EBay recruits users in push against sales tax legislation

I'm not really strong in micro, but it seems logical that all 3 parties would pay some share, with the highest share being paid by the seller through reduced demand.

Also, has anyone created a sales tax management company? That seems like it would reduce the burden significantly on small businesses.

Of course that's standard operating procedure, but after being treated like that why should sellers campaign on behalf of Ebay?

Sellers will be responsible for paying this tax, not buyers.

Taxes are not automatically passed long to buyers, even though buyers always pay them. If the seller's profit is reduced, then part of the tax is effectively being paid by the seller. I know this is slightly counter-intuitive, but it makes sense in terms of price theory. Elasticity of demand is what determines who pays the tax - the more inelastic the demand, the more the tax burden falls on the buyer.

Let's take an example, albeit a simplified one. Suppose gasoline costs $5/gallon including a 25% tax on a retail value of $4 ($1), and that the profit of the gasoline manufacturers is also $1 (we're assuming vertical markets and perfect competition as well as round numbers, for simplicity). Consumers need gas to go to work and run errands, so although higher gas prices might result in some fewer road trips and pleasure excursions, overall gas consumption won't change too much in response to price swings. Now, the government decides to increase the tax to 50%, so the price at the pump goes up to $6. Consumers will grumble but they'll still need to buy gas, so they pay 20% more but the sellers still make $1/gallon profit as before. Why? because it's hard to substitute away from gasoline or change your usage patterns overnight, so if you need to go from A to B in your car you're just going to have to buy the more expensive gas. Shit.

Now contrast the market for gourmet cupcakes, which have lately been in fashion. Let's assume a cupcake also costs $5, and yields $1 in tax revenue (25% on $4). Because baking cupcakes is a bit more labor-intensive than gasoline production, let's say the baker's profit is $2 (which is not so far from the truth, and which helps to explain why there are so many gourmet cupcake companies lately). Now suppose Mayor Bloomberg disapproves of cupcakes because they have too much sugar and raises the tax on them to 50% ($1 -> $2), so now they cost $6. Well, $6 is a lot for a cupcake and there are many other delicious things you could eat for that price, so a lot of people switch and start eating other tasty snacks. Cupcake makers are going broke! All they can do is cut their prices. Suppose they cut their profits from $2 per cake to $1.50; now a cupcake retails for $3.50 + 50% tax, for a total of $5.25. Sales are not quite as good as when cupcakes cost 'only' $5, but a lot of consumers come back to snacking on cupcakes - let's say 2/3 of them. Some smaller cupcake bakeries go out of business, the larger/smarter ones increase their market share.

In this case, government revenue goes up by 50% (75c increase per cake * 2/3 as many customers), but the burden of that falls 1/3 on consumers (cost goes from $5 to $5.25) and 2/3 on bakers (profit falls from $2 to $1.50). What's different from buying gas is that cupcakes are strictly optional: there's a desire to consume them but no actual need, and if the price changes there are lots of other things to eat instead. Thus demand for cupcakes is extremely elastic and can expand or shrink in response to price.

What about everyone that sells online and doesn't do it through eBay?

It's not the 50 checks a year, it's knowing 50 state laws (which are not all the same with regard to what is and is not taxed, and can and do change), tracking, computing, and being ready to prove to 50 jurisdictions that you've complied with their laws. If so much as one of them decides to challenge you on it, you can probably kiss your profits for the year goodbye. Merely writing the checks is trivial.