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5 things every Etsy seller needs to know about sales tax


Etsy craftsperson

Compared with Amazon or eBay, Etsy maintains a small-time, homegrown feel, thanks to its emphasis on unique handmade goods.

The platform and its sellers are doing big-time business, though. In 2017, gross sales on Etsy exceeded $3 billion. In fact, Etsy is large enough that it has started to automatically collect and remit sales taxes in some states that have marketplace facilitator laws — just like Amazon and eBay.

If you sell outside of those states, however, collecting sales tax might be your responsibility — whether you’re doing big business on the site or just starting out. Below are five things you should know about sales tax on Etsy.

  1. It’s on you to figure out if you have to charge sales tax in a particular state. It all boils down to whether you have nexus, or a substantial connection to a state. That used to mean having a physical presence, such as an office or employees. Today, however, many states now have economic nexus laws as well, which require businesses to collect and remit sales tax if they exceed a certain threshold for revenue or transactions in that state. To learn more, see our post on how out-of-state sales can impact your business.

  2. Before you start collecting sales tax, you must have a sales tax permit. It’s illegal to collect sales tax without a permit — so if you have nexus in a state, you’ll have to follow the steps to apply. The process can be different depending on the state, and sometimes a fee is required. You can find more information on when and where to get permits here.

  3. Etsy will add sales tax to your listings — but you have to tell it to do so. The platform has a sales tax tool that allows sellers to specify a tax rate by state, individual ZIP code or a range of ZIP codes. However, you need to find the applicable rates and set them up in your account. New listings will have that tax rate applied automatically; for listings created before you set up the tax, you’ll want to check to make sure the items are marked as taxable and that the rate is applied.

    Remember, sales tax rates do not always adhere to ZIP codes. For example, in Alabama, within one ZIP code there are nine unique tax areas and five different rates ranging from 5 percent to 9 percent. That’s a big difference, and if you only go by ZIP code to determine rates, you could collect the wrong amount. We recommend making sure you always have the right rate by automating your sales tax calculation — our team of tax professionals regularly updates rates by exact location (not potentially inaccurate ZIP codes) right within your business or marketplace software.

  4. You might need to add tax to shipping or gift-wrapping services. Some states require businesses to include shipping and/or gift wrapping in the taxable amount. If you don’t know the rules and regulations of the states where you have nexus, you might not be collecting enough tax — a situation that can lead to an unpleasant (and perhaps expensive) surprise. So do your research. Once you know whether to apply tax on shipping or gift wrapping, Etsy makes it easy to set this up on your listings.

  5. You still need to file your own returns. Etsy will break down your transactions for you and tell you how much sales tax your business has collected, but in most states, it’s your responsibility to remit and file returns. (In marketplace facilitator states, you only need to file returns, since Etsy automatically remits the taxes on your behalf.)

    If you don’t want to do all of that heavy lifting yourself, Avalara TrustFile can help. It integrates with Etsy and processes your data into a ready-to-send return, allowing you  to focus on selling instead of worrying about sales tax.

Ultimately, it’s up to you to determine whether you actually charge sales tax on Etsy. Aside from sales in states where Etsy automatically collects and remits tax, you have a choice as to whether or not to charge it. We recommend consulting with a tax professional to best define a tax process for your business.

All in all, only you can decide what’s right for your business — and if that means charging sales tax, Avalara solutions can help make sure you get that right, too.


Avalara Author
Mike Plaster
Avalara Author Mike Plaster
Mike Plaster is a former journalist who now owns and runs a small business. He began a partnership with Avalara in 2018, aiming to shed light on issues important to small business owners and Amazon sellers.

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