Around 2018, as consumer behaviour continued to push a lot of sales online, many US States began introducing a number of sales tax laws to capitalize on taxes they were missing out on due to these digital purchases. These are effectively taxes they couldn’t collect on, but would have had these purchases occurred in person in their state. Since then it was mandated for ecommerce marketplaces, like Etsy and others, to also remit sales tax on behalf of online sellers. There is no minimum order or revenue required for you to begin being taxed, which is actually a benefit to you as a seller when it comes to tax time.

Why would you want to be taxed?

The main reason is that it is automatic. Since it happens automatically, you never have to worry about calculating, collecting or remitting taxes yourself. Effectively Etsy provides these three actions for you on orders shipped to customers in the following 47 states (current as of January 2022):

• Alabama
• Alaska
• Arizona
• Arkansas
• California
• Colorado
• Connecticut
• District of Columbia
• Florida
• Georgia
• Hawaii
• Idaho
• Illinois
• Indiana
• Iowa
• Kansas
• Kentucky
• Louisiana
• Maine
• Maryland
• Massachusetts
• Michigan
• Minnesota
• Mississippi
• Nebraska
• Nevada
• New Jersey
• New Mexico
• New York
• North Carolina
• North Dakota
• Ohio
• Oklahoma
• Pennsylvania
• Puerto Rico
• Rhode Island
• South Carolina
• South Dakota
• Tennessee
• Texas
• Utah
• Vermont
• Virginia
• Washington
• West Virginia
• Wisconsin
• Wyoming

Frequently asked questions sellers ask about taxes on Etsy:

Does Etsy charge for doing the sales tax?

No. It is worth noting that Etsy does not charge a fee for this service of calculating, collecting or remitting taxes, but as a seller you also cannot opt out of the service either.

Will I get charged tax if my buyers pay with PayPal?

The short answer is yes, absolutely. Etsy notes how they do this here.

Will I get charged tax on digital product listings?

Yes. In this case, however, they look at what you noted in item classifications when you created the listing and take consideration of specific state laws to establish whether they will apply or not.

Will I get charged tax on sales to states not listed? What about Canada?

In both these cases you have options. When you create your listings you have the ability to add applicable taxes to the listing price or exclude them. Most sellers choose to simply include tax in their listing because it simplifies things for you. The downside of doing this, of course, is that your buyer might be surprised when they hit the check out page and suddenly see the tax total (i.e. it may potentially lead to a bounce off the check out page or a lost sale).

If you want to avoid this, you may opt to exclude tax from the listing. If you decide to do this you will still need to calculate how much tax is owed on each listing sold (although there are exceptions in certain cases). Given that taxes are automatically remitted for 47 states, many of your sales are probably already taxed accordingly, as a seller you have to weigh the benefits of manual taxation on stats that remain, or sales to places like Canada.

Most sellers didn’t start on Etsy to get bogged down with taxes, so it seems like many just opt to have sales taxes collected and remitted automatically, and added on any sales that falls in regions outside that so they can focus their efforts elsewhere: on making more products, or capitalizing on those that are driving them their biggest profits.