Online marketplaces like Etsy have transformed the way artisans and entrepreneurs sell their products. With millions of transactions happening each year, understanding how sales tax works within Etsy’s ecosystem is vital for both buyers and sellers. One of the most common questions among users is: Does Etsy collect sales tax? The answer isn’t always straightforward, as it involves various legal requirements and jurisdictional obligations. This article delves deep into how Etsy handles sales tax, what sellers need to know, and the implications for both parties involved in each transaction.

Etsy and Marketplace Facilitator Laws

In recent years, many states in the U.S. have enacted marketplace facilitator laws that require websites like Etsy to collect and remit sales tax on behalf of their sellers. These laws are designed to simplify tax compliance and ensure consistent collection of state and local sales taxes. Etsy complies with these laws by automatically collecting and remitting sales tax in states that mandate it.

As a result, if a buyer makes a purchase from a seller located in one of these states, Etsy itself will calculate, charge, and remit the appropriate sales tax during checkout.

States Where Etsy Collects Sales Tax

As of 2024, Etsy collects and remits sales tax in the majority of U.S. states due to these laws. The list is continually growing as new legislation is passed, but includes all major states such as:

• California
• New York
• Texas
• Florida
• Illinois

This means sellers don’t have to worry about filing sales taxes themselves for transactions in these states—Etsy handles it for them. However, it’s vital for sellers to still keep track of these transactions for record-keeping and income tax purposes.

How Sales Tax is Shown to Buyers

When a buyer places an order, the sales tax is automatically calculated based on their shipping address and the tax rates applicable to that jurisdiction. This tax amount is displayed clearly in the checkout summary before the customer completes the purchase. Buyers will see line items such as:

• Item Price
• Shipping Cost
• Sales Tax
• Total

This transparency helps consumers understand exactly how much they are paying and what part of their payment is going toward taxes. Note that these amounts vary depending on local tax rates, which can include city, county, and state taxes.

Sellers Outside the U.S.

For sellers based outside the U.S., Etsy still may collect sales tax or Value-Added Tax (VAT) on orders from U.S. buyers, depending on the destination state’s policy. In many cases, Etsy remains the responsible party for collecting these taxes and handles them in the same automated manner.

International sellers should ensure they familiarize themselves with their country’s tax rules, as different regulations may apply for income or local sales tax reporting regardless of Etsy’s automated processes.

Handling Taxes on Handmade and Custom Items

Whether an item is mass-produced or handmade, tax laws typically apply the same way. Etsy collects sales tax on custom items just as it would on standard products if the item is shipped to a state with marketplace laws. Sellers may still need to consider any special rules that apply to the types of goods they sell, especially when it comes to things like food products, digital goods, or services, which can be taxed differently depending on the state.

Income Tax Considerations for Sellers

While Etsy may handle sales tax for certain jurisdictions, sellers are still responsible for reporting their income for federal and state income tax purposes. This is separate from sales tax and involves tracking all revenue, including what was collected by Etsy.

Etsy provides an annual tax report—typically a 1099-K form—to U.S. sellers who meet certain income and transaction thresholds. This form helps sellers report their income accurately when filing their taxes.

Tax Settings on Etsy

Although Etsy manages most sales tax collection automatically, sellers can still access their shop settings to add or review tax rates in some jurisdictions where Etsy doesn’t yet handle collection. This is particularly relevant for international sellers or specialized tax regions. Within Etsy’s dashboard, these settings can be found under:

• Shop Manager > Finances > Taxes

Sellers can use this section to stay updated on what Etsy collects and what might require their attention. Keeping an accurate record here ensures sellers remain compliant with local laws and avoid potential penalties or misunderstandings.

EU VAT and Other International Taxes

Outside the U.S., Etsy also collects VAT (Value-Added Tax) on digital goods sold to customers in the European Union. In these cases, Etsy calculates and includes the VAT in the item’s total price if the buyer is located in an EU country. For physical goods, local customs, duties, and VAT might also be applicable and are usually the buyer’s responsibility unless otherwise indicated.

International sellers should consult an accountant or tax consultant familiar with their region’s tax laws to ensure they are meeting all obligations effectively.

The Bottom Line

So, does Etsy collect sales tax? Yes, they do—but only when legally required to do so or when it simplifies compliance under marketplace facilitator laws. This automation largely benefits both buyers and sellers by reducing the administrative burden and ensuring transactions are tax-compliant. However, sellers should not assume Etsy handles everything. Income tax, international compliance, and specific product categories might still need manual attention.

FAQs

• Q: Does Etsy collect sales tax in all U.S. states?
  A: As of 2024, Etsy collects and remits sales tax in most U.S. states that have passed marketplace facilitator laws. However, sellers should check Etsy’s Help Center for the most current list.
• Q: Can sellers opt out of Etsy collecting sales tax?
  A: No, Etsy automatically collects and remits sales tax in applicable states and sellers cannot opt out of this service.
• Q: How do I know if my customer is being charged tax?
  A: During checkout, buyers can see sales tax listed as a line item. Sellers can also review this in their transaction records.
• Q: Do international sellers have to worry about U.S. sales tax?
  A: Etsy handles U.S. state sales tax collection for international sellers when the transaction requires it. Still, non-U.S. sellers must comply with their own country’s tax laws.
• Q: Am I still responsible for income taxes if Etsy collects sales tax?
  A: Yes. Income tax is separate from sales tax and all sellers are responsible for reporting their total revenue on their personal or business tax returns.

Staying informed about Etsy’s tax collection practices is essential for running a compliant and successful shop. While Etsy helps ease the burden of tax collection in many instances, sellers should still monitor their obligations beyond what the platform automates.