5 Steps to Understanding Etsy Sales Tax
- March 4, 2015 | Ryan O'Donnell
Etsy has created a channel through which nearly anyone with a product idea and the means to create it can open a business. Everything from Lego cufflinks to Altoid Tin Amplifiers is available and, in most cases, taxable.
As an Etsy seller, you may imagine you're too small to have to think about sales tax. You may even think internet sales are not taxed. Internet sales are indeed taxable and Etsy charges and collects sales tax.
We offer five steps to help get you started with understand your sales tax responsibility on Etsy and how to ensure you are in compliance with state tax rules and regulations.
Step 1: Identify nexus states
Nexus is the governing concept behind state sales tax. Determination of nexus depends on which states your business has a "significant presence" within. Examples of such a presence include:
- an office or warehouse in a state
- products being stored within a state
- employees working within a state
For smaller sellers who make, store, and ship product from a single location (either an office or a home), nexus is restricted to a single state. However, for larger businesses with remote storage facilities or those utilizing fulfillment services such as Shipwire or Fulfillright, there can be many nexus states.
Step 2: Does your state require you to collect sales tax?
All but five states (New Hampshire, Oregon, Montana, Alaska and Delaware) collect tax on the sale of tangible personal property. When reviewing your nexus exposure you can exclude these so-called NOMAD states.
Step 3: Are the items you sell taxable?
States can have very strange or differing taxability laws, so the next step is to determine whether or not the items you sell are taxable in your state(s). For the overwhelming majority of Etsy sellers, the answer will be, "Yes". However, it's worth considering your own situation just in case. You also have to ask the following three questions:
- Who am I selling to? Are you selling to the general public, to resellers, or to specific groups such as non-profits, churches, the government. Each may impact whether you need to collect sales tax.
- In which states am I selling? We mentioned this above. If you're only company exposure is within a NOMAD state, you don't have to worry about collecting sales tax.
- What type of products am I selling? Again, for the overwhelming majority of Etsy sellers, the answer will be "tangible personal property." However, if that doesn't match what your Etsy store is selling, take the time to review the product taxability rules within your state.
Once you figure out the states in which you need to collect sales tax, use our state tax guides to help you answer the three questions above. They include information on where and how to register, state-specific nexus laws, as well as the rates to base your collections on. You can always email firstname.lastname@example.org to answer any additional questions you may have.
Step 4: Add sales tax to your Etsy listings.
Once you have determined the states in which you are required to collect sales tax and you have completed the registration process, the next step is to setup Etsy to collect sales tax on purchases. Etsy has published detailed instructions for how to set up sales tax collection for sellers in the United States. Sorry EU listers, Etsy's tool doesn't cover VAT at this time.
Step 5: Filing & remitting
Once you've configured Etsy to collect sales tax, it is up to you to manage your compliance. Etsy will not file sales tax returns or remit collected sales tax for you. Be sure to understand the ins and outs of filing and remitting as missing deadlines may result in penalties and interest payments.