Taxes for retail and online arbitrage sellers

How are purchases treated?

Items bought to resell are inventory, not immediate expenses. They become cost of goods sold when sold. At year end, unsold items are counted at cost and stay in inventory. Track what you paid for each item, including tax, so you can work out profit per sale. See cost of goods sold.

Keep a simple inventory list, showing each item, its cost and where it is stored, so you can count it at year end and see what has not sold.

Can you avoid paying sales tax at the store?

Only if the retailer accepts a resale certificate, which many large retailers do through their own tax-exempt programs, and some do not. Where you cannot use one, the tax paid is part of the item's cost. When you sell on Amazon, eBay or Walmart, the marketplace usually collects sales tax from your buyer. See resale certificates and marketplace facilitator laws.

What can arbitrage sellers deduct?

Returned or damaged items that cannot be sold are written off through cost of goods sold, and inventory lost or destroyed at a fulfilment center is reimbursed by the marketplace in many cases; record reimbursements as a reduction of cost or as other income, consistently.

How should arbitrage sellers keep records?

1. Keep every receipt

   Scanned, with the store, date and items.

2. Link receipts to inventory

   Each item's cost in a sourcing or inventory app.

3. Log sourcing trips

   Date, stores visited and miles.

4. Reconcile settlements monthly

   Gross sales, fees and refunds. See bookkeeping for Amazon sellers.

5. Count inventory at year end

   Including stock at fulfilment centers.

Do arbitrage sellers need a sales tax permit?

If every sale goes through marketplaces that collect sales tax, you often do not need to collect yourself, although some states expect sellers with inventory stored there to register. A permit is also what most retailers ask for before accepting a resale certificate. See how to get a sales tax permit.

How are cashback and rewards treated?

Cashback, rebates and gift card rewards earned on inventory purchases generally reduce the cost of the items bought, rather than being separate income. Record them against cost of goods sold or inventory, consistently.

What about items you already owned?

Selling personal belongings for less than you paid is not taxable, and the loss is not deductible. Keep them separate from inventory bought for resale, so they do not distort your business figures.

What does an example look like?

A seller buys $30,000 of products in 2026, paying $2,100 in sales tax, and sells most of them on Amazon for $58,000. Unsold stock at year end cost $6,000. Cost of goods sold is $30,000 plus $2,100 less $6,000, or $26,100. After $14,500 of Amazon fees and 4,000 miles of sourcing trips, profit is roughly $14,400, taxed for income and self-employment tax.

Do brand rules matter for tax?

Not directly, but brand restrictions and authenticity complaints can freeze inventory and payouts on marketplaces. Keep purchase receipts as proof of where items came from. See Amazon FBA taxes.

This guide is general information. It is not tax or legal advice for your situation.