The Limitations of Etsy Sales Tax Reporting
- Aug 12, 2015 | Laura McCamy
If you are like most Etsy sellers, you would probably prefer to spend your time creating beautiful jewelry, clothing, pottery, or other artwork rather than nose-deep in your business financials. At some point, however, money will demand your attention.
One of the tricky subjects for all online sellers is the question of sales tax: charging your customers correctly, tracking what you owe, and paying on time. Even if your sales volume is as tiny as a pair of stud earrings, you are most likely still responsible for collecting and remitting sales taxes on some of your online sales.
Etsy’s Small-batch Sellers
According to a 2013 Etsy report, selling is a full time profession for only 18 percent of the site’s makers and crafters. Thirty-seven percent sell on Etsy in addition to holding down a full- or part-time job.
The average Etsy seller takes in a bit less than $1,500 per year (based on Etsy’s first quarter 2015 financials reporting $531 million in revenue made by 1.4 million active sellers).
If you are one of Etsy’s many small-scale sellers, you may find it challenging to do everything your business requires on top of working in other roles that help butter your bread. Building your Etsy business requires buying supplies and making your products, keeping your Etsy listings fresh, and shipping out orders to customers. On top of all that, you still need to find the time to file the same quarterly sales tax returns.
Small is Beautiful When It Comes To Nexus
The good news about being a small seller is that your nexus worries are probably minimal. You have sales tax nexus in any state where you have a physical presence. For most of the crafters who sell on Etsy, the only point of nexus will be the location of their home or studio.
Sales Tax Support
The only sales tax support Etsy provides for its sellers is an article explaining the sales tax obligations and a page explaining how to set up your Etsy shop to add sales tax to your sales to customers who live in the state where you have nexus. The site leaves the hard work up to you--determining whether your goods are subject to sales tax, where you have nexus, and the applicable sales tax rates. “It's up to each seller to research their local laws about collecting and reporting taxes for their Etsy sales,” says the site.
Sellers are responsible for entering the sales tax rates and keeping those rates up to date. If you forget to update your sales tax rate, you will be on the hook for any additional tax you fail to charge your customers.
If you owe sales tax on your goods and you don’t collect it and remit it to your state taxing authority, you could end up owing penalties and interest on top of your missing returns.
Etsy allows you to download your transactions into a CSV file, which can be opened with a spreadsheet program such as Excel.
You can download a month’s or a year's worth of sales. If you file your sales taxes on a quarterly basis (the most common reporting period), you will need to download each month in the quarter you are reporting.
The data you download will include sales taxes charged, and that’s about where Etsy sales tax reporting support ends.
Fortunately, there are third-party tools that can help you ensure that you are charging the correct sales taxes in your Etsy store. Avalara’s interactive sales tax map provides the current sales tax rates in your state and county. Then check out Avalara TrustFile to help you meet your sales tax filing obligations without breaking a sweat.
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.