want to help. At Tax Hack, we live and breathe eBay tax exemptions for businesses, so contact us to set up a tax planning strategy session!