What states does etsy collect sales tax for

As online shopping becomes a larger and larger part of the economy, many states are adjusting their sales tax rules to pick up revenue from online sales. Since these laws are set at the state level, they can vary significantly. This can be confusing, especially for online businesses that sell to multiple states. These are five things Etsy sellers should understand about sales tax on the platform.

1. Each State Has Its Own Threshold for Requiring Sales Tax

Since the 2018 Supreme Court decision in South Dakota v. Wayfair, states have been allowed to require sellers to collect sales tax when the seller does a significant amount of business in the state. In the past, this was only required when a seller had a physical location in a particular state.

The amount of business that requires you to start collecting sales tax is called the economic nexus threshold, and it is set by states individually. The threshold can be a number of transactions or an amount of revenue. If you sell on another platform in addition to Etsy, such as your own website, it's important to remember that the threshold applies to the total of all your sales.

2. Sales Tax Is Usually Based on the Shipping Address

Sales tax varies depending on the state and, in some cases, by the item. Thus, understand how to calculate it properly. For remote sellers, the sales tax rates are determined based on the buyer's shipping address in most states. This means that if you're sending a product to a customer in New York, you need to charge New York sales tax if the product is taxable, even if you live in Pennsylvania.

3. For Most States, Etsy Collects and Remits Sales Tax for You

Etsy keeps up with changes in sales tax law to keep things as straightforward as possible for sellers. As of the summer of 2021, Etsy handles sales tax for 44 states, the District of Columbia, and Puerto Rico. For these sales, Etsy will calculate the local sales tax, charge the buyer and send the tax along to the state. Missouri recently became the last state with a sales tax to pass a law requiring online, out-of-state stores to collect that tax starting in 2023.

Etsy will likely start collecting sales tax from Missouri buyers by that time. Delaware, Montana, New Hampshire, and Oregon do not have a sales tax. Alaska does not have a state sales tax, but several of its municipal governments impose a local one. Etsy offers a sales tax tool that allows you to charge the required sales tax yourself through your listing.

4. Whether Your Product Is Taxable or Not Varies for Etsy Sellers

Each state has its own rules for which items are and are not subject to sales tax, and these can sometimes be complicated, especially for the types of handmade goods that are typically sold through Etsy. For example, in Pennsylvania, yarn is taxable except when it's being used to make clothing. Other common Etsy products that are exempt from sales tax include food and downloadable digital products. In many states, non-taxable sales usually do not count toward your economic nexus threshold, so make sure to keep close track of your records, especially if you sell a mix of taxable and non-taxable goods.

5. You Might Still Need to File a Sales Tax Return, Even if Etsy Collects Taxes for You

The state where your Etsy shop is physically located, generally where you live, may require you to file a sales tax return. If you're in a state where Etsy collects and pays your sales tax for you, this will generally mean reporting your sales and indicating that Etsy has already collected and remitted taxes on those sales. If you're located in a state that requires you to collect sales tax yourself, report and remit those funds.

Learn More About Sales Tax for Etsy Sellers

Understanding the requirements for charging sales tax can be complicated and working with an experienced professional can help. Get in touch with Sales Tax Helper to speak with an expert sales tax consultant today.

It’s important to note that most states also allow cities, counties, and special taxing districts to charge a sales tax, so you may be responsible for collecting more than simply state sales tax. For example, the combined sales tax rate in Pasadena, California, is 10.25% because it breaks down as follows:

Also, even though Alaska and Montana don’t impose a sales tax, they do allow localities to charge sales tax, so you may be responsible for collecting sales tax for cities, counties, or special taxing districts in these states.

Some states may also charge additional sales tax on gift wrapping and shipping costs. It doesn’t matter if the shipping charge is part of the price of the item or if it’s listed separately.

However, some states, such as Maine and Virginia, don’t tax shipping charges as long as the shipping charge is listed separately from the item price, as in the example above.

Also, keep in mind that tax laws are subject to change with new legislation and court decisions. This guide from Teampay explains how and why sales tax laws have become more complicated in recent years.

Destination-based and origin-based sales tax

To further complicate matters, some states require sellers to collect sales tax at the point of origin, or where a product ships from. However, most states require sellers to collect sales tax based on the tax rate of the destination, or the online buyer’s location. These are known as origin-based and destination-based sales tax, respectively.

Most states, as well as the District of Columbia, use destination-based sales tax sourcing. This means that if your business is based in one of these states and you’re selling to a customer in the same state, you’ll charge the buyer’s local rate, which could include a combination of state, county, city, and district tax rates.

For example, if you live in Greenville, South Carolina, and you’re selling to a customer in Charleston, South Carolina, you’ll charge the buyer’s local combined sales tax rate in Charleston of 9%.

If your business is located in a destination-based sales tax state and you sell a product to a customer outside of your state, you won’t charge sales tax on the item.

