Etsy Sales Tax Explained: 1099-K Forms, Exemptions, & Filing

Your sales tax obligations are almost always complex, but tax compliance can get even more complicated when you use a third-party platform like Etsy.

Not long ago, to successfully sell online you just needed to set up a website and market directly to your customers. Online selling today, though, often means leveraging household-name marketplaces such as Amazon and eBay – and Etsy.

Despite the power of these marketplaces to your bottom line, responsibility to collect and remit sales tax is based on many factors, such as where the seller and buyer reside and the nature of the product.

On a marketplace platform like Etsy, who has responsibility for sales tax?

Etsy and Taxes

The independent crafters’ marketplace Etsy automatically calculates, collects and remits U.S. sales tax for sellers when an order ships to a recipient in the U.S. or digital goods are purchased by a U.S. buyer and the order meets certain criteria.

Vendors with a physical presence in a state where Etsy collects and remits state sales tax do not have to remit any tax collected on sales; the platform remits the money for the vendor.

The platform calculates, collects and remits state sales tax on shipments to:

Since 2018: Minnesota, Oklahoma, Pennsylvania and Washington.

Since 2019: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, the District of Columbia, Idaho, Indiana, Iowa, Kentucky, Maine, Massachusetts, Maryland, Nebraska, Nevada, New Jersey, New Mexico, New York, North Dakota, Ohio, Rhode Island, South Carolina, South Dakota, Texas, Utah, Vermont, Virginia, West Virginia, Wisconsin and Wyoming.

Since 2020: Hawaii, Illinois, Michigan, North Carolina, Georgia, Louisiana, Mississippi and Tennessee.

Since 2021: Puerto Rico, Florida and Kansas.

Etsy charges no additional administration charges for calculating, collecting, and remitting sales tax. The platform tries hard to stay nimble in the ever-changing world of compliance and classifying millions of handmade, craft, and vintage goods available on its marketplace into tax.

“For example,” Etsy notes, “sales of yarn in Pennsylvania are subject to tax but not if the yarn is for use in clothing. Washington exempts candy from tax, but not if that candy needs to be refrigerated.”

Etsy taxes for sellers

Sellers need to take no action to collect sales tax from buyers where Etsy collects and remits sales tax for sellers. You don’t have to update your sales tax settings in your shop for orders shipped to these states and territories. Sales tax that Etsy collects and remits will be summed up in sellers’ Payment account under Activity summary, in the “sales and fees” section.

The sales tax settings in Etsy’s Shop Manager are used for states/regions where Etsy doesn’t automatically collect sales tax. If a buyer pays you, the seller, directly to your PayPal account instead of to Etsy Payments and the order meets the criteria for Etsy to remit sales tax on your behalf, Etsy will supply you with the sales tax as a part of the payment.

Etsy Sales Tax FAQs:

• Does Etsy give you a 1099-K? If you earn $5,000 or more in gross sales during a calendar year, Etsy is required by the IRS to provide a 1099-K with your sales and transactions. Several states also have different reporting thresholds for the issuing of a 1099-K.
• Does Etsy charge sellers additional delivery fees? Etsy is required by Colorado to charge buyers an additional 29-cent fee for orders of physical goods shipped to addresses within the state as part of the new retail delivery fee. Note that other states are starting to mandate or discuss RDFs.
• How does Etsy treat sales tax exemptions? Etsy abides by states’ sales tax exemptions. To make a tax exempt purchase, buyers must contact the Support team and provide the appropriate forms. Sellers do not need to address this situation themselves.

Remember to check back here for updates as states pass new legislation. TaxConnex provides services to become your outsourced sales tax department. Reach out today to take Etsy sales tax off your plate.