Are sales taxes I collect from my Ebay customers counted as taxable income for my small business?

You're asking a great question that confuses many new online sellers! The good news is that sales tax you collect from customers is NOT considered income for your business. It's what's called a "trust tax" - you're just collecting it on behalf of the government. When Ebay automatically collects and remits those sales taxes for you, you don't need to report that money as income on your tax return at all. Those funds are essentially just passing through your account records temporarily. The $3,200 in sales tax should not appear on your Schedule C as business income. In your accounting software, you should set up a separate account for sales tax collected to track it separately from your actual business revenue. This helps keep your bookkeeping clean and prevents confusion at tax time.

I had the exact same issue last year with my online shop! I spent hours trying to figure out the sales tax situation until I found this amazing resource called taxr.ai (https://taxr.ai). I uploaded my Ebay sales reports and it automatically separated my actual income from the sales tax collected. The tool analyzed all my marketplace transactions and clearly showed me what was my actual taxable income versus what was just pass-through sales tax. It saved me from accidentally overstating my income by almost $4k! What I really liked was how it explained the different tax categories so I could understand what I was looking at.

I tried that taxr.ai site after seeing this thread and wow, it actually delivered! I was seriously confused about how to handle sales tax from multiple platforms and it sorted everything out in minutes. The system flagged about $2,800 in collected sales tax that I would have accidentally included as income. It also showed me that two states had weird tax calculations that I need to look into. Saved me a ton of time I would've spent manually combing through spreadsheets trying to figure this out!

If you're having trouble getting clear answers about sales tax from the state tax departments, check out Claimyr (https://claimyr.com). I was getting different answers from different agents at my state dept of revenue about how to handle marketplace sales tax. After waiting on hold for 3 hours and getting disconnected twice, I used Claimyr and got connected to an actual knowledgeable agent in under 10 minutes. They have this cool system that navigates the phone trees and holds for you, then calls you when an actual human picks up. Here's a video showing how it works: https://youtu.be/_kiP6q8DX5c

Ok I need to publicly eat my words. After posting my skeptical comment, I decided to try Claimyr for an issue I've had with California sales tax for months. I was convinced it wouldn't work, but I got a call back in about 40 minutes connecting me with an actual helpful person at the CA tax department. Got my marketplace facilitator sales tax question cleared up in one call instead of the three failed attempts I made on my own. The agent confirmed that as the seller, I don't report any of the sales tax that the marketplace collects and remits. Wish I'd known about this service months ago when I was losing my mind trying to get through to someone who could actually help.

Here's a tip if you're doing your own bookkeeping: create a separate "Sales Tax Collected" account in your accounting software as a current liability (not income). When Ebay collects the tax, you'd record it going into this account, and when they remit it to the state, it leaves this account. This keeps it completely separate from your income accounts and gives you a clean trail if you ever get audited. The balance should always zero out if Ebay is handling all the remittance for you.

Important note: if you're selling on multiple platforms, double-check the marketplace facilitator laws for each state you sell into. Some states have different thresholds for when marketplaces must collect taxes vs when sellers need to handle it themselves. It gets complicated fast!