Wednesday, February 22, 2012

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Help with Sales Tax Permits and EBay Product Sourcing and Selling



What the EBay Seller Needs to Know about the So-Called EBay Business License and Tax Permits . . . .

This post is intended to help clarify the basics of determining the kinds of tax permits and business licenses you may need or want as an eBay seller. Please see the bottom of the post for clarification on DBA licenses (doing business as . . . ), Auction licenses, and other special zoning permits, the need to copyright your business name, and trademarks. You will also find links and references to important sites that you need to know about. My own research on the Internet has found the much of what is published on your average Internet marketing dot com site is either rubbish or so vague as to be useless; this post is an attempt to help get the correct information out to the people who may benefit.

I want to first mention that I understand how confusing the issue of tax permits and business licensing can be when you start out as business selling on eBay. The first thing to note is that eBay just by itself does not require you to have any special sort of permit to in order to set up an auction. Anyone can sign up for eBay and have an auction up and running in the twinkling of an eye without any need for permission other than from eBay. However, Federal and state laws may require you to adhere to certain business practices requiring special permits. Fortunately, this is not complicated, and this article will guide you through the basics of sales tax permits and Employee Identification Numbers.


If you are just a hobby seller–not a business–someone who clears out the basement or attic now and then and puts stuff up for the occasional auction, then you won’t need tax permits or any other business licensing because you are not a business. You may, however, need to declare your earnings to the IRS at tax time. I also encourage you to verify this information by contacting your local officials and your local branch of the Small Business Administration.

Sales Tax Permit

I think it is best to begin by pointing out that although there can be many different kinds of tax permits, the only one we are concerned with is the sales tax permit, which is also known as a sales tax exemption, and some states, such as California call this a resale certificate. This is not the same thing as a business permit or business license. The sales tax permit is simply an authorization granted to you by your state of residence that allows you to sell retail goods and charge sales tax to your customers. In certain circumstances, it also excludes you from the need to pay sales taxes and, of course, it requires you to report and pay these taxes to your state treasury. This particular permit is not the same thing as an Employee Identification Number (EIN), but I’ll say more about that later. Basically, if you retail physical good on eBay to legal residents of your state, you would be required by your state to have a sales tax permit and report the taxes.

It is vital to understand that the purchase of goods from a licensed wholesaler also requires a sales tax permit. Even if you don’t sell products to residents of your state, if you plan on using true wholesalers, your permit allows you legal right to buy wholesale products without paying sales tax. Wholesalers, in turn, are required by the terms of their license to have on file proof of your sales tax permit. Keep in mind that if a business does not demand your tax permit, it is not a true wholesaler. If you are a new eBay seller, you need to be aware of the kind of product supplier you are doing business with. Your supplier should be open about their business and inform you up front if they are a wholesaler or some other kind of product supplier. Your job as a retailer will include charging sales the tax to those buyers who are residents of your state and then to pay it back to your state treasury department at tax designated tax times. Right now, the issue of how to handle sales taxes when selling to residents of other states is an open question.

How much trouble is it to get a sales tax permit? Very little if any at all. When you are ready for the permit, you will need to contact your state department of revenue. This is easily done by doing a Google search under, “state department of revenue” and add the name of your state. If it is not evident how to get the permit once you find the website, do an additional search on the site itself under, “sales tax permit” or “sales tax exemption.” States generally don’t charge for the permit, and most sites allow you to sign up online. The whole process can be finished in 10 or 15 minutes.

Employer Identification Number

I want to briefly mention the Employer Identification Number because there are many questions about this from people starting out with eBay. Everything you need to know about getting an EIN and whether or not you need one can be found on the Internal Revenue Service website, irs.gov. However, the EIN is a permanent number and once obtained can be used for most of your Federal tax and financial business needs. Generally speaking, you may need an EIN if you have employees, operate your business as a corporation, file employment tax returns, excise or alcohol, tobacco and firearms taxes, withhold taxes on income other than wages, or are involved in trusts, stages, real estate mortgage investment conduits, non-profit organizations, and farmers’ cooperatives. Chances are if you are beginning to sell on eBay and EIN won’t be necessary, but check with irs.gov just to be sure.

Special Drop Shipping Permit?

Is there is a special kind of license or permit just for drop shipping products sold on eBay? Negative, there is no specific permit just for drop shipping. For most sole proprietorships and single person businesses, the sales tax permit will be all that you need. As mentioned above, you probably won’t need an EIN unless you pay wages or become a corporation. However, my advice to anyone planning to go into business whether on eBay or not is to check with your local city and county officials to see if you need any additional licensing, permits, or authorization. I would strongly suggest that at some point you speak with an attorney specializing in business law. Probably for a work-at-home eBay business, you won’t need to bother with additional permits, but it is always better to err on the side of caution and check to be sure.

Important: Other Business License and Permits

First, in order to determine if you need any other tax permits and business licenses, check with your local city and county authorities, and the local chapter of your Small Business Administration, if you have one. Your sources of information should include the following:

  • irs.gov (Internal Revenue Service)
  • sba.gov (Small Business Administration)
  • copyright.gov
  • www.uspto.gov/smallbusiness/trademarks/ (help with trademarks)
  • your local department of revenue (do a search on Google
    to find site)

The fact of the matter is that what you ultimately need in the way additional licensing rests with your local city, county, and state requirements. However, generally speaking, if you are a sole proprietor running an eBay business from home you will not require the following kinds of licenses:

  • DBA (doing business as . . .) License
  • Auction License
  • special zoning permits

The DBA permit is generally only required if you are doing business in your local community. Most eBay sellers are strictly on the Internet and therefor not truly local sellers. However, you can register the name you do business under with your county authorities. You should know that registering your business name will not protect it outside of your local area. You are merely registering with the local authorities so that they know you are doing business. If you incorporate or become an LLC, then you might require registering, but if you are not actually out in your community engaging in local business, that probably won’t be an issue. If you are planning to incorporate, please consult with a business attorney if you haven’t done so already

Auction licenses are generally not required unless you are physically conducting auctions in your county and/or elsewhere in your state.

Other zoning permits will probably not be required unless you have employees on your property, exceed parking limits, or require additional construction. Generally, for many eBay sellers, these sorts of things will not be an issue.

No copyright needed for your business name. You do not need to copyright your business name because business names cannot be copyrighted. You are bound to read wannabe pundits state that you must copyright your business name. It isn’t possible. However, if you want, you can seek to have your business name trademarked. This will cost you some money, and for more information, try www.uspto.gov/smallbusiness/trademarks/.

Final words: As always, check with your local authorities and your local branch of the Small Business Administration to answer questions. Always check your facts with the authorities when you get your information from unknown, Internet dot com sites.

 

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