Recently, some states in the United States have introduced new kinds of sales tax laws that affect Etsy sellers, and sales into these states. Marketplace tax laws, like those in Pennsylvania and Washington, require marketplaces such as Etsy to collect and remit sales tax on orders shipped to addresses in those states on the seller’s behalf. In addition to these marketplace tax laws, some states have also changed their sales tax collection requirements for out of state sellers as a result of the recent Supreme Court ruling, South Dakota v. Wayfair, Inc.
These states have introduced new laws that require businesses to collect and remit sales tax to the state if they meet certain sales or transaction thresholds. If you make a high volume of sales (by value) into a single state or have reached a certain number of transactions, you may be required to collect and remit state sales tax to that state.
We know state sales tax laws can be confusing, so Etsy’s Tax Director Mike Mincieli, Manager of Public Policy and Research Ilyssa Meyer, and product specialists Madison Kiani and Rebekkah Phelan will be answering some of your questions in the Forums.
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We’ll be collecting your questions until 9 PM EST today. And on Thursday, October 25, we’ll be back to answer some of the top voted questions in this thread.
And as with all of our Q+As, we we won’t answer questions that are off topic or that don’t adhere to our Forums community guidelines (you can read those here: https://www.etsy.com/legal/community). We also can’t give tax or legal advice that’s specific to your shop.
Yes, you are on top of it. The sales tax tool does allow for you to set up collection in any state you wish. We encourage you to explore all the reports that exist currently within the CSV files, and to suggest any reports which might be huge timesavers for you to have.
As for potentially “overcollecting”... no state will ever turn down a tax payment. If you collected under the impression that you would meet the threshold for the current year but have not, we would suggest that you still remit the funds to the state. Remember sales and use tax is due regardless (if a seller/retailer does not collect it, a buyer/customer is supposed to self-report tax).
For all shops on Etsy, customer location will change every day, week and year. You may need to pay taxes one year but what happens if your sales in that state falls the next year. Is this going to be a back and forth of having to change your tax status every year with these states? What about the collected and non-collected taxes during these transition periods? If one shop has millions in sales, it may work but when your tax status is based on 200 transactions (WI state and most likely other states as well), it's not logical. What a mess...
The good/bad news is that many states will say that once you have met a threshold, you should continue to file for all upcoming years. States have thus far been reasonable in regards to the “transition” period, and have stated that you do not need to go “back in time” to collect on sales made before a threshold has been met.
Many states are requiring tax collection if you have 200 or more separate transactions. What is the definition of a separate transaction? If you had a customer who purchased 200 Christmas ornaments that cost $1 each all together, so the customer had 200 items in their cart when they checked out and paid once. Is that considered one transaction or is that 200 transactions because they are 200 separate items technically?
Unfortunately, here, states have been less reasonable. As the laws are currently written in many states, the thresholds are $100,000 or 200 transactions. This lower transaction threshold can be easily met by a seller who sells stickers or SVG downloads to a large population state that has not increased its thresholds proportionally (cough, Illinois, cough).
To address your specific question about a customer purchasing 200 Christmas ornaments that cost $1 each all in one checkout, we are assuming that it would only count as one transaction. However, you should always consult a local tax professional for their advice.
If your shop is located outside the US and you ship your order to a customer in WA, for example, how does the WA tax office know that Etsy has already collected the sales tax of that order? Do you need to write anything on the package?
From what I understand, it is not like VAT. They don't hold the package until it is paid. Etsy has to turn in reports to the marketplace states at the end of the year and file appropriately. The US state sales taxes are paid at certain points of the year - usually quarterly.
I do hope Etsy sees your question and writes an article explaining how all of this works for sellers not in the US.
I believe that you need to place the ETSY's order notice printed within the packing as well... along with your own invoice (which excludes that tax value). Adding a printed copy of the ETSY collection policy about TAX on those states would also be a good idea for customs purposes...
Etsy is already collecting and submitting sales tax for some states like Minnesota since these states require marketplace providers to collect tax. Does that mean individual shops do not need to collect sales tax for the states that Etsy is already collecting for?
That’s right, Sarah. When you make a sale into a state with a marketplace sales tax law, Etsy collects the tax from the customer when they check out and remits it to the state. You can’t set up sales tax collection using Etsy’s tool for a state where we already collect the tax on your behalf.
If you have a physical presence in a state where Etsy collects and remits state sales tax on your behalf, you may still be required to file a state sales tax return to that state. However, you will not have to remit any tax collected on your sales made through Etsy because we will remit these funds on your behalf.
When Etsy is responsible as marketplace for US sales tax, how is a US customer supposed to get a valid sales tax invoice (for the purposes of Customs, business expenses or sales tax reclaiming) from a seller who is non-US VAT registered and needs to issue their own valid VAT invoice with their own VAT registration number (and other information, and in their own currency), but is not registered for US state sales tax and so it is illegal to include US state sales tax on their own VAT invoice?
Hi Lawrence and Clare. A US customer in a sales tax collection state would not need to receive a “sales tax invoice” beyond what is generated for them at checkout. Where Etsy is responsible for sales tax or VAT, there is no need to the Etsy seller to include this tax on their invoice.
Hi there! I’m Madison, Product Marketing Manager at Etsy. I work with the Tax and Payments teams to educate sellers on how to best manage their finances on Etsy. I’m excited to join this thread today to help answer some of your questions!
Hi! I’m Mike, Director of Tax here at Etsy. It pains me to think that taxes could be a source of agitation for Etsy sellers, and we spend a lot of time and energy trying to make them as easy as possible. A lot has happened this past year in the tax world! Hopefully we can help clear up some confusion.
Hi everyone. I’m Rebekkah, a Product Support Specialist. I regularly work with the Support, Tax, and Payments teams to assist sellers with their questions and concerns relating to shop finances. I’m happy to help answer some of the concerns you have about sales tax today!