ebay charging tax on taxes; is this legal?

[mdinyeg]

There has been a lot of discussion about the underhanded way in which ebay began charging FVFs on taxes it collects and remits to state/provincial/federal authorities on behalf of sellers. But I haven't seen anyone comment on the fact that ebay then charges tax on the tax.

As a service, ebay must charge its sellers sales tax, in my case 5% GST paid to the Canadian federal government. As a rule, companies are not supposed to tax taxes, but ebay is doing exactly that.

For example, in a sale crossborder to California:

$100 purchase

$30 shipping

= $130

x 4.36% state internet tax = $5.67

Total purchase: $135.67

ebay's fees are 12.9% + .4% for international transactions + $.30 transaction fee; on $135.67 that = $18.34

ebay then charges me 5% GST on $18.34, which means it is charging me 5% GST on 13.3% of the 4.36% California state tax, in this case $.04.

If there is an accountant out there who can weigh in on this, I would like to know if this is legal. And does it profit ebay or only the government that collects the GST?

Also, I noticed on a recent transaction that ebay charged me $1.48 GST when it should have been $1.47. Since GST is an input/ouput tax, this seems only to benefit the government that is actually then receiving more than 5%, but is it possible ebay is collecting those extra pennies and pocketing them? (On billions of transactions per day, a penny here and there adds up to hundreds of thousands in additional profits.)

[marnotom!]

Something interesting to keep in mind is that until 2013, Quebec Sales Tax was charged on the item, service, or transaction plus the GST calculated for it.   In other words, an item with a $10.00 ticket price would have 50 cents GST added to it, the QST would have been calculated on the $10.50, not the $10.00.

I don't know much more about how this worked and why it was changed, but I suspect that the change was made more to make bookkeeping easier than due to any legal reasons.

[iptechplus]

You are correct, that my issue with it. If I charge and collect tax I can see a net benefit during collection and remitting sales tax, however since eBay is collecting and remitting and STILL charging me fees on this money I don't even see, the fee's on these transactions are variable and end up around 16.8% - 17.1% versus 14.9% - 15.3% on sales to non-taxed areas. I have lost hundreds and hundreds of dollars to this, and have NO WAY to know if I'll get a buyer that has to be charged tax....
Maybe it's time to exclude buyers from areas that eBay collects sales tax for.....

[flipistics]

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@iptechplus wrote:

Maybe it's time to exclude buyers from areas that eBay collects sales tax for.....

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If you do that you'd probably be excluding all of Canada, most of the USA, all of Europe, etc.  Pretty much all sales platforms that process a transaction do this now. Most just hide it in the fee structure (and probably profit off it even more), whereas ebay breaks it down for you completely.

[pjcdn2005]

Perhaps charging all Canadians $100 shipping is their way of avoiding selling to Canadians?

[lotzofuniquegoodies]

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@marnotom! wrote:

Something interesting to keep in mind is that until 2013, Quebec Sales Tax was charged on the item, service, or transaction plus the GST calculated for it.   In other words, an item with a $10.00 ticket price would have 50 cents GST added to it, the QST would have been calculated on the $10.50, not the $10.00.

I don't know much more about how this worked and why it was changed, but I suspect that the change was made more to make bookkeeping easier than due to any legal reasons.

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@marnotom! 

Didn't it have something to do with the legalities of charging tax on/to a tax?

-Lotz

[pjcdn2005]

I wonder how many sellers actually figure out a dollar value on what the fees on tax are costing them.  I know that I haven't.

If someone receives $10,000 from buyers on sales including shipping and their fees were 12.9% their fvf would be $1290.00

Canadian tax varies from 5% to 15%, the average for the US is around 7% and the EU is 20%. Assuming that most Canadians sell more to the US than anywhere else, I'll use an average of 10% tax.

So if sales were $10000.00 the buyers would have paid about $1000 in tax. If the sellers fees were 12.9% they would pay $129.00 in fees on that tax.  That works out to 1.3% of $10,000.

[flipistics]

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@pjcdn2005 wrote:

Perhaps charging all Canadians $100 shipping is their way of avoiding selling to Canadians?

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Wow. I hadn't even looked at his listings. That's ... a bold strategy.

[marnotom!]

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@lotzofuniquegoodies wrote:

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Didn't it have something to do with the legalities of charging tax on/to a tax?

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Possibly, but I can't find any evidence to that effect.

Don't forget that duties are a form of taxation, and they're charged on the assessed value of the item plus whatever value-added taxes are added to it.

[lotzofuniquegoodies]

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@marnotom! wrote:

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@lotzofuniquegoodies wrote:

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Didn't it have something to do with the legalities of charging tax on/to a tax?

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Possibly, but I can't find any evidence to that effect.

Don't forget that duties are a form of taxation, and they're charged on the assessed value of the item plus whatever value-added taxes are added to it.

