Why Do I Need A Tax Permit If I Sell On Ebay?
Do I need a tax permit to sell on eBay? Let me make it clear that eBay itself does
not require you to have a sales tax permit or Employer Identification Number, but that does not mean you don't need one. If this sounds a bit confusing, I apologize. I know how you feel. Possibly just starting out in your first eBay or home ecommerce venture and now you must face the complexities of meeting the legal requirements for doing business. Fortunately for us, this is not complicated. The point of this article is to spell out what you need to know about tax permits to get started selling physical products on eBay, from home, or on your ecommerce website.
To begin with, tax permits are referred to differently depending on where you reside. First, there can many different kinds of tax permits, but we are talking about is the sales tax permit, and this is also known as a sales tax exemption, and in California, a resale certificate. This is not to be confused with a business permit, which is sort of license granted by your local authorities allowing you to do various sorts of business activities. The sales tax permit is also different from the federally granted Employer Identification Number (EIN). This kind of permit is an exemption from paying sales tax under certain circumstances, and it also authorizes you to charge sales tax to your customers, which you remit to the state during tax collection times. What this means for you is that if you sell an item on eBay to a legal resident of your state, then you are required to charge sales tax and would need a sales tax permit.
You must also know that you will need a sales tax permit in order to purchase products from true wholesale businesses. Your sales tax permit grants you the legal right to purchase wholesale goods without paying sales tax. You, as a retailer (online or off), must charge sales tax to any residents of your state purchasing from you. Again, it does not make any difference if you sell the product online over the Internet. If you sell to a legal resident of your state, then you must charge sales tax. You are then required to remit any sales tax collected to your state's department of treasury at normal tax collection times. Tax collection generally occurs on a quarterly basis. A true wholesaler, by the way, is required by law to have proof of your sales tax permit in order to sell to you. In the United States, if a business does not require proof of your tax permit, it is not a true wholesale business.
Sales tax permits are not difficult to get. You can get a sales tax exemption from your state department of revenue. Simply do a search for NAME OF STATE + DEPARTMENT OF REVENUE. That will get you the website, and if you can't find the section for sales tax permits, do an additional search on the site for SALES TAX PERMIT or SALES TAX EXEMPTION. Tax permits are usually free and obtaining one is generally no more complicated than filling out a simple application, something that can often be done on the Internet. However, each state makes up its own rules.
I would like to take a moment and talk about the EIN because eBay sellers sometimes confuse this with the state sales tax permit. These are not the same. You will find the most complete information on Employer Identification Number on the irs.gov website. Basically, the EIN is number granted by the Federal government that is used for most of your Federal tax and financial business needs and is usually a permanent number. In most cases you might only need an EIN if you need to pay employees, if you withhold taxes other than on wages, if you are involved with Farmers' Cooperatives, if you are a corporation, or if you file employment tax returns. There are a few other circumstances, such as if you are involved with trusts, real estate mortgage investment, or pay alcohol, tobacco and firearms taxes. Most of these conditions probably wouldn't apply to the average person getting started with eBay. However, if you planning running a substantial operation that might involve employees keeping books and running shipping and handling, then you might require an EIN, as well.
I want to address one final question. Is a specific license or permit required to drop ship products sold in eBay auctions? No, absolutely not! There is no special permit that applies specifically to drop shipping whether you sell online on eBay or on your website or offline. For most mom and pop eBay businesses, the sales tax permit will be all you need. As mentioned above, you probably won't need an EIN unless you have employees, establish a corporation, or pay wages. If you are running your eBay business from your kitchen or home office and keeping your products at home or using drop shipping, it is very unlikely that any other licensing will apply to you. Nevertheless, I advise checking with your local officials and would go so far as to suggest a consultation with a business attorney.
by: Strand Davis
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