Have Trouble with Destination-basedSales Tax on Etsy?We do too.

GoToGreatPanes' Etsy shop

Go To Great Panes, Kathryn Maloney ©2010
This post is copyrighted–you do not have permission to repost this content elsewhere but you are welcome to link to it if you’d like to share the information.

Etsy has updated their new sales tax feature so that it is at least as suitable for sellers as Paypal’s sales tax was which is great, but for some of us it’s still not usable.

If you live in a state that has sales tax based on the buyer’s address (destination-based) and the rate is determined by political boundaries–like counties or cities–and not on 5 digit zip codes, you may still be stuck.

Several states are set up this way including New York, Florida, South Carolina, Washington and others, and in these states some 5 digit zip codes cross county or city lines, meaning that two ship-to addresses in the same 5 digit zip code should be charged different sales tax rates.

Neither Etsy nor Paypal is set up to accommodate this issue so in-state buyers must be billed manually by sellers registered in most of these states if you want your tax collected accurately and need the receipt to show the actual tax due & collected.

Washington sellers are lucky–their state allows them a little lee-way when collecting sales tax through sites that aren’t set up to deal with the full 9 digit zip codes (see here for info) a few states have similar breaks for sellers, but many of us aren’t so lucky.

If you are in the same position as we are and are wondering what to do, here’s the only way I can find to make collecting tax accurately work:

  1. Offer “other” as a payment option in your Etsy shop,
  2. ask in-state buyers to select “other” as the method of payment in your listings & shop policies, then
  3. send them an email invoice with the sales tax rate for their ship-to address: Sending a Paypal Invoice

Go To Great Panes, Kathryn Maloney ©2010
This post is copyrighted–you do not have permission to repost this content elsewhere but you are welcome to link to it if you’d like to share the information.

6 thoughts on “Have Trouble with Destination-basedSales Tax on Etsy?We do too.”

  1. What a PITA. I also live in new york and I’m having the hardest time with destination based tax. New York will even fine you if you decide to make up the difference. Sad. New York really should just make online sales a flat sales tax rate OR someone needs to come out with a good shopping cart that can handle it. Stupid New York state won’t even issue a spreadsheet for integration. I have all my business stuff together and haven’t made a single sale because of this.

  2. A quick (and maybe dumb) question. Why can’t you operate your Etsy transactions like a craft show transaction? Charge x for the item, and if it is being shipped to NY, send a revised invoice that shows the breakdown of base price + sales tax = x. I know this means the seller earns less because tax is included in the listed price, but it’s more consistent for the buyer. I feel like with the options on Etsy, buyers may be less prone to buy and ship in-state if there is tax on top of the listed price.

    1. In NYS sales tax rates are based on where the buyer takes possession of the goods–for in person sales that’s where you hand the goods off, for items mailed to the buyer it’s where the package is delivered. See number 2 here for a link to that info on the state’s website:

      NYS Sales Tax FAQ, part 1

      NYS also requires us to accurately show sales tax on the payment receipt–like the one the buyers get from Paypal. See number 8 here for a link to the NYS website where that info is spelled out:

      NYS Sales Tax FAQ, part 2

      More help posts for NYS sellers here:

      NY Sales Tax & Business Registration Requirements

    2. Sales tax is always due on taxable goods, even if the seller doesn’t collect it so it’s not really more than if the buyer purchased from out of state.

      If the seller doesn’t collect it, the buyer is responsible for paying Use Tax (which is generally the same rate as sales tax) directly to the state–as far as I have seen that’s true for all states with sales tax.

  3. I’m only just starting my Etsy shop, haven’t put any items up yet. I’m in New York, do I only collect sales tax from other New Yorkers? Or do I need to tax for out of state as well?

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