When you sell on Etsy, you’re subject to US sales tax laws. Though Etsy handles a lot of the sales tax process for you, there are still things your business needs to do. Read on to learn how the marketplace calculates sales tax, when you need to register for a permit and how to stay compliant.
Does Etsy Collect Sales Tax for Sellers?
Etsy collects and remits sales tax on behalf of sellers in states with marketplace facilitator laws in place. A marketplace facilitator is a business that manages transactions between sellers and buyers, such as Amazon, eBay, or of course Etsy.
As a seller, you can trust that Etsy will:
- Calculate the correct amount of sales tax for each transaction.
- Collect this sales tax from the customer.
- Remit the collected tax to the tax authorities in the appropriate state.
Here’s what you have to do:
- Register for a sales tax permit in each state where you have nexus (counting your marketplace sales towards the economic threshold when required).
- Submit reports to the tax authorities.
- Collect sales tax on any sales you make through your own website or trade appearances.
Selling on Etsy and Your Own Website?
If you sell through Etsy and other marketplace facilitators as well as directly through your own website, you’re an omnichannel seller. It’s important to understand your obligations for both streams of your business – and the effect one can have on the other.
You’re obligated to collect tax in a state when your sales surpass its economic nexus threshold. In some states, Etsy sales count towards this figure and mean you need to collect sales tax from your direct sales, even if those alone wouldn’t reach the threshold.
Make sure your sales tax filings clearly differentiate your direct and marketplace sales.
“Many businesses who sell on marketplaces make the mistake of thinking that they can just ignore sales tax. You do still have certain obligations so it’s important to stay informed and keep detailed records.” – Gareth Kobrin, Global Tax Expert
‘Does Etsy Collect Sales Tax For Me?’
Understanding Each State’s Rules
Sales tax rules can be very different from state to state, and that includes marketplace facilitator rules. Even though much of the pressure is off your business, we recommend speaking with a tax professional about your business’ obligations.
In some “home rule states,” local jurisdictions can set their own sales tax laws, bypassing marketplace facilitator standards. That means you could have responsibilities to collect tax. The easiest way to check where you need to collect tax is by using automated sales tax software.
Etsy Sales Tax Exemptions
Some states have sales tax exemptions for products like clothing and shoes. Typically, Etsy will apply the exemption, but you may need to update the product tax codes for some items. Etsy can see the customer’s location and will apply the exemptions based on their state’s specific rules.
Etsy Sales Taxes for Handmade Items
If you’re selling crafts or other handmade items on Etsy, you might wonder if sales taxes apply. The answer is yes – handmade items are taxed just like any other product – but sales tax is collected on your behalf by Etsy in states with marketplace facilitator laws.
Selling Crafts and Handmade Items at Fairs
Many Etsy sellers also sell products at fairs and events. It’s important to note that this can constitute a physical nexus and you may be required to collect sales tax on these items (as well as any items sold through your website to customers in the state). Some states have special rules or exceptions for temporary vendors, but you’ll want to check the rules before attending a craft fair in a new state.
Conclusion
Etsy and other marketplace facilitators make selling – and managing sales taxes – simpler for many businesses. However, you don’t want to fall into the trap of ignoring the obligations you still have and facing a penalty.
We offer a solution called Yonda Tax. The software integrates with Etsy to help you monitor where you have a nexus, calculate sales tax rates and complete accurate filings. In essence, it automates the sales tax process. This can make life a lot easier, especially if you’re an omnichannel seller or you often sell at fairs out-of-state.
Discover our Sales Tax Solution for Marketplace Sellers
Automated Registration and Reporting for Etsy Sellers
Book a free consultation to understand what your business needs to do to stay compliant. If you need more help after the consultation, we’ll set you up with automated registrations and reporting and a dedicated tax expert on call.
The information in this article is true to the best of our knowledge at the time of writing, but sales tax regulations can change very quickly. You should always consult a tax professional for legal advice.