Sales Tax for Etsy Sellers 101: What Every Etsy Seller Needs to Know
- December 26, 2015 | Stephanie Faris
Etsy has opened up new opportunities for crafters to connect with interested buyers. As a marketplace for handmade items, Etsy has become an invaluable resource for crafty entrepreneurs around the globe. However, as retail-oriented businesses, Etsy stores must collect and remit sales tax.
Get Started Right...and Right Away
Several things complicate the process of collecting sales tax on Etsy purchases. Many sellers are new to running a business, and even the more experienced Etsy sellers don’t specialize in the financial aspects of retail. This guide is designed to help Etsy sellers understand how to calculate and pay sales tax on their Etsy sales.
“If I was to give anyone who's starting a shop on Etsy advice, it would be to always plan for the future and think of your small business as a big business, because these habits will transfer on as your business grows,” says Eza Borchardt, the owner/creator of Le Petit Matisse, a line of natural and nontoxic children's art supplies.
“Cover all your bases from the beginning. Before you know it, you will have to pay taxes on your business, so prepare for that by either embedding the sales tax charges or shipping charges into your MSRP or by enabling it on your platform.”
Sales Taxes on Etsy
In Etsy, taxes are specified within your shop in the Finances section. Choose Accepted Payments, then the Sales Tax tab, and select the state where the item will be shipped.
While sales tax amounts are already in the system, a seller is responsible for choosing to apply sales tax where it applies. This is because under nexus laws, you will not need to charge sales tax on a purchase unless you have a physical presence in the state in which the buyer is based.
States have varying laws on what constitutes "physical presence"--whether it's a warehouse, an employee, or an office, so it’s important to check laws as they apply in a specific state. If you cross state lines to sell items at a crafts fair, you may find that you qualify for nexus in that state and must pay sales tax on everything you sell online to that state, as well.
Taxes in the Etsy App
One handy feature of Etsy is the ability to sell in person and manage the sales through the Etsy app. In the app, sales tax rates are set under settings. Unfortunately, the sales tax settings on the main Etsy site don’t automatically move over to the app, so crafters who sell locally will be forced to reenter all of this information. Since many sellers only attend craft fairs in their own states, this process should be easier than online, where they’re forced to track sales tax laws for each state in which they hold nexus.
Registering, Collecting, Remitting
After you have determined the exact areas where sales tax will apply, go through the system and check “Yes” under “Apply rates to shipping?” on the above-mentioned Sales Tax tab. From there, you must then begin the process of collecting and remitting sales tax. Before that can begin, however, you will have to check with local tax collection authorities to determine what needs to be done to register to collect those taxes. This same process will need to be repeated for each area where your business has nexus.
If you're lucky enough to have nexus in only your own state -- as is likely the case for the majority of Etsy sellers -- this whole process can be a breeze.
“I find that handling sales tax is very easy,” says John Witham, co-owner of Secret Safe Books. “We are set up as a LLC in Minnesota. Both of our sites automatically collect sales tax from all customers with a Minnesota billing address. Once a year in February when it’s due, I search for all MN transactions and calculate the sales taxes collected. I make sure it matches what is owed (it always does) and then I go online to pay the state. Not even 30 minutes’ work.”
Calculating sales tax on Etsy transactions may seem complicated, but a seller need only determine the states where they hold nexus and research any laws that might apply to their sales in those states. Since Etsy automatically populates the rates, sellers only have to make sure there aren’t any exceptions, register to pay sales taxes in applicable states...and then actually pay what's due.
Disclaimer: The term 'Etsy' is a trademark of Etsy, Inc. The Avalara TrustFile connector for Etsy uses the Etsy API but is not endorsed or certified by Etsy, Inc.