Common Etsy Sales Tax Questions Answered
- Mar 9, 2016 | Gene Marks
Want to focus on creating products but feel like you’re missing something about Etsy and sales taxes?
You are not alone.
It’s true: Sales taxes are not as straightforward as we’d all like. The good news is that with a bit of research, it’s not a massive headache.
To help sellers out, this post answers the most common questions on sales taxes and Etsy.
Ready? Let’s dive right in.
Do I need to collect sales taxes on Etsy?
What is nexus?
Nexus is tax-speak for physical presence. Rules vary among states but sellers generally collect taxes in their home states and in other states where their activities cause some kind of substantial connection. An example of a factor that could give sellers nexus in states other than the one they live in is having employees and storage facilities in those places. Check the nexus rules of each state in which you believe you might have some kind of "physical presence."
Do I need to register to collect sales taxes? If yes, how?
Generally, Etsy sellers have to register with their state’s Department of Revenue and get a sales tax ID before they can collect sales taxes.
However, there are five states that don't have sales tax, in which case registration is not required. Those states are Alaska, Montana, New Hampshire, Delaware, and Oregon. Washington has a fairly strict registration process. Remember, it’s illegal to collect sales tax without a permit. Consult the sales tax state guide for precise rules in your state.
How much sales tax do I collect?
How much you charge depends on whether you have nexus in the state your buyer lives in. If selling to someone in your home state, how much you charge depends on whether your state enforces origin-based or destination-based sales tax. In the latter case, state sales tax will stay the same, but local taxes will vary depending on whether you're calculating based on your location or the location of the buyer.
How do I collect sales taxes?
Thankfully, with a little input, Etsy can do it for you. Just set up sales tax collection within your Etsy dashboard once your store is live. Etsy asks you to choose the states where you have nexus. After that, you need to input the sales tax rate for each location. You can set rates for certain zip codes or sets of zip codes. When all that’s in place, Etsy automatically collects sales taxes from buyers.
How do I report and pay sales taxes?
Like most things concerning sales taxes, reporting and payment depends on state rules. In this case, another important factor is the volume of sales. There are a lot of states that require you to remit taxes monthly if you sell in high volumes. The baseline is quarterly for almost all states. Pay on time to avoid fines and penalties.
Keeping on top of your sales tax collection can be a pain. Fortunately, there are tools that are capable of taking the work out of your hands by automating sales tax preparation and filing with TrustFile. You can even import your sales tax data directly to TrustFile in CSV form, then easily print reports and file your taxes from there.