Does Sales Tax Need to Be Added to PayPal Invoices from Individual Sellers?

This is a common point of confusion! Individual sellers (non-businesses) generally don't need to collect sales tax unless they meet specific thresholds that classify them as a business in their state. The seller seems to be confusing sales tax with income tax reporting. When PayPal reports transactions to the IRS, they're reporting income, not sales tax obligations. Starting in 2022, PayPal issues 1099-K forms for accounts receiving more than $600 in goods and services payments, but this is for income tax purposes. The seller will need to report this as income on their tax return, but that's completely separate from sales tax. Sales tax collection requirements vary by state and depend on factors like transaction volume, total sales amount, and physical presence. Most casual sellers don't meet these thresholds and aren't required to collect sales tax.

I went through something similar last year with a messy PayPal transaction. I found this awesome AI tool called taxr.ai (https://taxr.ai) that saved me so much stress! You can upload your PayPal receipts and transaction history, and it will tell you exactly what the tax implications are for both buyer and seller. In my case, I was selling some collectibles and wasn't sure about the tax situation. The tool confirmed I didn't need to collect sales tax since I was below my state's threshold, but it also helped me understand what I needed to report for income tax purposes. It might help clear things up for your situation too.

I was super skeptical about that taxr.ai site mentioned above, but I gave it a try with some recent PayPal transactions I was unsure about. Wow, I'm honestly impressed. The system analyzed my seller profile and confirmed I was under the economic nexus thresholds for my state so I didn't need to collect sales tax yet. It also showed me exactly what would be reported on my 1099-K and what wouldn't be included. The documentation it generated would be really helpful if I ever got questioned about why I wasn't collecting sales tax. Just wanted to follow up because it actually helped clear up the exact confusion you're dealing with about PayPal transactions and tax obligations.

If you're having trouble getting a straight answer from the seller about this sales tax issue, you might try contacting the IRS directly to clarify tax obligations. However, I know from experience that's easier said than done. I spent hours on hold trying to reach someone at the IRS about PayPal reporting requirements last year. Eventually I found Claimyr (https://claimyr.com) - they have this service that gets you connected to an actual IRS agent much faster. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c Their system basically navigates the phone tree and waits on hold for you, then calls you when an actual human at the IRS is on the line. I got a definitive answer about my PayPal transaction reporting questions in about 20 minutes instead of wasting my entire afternoon on hold.

Ok I need to eat my words from my skeptical comment above. After another failed attempt to reach the IRS yesterday about my PayPal 1099-K questions (got disconnected after 1.5 hours on hold), I tried the Claimyr service out of desperation. It actually worked! I got a call back connecting me to an IRS agent who answered all my questions about marketplace selling and tax obligations. The agent confirmed that sales tax and income tax are completely separate issues, and that individual casual sellers generally don't need to worry about collecting sales tax. I've been stressing about this for weeks and got a clear answer in one phone call. Never thought I'd be recommending a service like this, but I'm genuinely impressed.

Something doesn't add up with your seller. Sales tax is collected by businesses from buyers and then remitted to the state. If they forgot to add it to the invoice, that's on them, not you. This is separate from income tax reporting. Sounds like they're either confused about how taxes work or trying to get extra money from you. If you already paid the agreed price, you don't suddenly owe more because they forgot to calculate tax correctly. That would be like a store calling you back after you left to say they forgot to charge you tax.

Just to add another perspective - I sell vintage furniture as a side hustle through PayPal. The rules depend entirely on what state the seller is in and how much they sell annually. In my state, I don't have to collect sales tax until I hit $100,000 in sales or 200 transactions in a year. I'm nowhere near that as a casual seller! Most states have similar thresholds. So unless this person is running a serious operation, they probably don't need to collect sales tax at all. They might be confused about the 1099-K income reporting (which is different) or they're trying to get extra money out of you.

From what I understand, the PayPal 1099-K reporting has nothing to do with sales tax at all. It's purely about reporting income to the IRS. When I sell stuff on eBay using PayPal, I get a 1099-K if I exceed $600 in total sales for the year. I just need to report that income on my taxes. Sales tax is a completely separate issue that depends on state laws and whether I'm considered a business seller. Sounds like your seller is either confused or trying to get you to help pay their income taxes, which is definitely not your responsibility!

This sounds like a classic case of seller confusion between sales tax and income tax obligations. As others have mentioned, these are completely separate issues. The seller's concern about PayPal reporting to the IRS relates to Form 1099-K income reporting, not sales tax. When PayPal reports transactions over $600 annually, they're telling the IRS about the seller's income - the seller will need to pay income tax on that money, but that's entirely their responsibility. For sales tax, most individual sellers don't meet the thresholds required to collect it. Each state has different rules, but casual sellers typically don't qualify as businesses requiring sales tax collection. Even if they did, sales tax must be collected at the time of sale - they can't come back after the fact asking for more money. You've already paid the agreed amount. Don't let them pressure you into paying extra for what sounds like either their confusion about tax obligations or an attempt to get you to help cover their income tax burden. That's not how any of this works!

