eBay is the latest selling platform to automatically collect taxes based on the buyers location, and handle filing of returns and submitting payment to the proper tax authorities. Here is what we received from them today:
While this doesn’t effect us directly (we don’t currently sell on eBay, but many of our parts are sold there by others), we consider it good news that the momentum towards good solutions to the potential for a sales tax apocalypse for small sellers continues to grow.
The biggest worry is still, what happens for sales on our own website. Simply having to prove that we don’t have to file a sales tax return for even a small percentage of the 10,000+ jurisdictions in the US would make our small business unsustainable. If any states decide to start bullying small businesses and send out sales tax compliance notices, the onus would then be on us to prove we didn’t have to file a return.
A similar thing happened to us once with our business license. We had a business license in one town, and our PO box in the neighboring city. The neighboring city send us a letter demanding that we obtain a business license in their city because we were doing business there. For those unschooled in the typical rules around business licenses, simply receiving mail in a location is not a such qualifying business activity. It took two successive responses to get them to give up. I’ve also seen this for another business, where the state of California demanded the business register in the state and pay the LLC tax, simply because the headquarters of the brokerage company (TD Ameritrade) happened to have a California address.
The general concept is called regulatory overreach, and many states, especially California are not shy about doing it.
So we continue to wait and hope that a well crafted and thorough solution comes along that will reduce the fear of a huge tax compliance burden for independent sales that don’t go through a third party marketplace. Otherwise, there will only be third party marketplaces left to rule the roost.