QUESTION: I know users of eBay and PayPal can collect sales tax on their online sales. Is this necessary? It seems very few sellers do. And there doesn’t appear to be a way to collect sales tax when I sell on Amazon Marketplace.
ANSWER: If you live in a state where sales tax is charged on retail purchases, you are responsible for paying sales tax to your state’s tax department for your online sales. However, you pay sales tax only on transactions with buyers in the state where you reside — you don’t pay tax for books shipped outside your state.
To pay the tax, you’ll need to open an account with your state’s Tax Department. As part of this process, you’ll receive a “resale license.” In some states this is called a “resale number” or “sales tax certificate.” So this will add to your bookeeping chores, but there are benefits. For example, in obtaining a resale license, your state is recognizing you as a legitimate business, and you will *not* have to pay state sales tax on the books and other supplies you purchase to run your bookselling business.
Also, a resale license will enable you to more easily open accounts with used and new book wholesalers — if should you ever decide to expand your business and go that route. Nowadays, most wholesalers require you to provide proof of a resale license before you can open an account with them, whether you are purchasing wholesale books, CDs, DVDs, or any other type of merchandise for resale.
Also, most used bookshops will give you a 10 percent or 20 percent “dealers discount” when you buy books there — if you show your resale certificate.
Again, you don’t collect state sales tax on books you ship to people with addresses outside your state. This is because Internet sales (as well as fax, telephone, and mail-order sales) aren’t subject to sales tax unless you have a physical presence in that other state — meaning an office or warehouse.
In some states, shipping and handling fees are not subject to sales tax, but in some they are -— you will need to investigate the issue for your home state.
Some state governments have been trying to start a new system to collect sales tax on all online sales. Under this scenario, known as the Streamlined Sales Tax Project (SSTP), you would have to pay sales tax on books you shipped to customers outside your state. But it will be years before anything like this is enacted, since it’s being fought vigorously be the mail order industry.
More information on the SSTP is available here. eBay maintains a Web page on SSTP, and maintains a mailing list where you can receive updates on the program by signing up here.
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2 Comments
Steve, Good article, but a little clarification is needed. At the end of paragraph 2, you say that you don’t have to pay sales tax on the ” books and other supplies you purchase to run your bookselling business.” I have been operating on the assumption that it’s only the items you buy for resale that you don’t have to pay tax on: the state knows it will get its tax from the buyer to whom you resell the book (whether you pay it or you charge that customer). “Supplies for your business” are not being resold: you’re the end user, so you are responsible for the sales tax at the time of purchase. Am I missing something here? Thanks! Kathlyn
Gargoyle Books, you are right when you say “Supplies for your business are not being resold: you’re the end user, so you are responsible for the sales tax at the time of purchase.”
I can’t remember my original train of thought when I wrote that sentence, but apparently I confused state sales tax and income tax. I guess my intended meaning was that your costs for buying inventory and shipping supplies (for example) would go into your cost of goods sold, then deducted from your business income. Nothing to do with sales tax exemptions.
Thank you for pointing that out.