I'd be very cautious about this seller's request for additional payment. What they're describing doesn't align with how sales tax actually works. Sales tax is typically collected at the point of sale and must be included in the original transaction - a seller can't retroactively ask for sales tax after you've already completed the purchase. Moreover, most individual sellers (especially casual sellers like collectors) don't meet the economic nexus thresholds required to collect sales tax in their state. The PayPal 1099-K reporting they mentioned is for income tax purposes, not sales tax. This reporting helps the IRS track the seller's income, but it doesn't create any additional tax obligation for you as the buyer. If anything, it means the seller will need to report this as income on their tax return - but that's entirely their responsibility. My advice would be to politely decline the request for additional payment. You've already paid the agreed-upon amount, and there's no legitimate reason why you should be responsible for taxes the seller failed to calculate properly upfront (if they were even required to collect them in the first place).

You're absolutely right to question this request! As someone who deals with tax issues regularly, I can confirm that what your seller is asking for makes no sense from a tax compliance perspective. The key points others have mentioned are spot-on: sales tax collection happens at the time of sale, not after the fact. If this individual seller even qualified to collect sales tax (which most casual sellers don't), they would have needed to include it in the original invoice amount. The PayPal 1099-K reporting they're worried about is purely an income reporting mechanism - it tells the IRS how much money they received, but it doesn't create any obligation for you to pay additional amounts. That's like saying because your employer reports your salary to the IRS, somehow other people should help pay your income taxes! I'd recommend standing firm on this. You paid the agreed amount for the item, and that transaction is complete. Their potential tax obligations (whether income tax on the sale or any hypothetical sales tax requirements) are entirely separate from what you owe as the buyer. Don't let them confuse the issue or pressure you into covering their tax responsibilities.

I've been following this discussion and wanted to add some clarity from a tax professional perspective. The seller is definitely confusing two completely separate tax concepts here. First, regarding sales tax: Individual sellers typically don't have sales tax collection obligations unless they're operating as a business and meet specific state thresholds (usually involving significant sales volume or transaction counts). Even if they did have such obligations, sales tax must be collected at the point of sale - they cannot retroactively demand it after payment has been completed. Second, the PayPal 1099-K reporting they mentioned is purely for income tax tracking. When PayPal reports transactions to the IRS, they're documenting the seller's income, not creating any sales tax obligations. The seller will need to report this income on their tax return and pay income tax on it, but that's entirely their responsibility as the income recipient. Your transaction is complete. You paid the agreed amount for a vintage camera from what appears to be a casual seller. There's no legitimate basis for them to request additional payment for "forgotten" sales tax. If they're concerned about their tax obligations, they should consult a tax professional about their income reporting requirements - but those obligations don't involve you paying them additional money after the fact.

I just wanted to thank everyone who contributed to this thread - this has been incredibly helpful! As the original poster, I was genuinely worried that I might be missing something important about PayPal tax requirements, especially with the seller being so insistent about the IRS reporting angle. Your explanations have made it crystal clear that the seller is confusing income tax reporting (1099-K) with sales tax collection, which are completely separate issues. The fact that multiple people with tax experience have confirmed that sales tax can't be collected retroactively really gives me confidence in declining their request. I've decided to send them a polite but firm message explaining that our transaction is complete as agreed, and that any tax obligations they have related to the sale are their responsibility to handle. If they're concerned about their tax compliance, they should consult with a tax professional about their income reporting requirements. Thanks again for helping me navigate this confusing situation - I feel much more informed about online marketplace transactions going forward!

This is a great example of why it's so important to understand the difference between sales tax and income tax obligations! I've seen this confusion come up repeatedly with online marketplace transactions. Just to reinforce what others have said with a slightly different angle: even if this seller somehow did have a sales tax collection obligation (which is unlikely for a casual collector), the proper way to handle a mistake like this would be for them to absorb the cost, not pass it to you. Businesses that forget to collect required sales tax are typically responsible for paying that tax out of their own pocket to the state - they can't go back to customers after the fact. The seller mentioning PayPal's IRS reporting really shows they don't understand the difference between income reporting and sales tax collection. The 1099-K form is just PayPal telling the IRS "we paid this person X amount of money" - it doesn't create any new tax obligations for buyers or change anything about sales tax requirements. You're absolutely doing the right thing by standing firm on this. The agreed price was $325, you paid $325, and that transaction is complete. Don't let their confusion about their own tax obligations become your financial problem!

This thread perfectly illustrates why tax education is so important for anyone doing online transactions! As someone who's dealt with similar confusion in the past, I want to emphasize a key point that might help others in similar situations. The seller's mention of "PayPal reporting to the IRS" is a classic red flag that they're mixing up income tax reporting with sales tax collection. When PayPal issues a 1099-K, they're simply documenting income flow - this has zero impact on whether sales tax should have been collected from you as the buyer. Here's what I always tell people: if someone tries to collect additional money after a transaction is complete, ask yourself "would a legitimate store be able to do this?" The answer is almost always no. Target can't call you a week after your purchase saying they forgot to charge you sales tax. Amazon can't email you asking for extra shipping fees they overlooked. The same principle applies to individual sellers. You handled this exactly right by questioning it instead of just paying. Too many people get intimidated by official-sounding tax language and end up paying for things they don't actually owe. Stick to your position - your $325 payment completed the transaction as agreed.