Reselling sales tax vs income tax: two taxes, two different questions

Two taxes with similar names and different jobs

A new reseller looks at an order and sees a line called "sales tax" that the buyer paid. Later, they read that they have to report their selling income. It's easy to blur the two into one idea of "tax on my sales". They're different. Sales tax is generally charged to the buyer on a purchase and passed to a state or local government. Income tax is charged to you on what your business earns. Mixing them up leads to two opposite mistakes: counting tax you never kept as your income, or ignoring income because "the platform already handled the tax".

This guide explains the difference between sales tax and income tax for resellers, using the IRS instructions for Schedule C and IRS pages on Form 1099-K, checked November 8, 2026. It is general information, not tax advice. Sales tax is set by states and localities, and the rules differ widely, so check with your state's revenue department and a tax professional.

The difference in one table

What the IRS says about sales tax on Schedule C

The IRS Schedule C instructions treat sales tax in two different ways depending on who it's imposed on:

• Taxes imposed on you as the seller. The instructions say you can deduct state and local sales taxes imposed on you as the seller of goods, and that if you collected this tax from the buyer, you must also include the amount collected in gross receipts.
• Taxes imposed on the buyer that you collect and pass on. The instructions say state and local sales taxes imposed on the buyer that you were required to collect and pay over to state or local governments are not included in gross receipts and aren't a deductible expense. If the government let you keep part of what you collected, that part is income.

Which category applies depends on your state's law. That's a question for your state revenue department or a tax professional, not a guess.

When a marketplace collects the sales tax

Many marketplaces calculate and collect sales tax on orders in some or all states and send it on themselves. Etsy's fees article, for example, says payment processing fees are calculated on an order total that includes sales tax, which shows that tax appears in the order. When a platform collects and remits the tax, you usually don't receive it as part of your payout. Read each platform's tax help pages to see what it collects, where, and how it shows up in your reports.

Not the end of the story: A marketplace collecting sales tax doesn't settle your income tax. The IRS says that whether or not you receive a Form 1099-K, you must report income from selling goods on your tax return.

Where income tax comes in

The IRS 1099-K pages say marketplaces and payment apps report payments for goods and services on Form 1099-K, and that you should use the form with your other records to figure your income. The IRS's "what to do" page says the gross amount on a 1099-K isn't adjusted for fees, credits, refunds, shipping, cash equivalents or discounts, and that you can account for those from your records. So your income tax starts from what you received, then subtracts your costs, which is why the cost of goods sold manual and the 1099-K manual matter.

Worked example: one order, two taxes

In this chosen example, a buyer in a state where the marketplace collects sales tax buys a $40 lamp with $10 shipping. The tax rate is chosen for the example only.

In this example the $3.50 never becomes your money, so it isn't part of your income. Whether a state taxes shipping, and at what rate, varies; the 7% applied to shipping here is an assumption for the arithmetic.

When you collect sales tax yourself

If you sell outside marketplaces, such as at markets, from your own website, or to local buyers, you may have to register, collect and file sales tax yourself, depending on your state. Keep sales tax collected separate in your records so it never looks like income you can spend.

Records that keep the two apart

• Download each platform's order and tax reports and keep them with your annual records.
• In your spreadsheet, record what you received and the sales tax line separately where the report shows it.
• Keep any state sales tax registration, returns and payments in their own folder.
• Use the platform reconciliation guide to match reports with payouts.

Common mistakes

• Counting marketplace-collected sales tax as income.
• Assuming the marketplace's sales tax collection covers income tax.
• Ignoring sales tax on direct or local sales.
• Spending sales tax you collected yourself.
• Not reading each platform's tax help page.

Different taxes, different questions

Sales tax asks what the buyer paid on a purchase; income tax asks what your business earned. Keep them in separate columns, read your platforms' tax pages, and check your state's rules for sales you make outside a marketplace.