Destination-based states:

• Alabama
• Arkansas
• Colorado
• Connecticut
• District of Columbia
• Florida
• Georgia
• Hawaii
• Idaho
• Indiana
• Iowa
• Kansas
• Kentucky
• Louisiana
• Maine
• Maryland
• Massachusetts
• Michigan
• Minnesota
• Nebraska
• Nevada
• New Jersey
• New York
• North Carolina
• North Dakota
• Oklahoma
• Rhode Island
• South Carolina
• South Dakota
• Vermont
• Washington
• West Virginia
• Wisconsin
• Wyoming

However, if your business is located in an origin-based sales tax state and you make a sale to a customer in your state, you’ll charge sales tax—including any state, county, city, or district tax rates—based on your business’ location. For example, if you live in Phoenix, Arizona, you’ll charge all customers located in your state the local sales tax rate of 8.6%, even if the buyer resides in Flagstaff, Arizona.

Origin-based states:

• Arizona
• *California
• Illinois
• Mississippi
• Missouri
• New Mexico
• Ohio
• Pennsylvania
• Tennessee
• Texas
• Utah
• Virginia

*California does things a little differently. Its state, city, and county sales taxes are origin-based, while its district sales taxes are destination-based.

Also, it’s important to note that Etsy automatically calculates, collects, and remits state sales tax on orders shipped to some states. You can view the list of those states here.

Determine Which Products to Charge Etsy Sales Tax on

Etsy sellers are generally required to collect sales tax on most— but not all—physical goods. Each state has a unique list of taxable goods, and some items may be exempt from sales tax, depending on the state and product category.

Items that are typically exempt from sales tax include food, clothing, and textbooks, so the majority of Etsy sellers will need to charge sales tax on their products. However, if you sell clothing, food, or candy, such as in the example below, you may be exempt from charging sales tax on those items in certain states.

For example, while clothing is taxable in most states, others consider it taxable only at a certain price or don’t tax it at all. In Minnesota, for instance, clothing is tax-exempt except for accessories, fur items, and sports and recreational wear. In New York, only clothing priced at $110 or less is considered non-taxable.

As laws change, determining which products Etsy sellers need to collect sales tax on can become even more complicated. For example, Washington exempts candy from sales tax, but not if the candy needs to be refrigerated. And the sale of yarn in Pennsylvania is subject to sales tax, but not if the yarn is used to make clothing.

For a complete list of taxable goods in a specific state, visit that state’s department of revenue website.

Register to Collect Etsy Sales Tax

Now that you know where you have a sales tax nexus and which items you must charge sales tax on, you need to register for a sales tax permit, if it’s required. This information can typically be found on a state’s department of revenue website.

Some states charge a fee to apply for a sales tax permit, including Arkansas ($50), Connecticut ($100), and Wyoming ($20). However, many other states, such as Georgia, North Dakota, and Vermont, don’t charge a fee at all. You can view a full list of sales tax permit costs by state here.

It’s important to note that some states may require you to renew your sales tax permit after a certain amount of time. Also, some states may automatically renew your permit, while other states’ sales tax permits may never expire.

When applying for a sales tax permit, you’ll need your taxpayer identification number—such as a social security number or federal employer identification number—to register with a state or city to collect sales tax for your Etsy business.

How to Set Up Sales Tax Rates on Etsy

You’re now ready to begin collecting sales tax in your Etsy shop.

Once your shop is live, go to Shop Manager > Finances > Payment Settings. Then, select the Sales Tax tab.

Next, select a U.S. state or Canadian province and enter a zip code or postal code, depending upon where your business is based. Then, enter the tax rate you need to charge in decimal format.

For example, if you operate your business out of your home in Fort Collins, Colorado, you may enter the zip code “80521” and a tax rate of 7.55% to cover the state, county, and city sales taxes as broken down below.

Repeat these steps for any additional locations and tax rates you need to collect.

When you’re finished, click “Save.”

Now that you’ve added sales tax rates to your shop, new items you list on Etsy will have the correct tax rate applied by default. If you don’t want to charge sales tax on a particular item, simply uncheck the box next to the item’s price when creating or editing the listing.

Remember that Etsy automatically calculates, collects, and remits sales tax for items shipped to these states. Sellers can’t opt out of having these sales taxes automatically collected by Etsy.

For more information on adding sales tax to Etsy listings, check out this post.

File Your Etsy Sales Tax

You can see how much sales tax you’ve collected on Etsy by downloading the CSV file of your Etsy sales. While Etsy breaks this information down for you by transaction, it’s your responsibility to remit and file returns.

Each state has its own policies about when sales tax you’ve collected is due. While some will require you to pay sales tax quarterly, others may let you file annually, as long as the total amount of sales tax you owe is below a certain amount. To determine when you must file sales tax, visit the state’s department of revenue website.

Also, each state has different requirements for filing sales tax returns. For example, some states require that you report how much sales tax you collected in each tax district, so familiarize yourself with sales tax information for each state in which your business has a sales tax nexus.

You can file sales tax through the mail or online through a state’s department of revenue.

Take Care of All Aspects of Your Etsy Business

As an Etsy seller, you’d probably rather be crafting original pieces or even writing winning descriptions for your listings than researching tax rates. However, ensuring your sales tax rates are correct and filing your taxes on time are essential parts of running a profitable Etsy business.

And by taking care of all aspects of your e-commerce business, you’ll be well on your way to becoming an Etsy success story.

Michael Ugino is the co-founder of Sellbrite. A former IR 300 merchant and Fortune 500 product marketer, Michael now helps small to medium sized brands and retailers build a successful online marketplace strategy. He'd be delighted for you to connect with him on LinkedIn.

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