Do I Need To Charge Sales Tax on My Etsy Crafts?
- April 15, 2016 | Michael Ansaldo
“Do I have to charge sales tax?” is the most-asked question in the Etsy forums. Given that 45 states currently impose a sales tax, the short answer is, “probably.” But who, when, and how much to charge depends on a whole host of state laws and tax rules.
To simplify things, we’ve put together a step-by-step primer on determining and meeting your sales tax obligations.
Sales tax is triggered by nexus. This legal concept says that if your business has a physical presence in a state, you’re required to collect sales tax there. Presence generally means an employee, office, or warehouse. In some states, however, you can also have nexus if you sell your goods at local events or by advertising online.
Most Etsy sellers will only have nexus in the state they’re living in. But that can change if you decide to sell your stuff at an out-of-state crafts fair or start having your sister across the country help out with your business. The only way to be certain of your sales tax responsibilities is to contact the department of revenue in each state in which you suspect you have a presence and ask.
Register for a Sales Tax Permit
You’ll need to register for a sales tax permit in each state where you have nexus. As with most things tax related, the particulars of registration -- costs, renewal requirements -- vary by state. Tax rates, which customers you must charge, and whether or not shipping is taxed, also differ by state -- and sometimes even by county. Make sure you understand the details of each permit.
Set Up Your Store to Collect
Once you understand your sales tax responsibilities, you’ll need to set up your shop to collect. You specify the sales tax rates you want to apply for each applicable state. Etsy then calculates the relevant tax based on the purchaser’s address and adds it to the transaction.
Etsy’s tax system is easy to configure but it’s only as good and the information you give it. Take care when entering states and tax rates, as you will ultimately be held responsible for their accuracy.
Remit Your Sales Tax
When it comes time to file your sales tax, you’ll need to know how much you collected. This can be thorny, as Etsy doesn’t offer any reporting tools. It does, however let you download a spreadsheet of all your orders, which includes sales tax data. If you file your taxes quarterly, you’ll have to download the data for each month within the quarter you’re filing.
Many states want you to break down the sales tax you collected by tax district. You can simplify this by importing your data into third party program like Avalara TrustFile -- we even integrate seamlessly with Etsy. From there, you can prepare your sales tax return for manual or e-filing. There are various other tools that can help Etsy sellers track, collect, and file taxes correctly. And there's always help to be found online when you have questions.
Sales tax can be intimidating when you’re first starting out as an Etsy seller. But if you follow our formula, you can be sure you’re meeting your sales tax responsibilities and carry on with the business of crafting.