Etsy and VAT: a state of confusion
- Sales and Use Tax
- June 7, 2016 | Gail Cole
On May 4, 2016, Etsy announced it would be making changes to increase international tax compliance. As often happens, where change goes, confusion follows.
Etsy’s new policies primarily impact businesses selling outside of the United States and Canada. In its initial announcement explaining the changes to come, Etsy provided the following information:
- Access to the sales tax tool for sellers outside of the United States and Canada will be disabled by the end of May
- Buyers based outside of the U.S. and Canada will see “additional wording indicating that listing prices include VAT/GST/local taxes, where applicable depending on their location” (emphasis mine)
The announcement further clarified how the policy affects shops based outside of Canada and the U.S. and those based inside the U.S. and Canada.
Shops based outside of Canada and the U.S. “As a result of these changes, if you are required to charge VAT, GST or other taxes on your physical goods and are located outside of the US or Canada, you must include these taxes in your listing prices on Etsy” (emphasis mine). The company encouraged sellers to include all applicable taxes in listing prices by May 24, 2016, “as the sales tax tool will no longer be available for use by the end of May.”
Shops based in the United States. The sales tax tool that sets tax rates within the United States remains in place. However, “shops will no longer be able to set tax rates for locations outside of the country,” and any such rates previously set “will no longer be applied after May 2016.” Sellers may continue to include state and local sales tax in listing prices if they so desire.
Shops based in Canada. The tax tool that sets tax rates for Canadian provinces remains operable. However, “shops will no longer be able to set tax rates for anywhere outside of Canada” and any rates previously set will not be applied after May 2016. As with American sellers, listing prices may be set to include local taxes.
Etsy began rolling out the above changes on June 1 and had “fully launched these changes across the site” by the afternoon of June 2.
Etsy makes clear that the responsibility for knowing whether or not there is an obligation to charge tax falls on the seller, not Etsy. Furthermore, Etsy offers this tidbit: “Buyers may be responsible for paying additional import duties or taxes that apply to cross-border purchases.” It suggests sellers consult a licensed professional or local tax authority for clarification on VAT requirements in specific locations, and to learn “what taxes and fees” they may be required to collect and remit.
Let the confusion begin
The initial announcement directed sellers to several help pages. One such page triggered more questions than answers with the following information:
- “Etsy sellers are responsible for collecting and remitting tax on physical goods, such as VAT or Goods and Services tax (GST), where applicable…. If you're required to charge VAT, GST, or other applicable taxes on the physical goods you sell, it is your responsibility to consider applicable taxes when pricing your items on Etsy.” (Learn more.)
- “Etsy automatically collects and remits VAT on digital items purchased by buyers in the EU.” (Learn more.)
- “Etsy may be required to charge VAT on seller fees accrued each month and remit it to the relevant tax authority, beginning in May 2016.”
- “Requirements for VAT on seller fees in Ireland are different from those in the rest of the EU.”
- “Etsy does not require sellers to have a VAT number to sell in our marketplace.”
- “Businesses in certain countries may be required by their local tax authorities to register for a VAT ID if they reach their local country threshold. However, in some countries, you may also register for VAT even if you have not reached the threshold.”
This help page reiterates that sellers should consult a tax advisor or local tax authority for advice regarding their specific situation, as Etsy is “unable to advise sellers on whether they need to acquire a VAT ID.”
Sellers are expressing confusion and frustration on Etsy’s forum. Here’s a sample from postings dated June 6:
- “Why do all my items say ‘VAT included (where applicable) on very (sic) listing just under the price?.... No they don’t. Nor will I pay for any VAT that is due in buyers (sic) country once they receive package.”
- “This is so confusing. VAT is NOT included in my list price.”
- “I’m a US seller. An international buyer emailed me after she received her purchase and asked why she was being charged VAT even though she paid it all at checkout. Holy smokes! Etsy, you are causing a big problem with your wording. Fix it, O.K….?”
VAT is confusing
Regardless of how Etsy is or isn’t handling the situation, VAT compliance is extremely confusing. The more a business expands, the more complicated VAT determination and filing becomes.
There is a way to simplify it for sellers: Avalara AvaTax for VAT determines VAT in over 140 countries and enables businesses to outsource the entire VAT registration and returns process; Avalara Landed Cost automates calculation of duty rates and helps businesses determine the correct tariff code for each product. Click on the links to learn more.