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That was my recollection of how it went down. There were probably a few weird interpretations back then. A situation that always comes to memory  was purchasing a newspaper in AB when GST was first implemented and it only being applied in a store setting. Not included when you purchased in the box. Then at the same time travelling to ON and purchasing a a paper in a convenience store and for some reason tax was NOT applicable. Pretty sure when GST/HST etc was rolled out years ago, there were numerous hiccups. May remind some of MP. Trying to recall. Did that go flawlessly?

The new go to (in AB and other provinces) is automatically adding a tip. To meals, pay at counter for pick up and other newly thought of businesses that believe a tip is applicable. And it's not helping that it involves some major button pushing to bypass. Even eliminating the NO option on some machines. Next they will be charging tax to the tip. I can rationalize tax on delivery. Not happy about that but nothing you can do because it falls under the  service category.I have noticed a few random companies where delivery is a flat amount so sounds like they are eating the tax as a convenience for their customers or building it in to the total.

-Lotz

[doc_scribe]

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@lotzofuniquegoodies wrote:

Don't forget that duties are a form of taxation, and they're charged on the assessed value of the item plus whatever value-added taxes are added to it.

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[in my best approximation of Billy Bob Thornton's Sling Blade voice] "Mmmmmmm-hmmm".

See also: "service charges", "surcharges", "usage fees", "tariffs", "levies", "tolls", "dues" and of course, that old standby, "inflation"...

[spike41969]

Ebay is profiting from the recent change that our ridiculous governement put in place. It wasn't bad enough that they charged 12.9% on most things and also the shipping cost (don't forget that one). Have a look at the snapshot of 1 of my recent ebay sales and you tell me how to explain it, other then the FVF being applied to the HST portion that ebay is collecting. It's utterly disgusting and I have half a mind to report it to the CRA and see what they have to say...

[marnotom!]

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@spike41969 wrote:

I have half a mind to report it to the CRA and see what they have to say...

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The CRA would probably say, "Be thankful that you're not in Europe where 20% VAT charges aren't unusual."

[reallynicestamps]

Because most small eBay sellers are new to retail, they are not aware that what is being taxed is not the sales taxes but the SERVICE eBay provides in processing customer payments and there is no breakdown in what makes up those payments.

This has been the Standard Practice for payment processors (including Billpoint, Paypal and Moneris as well as Managed Payments) at least since we got our first "click click" machine to take Chargex back in the 80s.

After 40+ years, it would likely take some high level court cases to end the practice.

[janus2810]

This isn't really quite the same though, in the case of your store you are charging the tax and then remitting the tax to the government, whereas ebay is charging the tax and they are remitting it to the government so therefore the money never actually passes through your hands so to speak, so there is no reason whatseover they should be charging you tax on tax much less a FVF. It's criminal and probably isn't actually legal, but who's going to hire a lawyer to fight the ebay machine? Class action anyone? We're talking millions of dollars in falsely collected taxes and FVF fees. Why would I pay a FVF fee on money I'm not receiving???

[janus2810]

Again, you the seller are not collecting taxes, ebay is on your behalf, so there is no reason you should be charged anything for that, the money passes through their hands. I would gladly collect the money myself and remit it then I could write off business expenses against it, but I'm not paying or collecting the taxes, ebay is.

[janus2810]

Do you actually know what's being discussed here? Do you actually know how the tax system on ebay works? This is a legitimate complaint and the lagality of it is questionable and not some ridiculous misguided misunderstanding. It has nothing to do with misguided "freedom" principles it's about a big corporation taking advantage of it's leverage and playing the odds that that nobody will call them on it and they're probably right

[reallynicestamps]

Ummm - there are ten provincial and three territorial tax agencies to deal with. The USA has 48 state and two territorial tax agencies plus city and county tax agencies. Australia has only one! as does the UK, but the EU has 27 countries charging VAT on imports.

That being said, the customer is billed once and pays once. That payment passes through your selling account and it is the payment, the ENTIRE payment, that is being charged fees.

And of course eBay also assesses and remits GST etc on their own fees, but that's a different story.

[janus2810]

what do the different tax territories have to do with anything? The money does not "pass through" your account, ebay charges it on your behalf, you never touch that money ever so, it does not make sense to pay any sort of taxes or fee on money you never touched?

[bn880]

Becayuse paypal fees are not 13% or 15% or whatever ebay charges...  it's outrageous.

[mrdutch1001]

"who's going to hire a lawyer to fight the ebay machine?"...I think you answered your own question... YOU ARE!  you seem to want to argue the "illegal" aspect of this to infinity, so why not YOU put forth the time, effort & money to prove your allegations?.. since you are so adamant about this, please do us a favor and put action to your words...

BTW, This IS eBay's site, eBay's rules, policies and you agree to them when you use this site.If you don't like the way things are run here on eBay, if you cannot accept, adapt, adjust & carry on, then you can always choose to move on!