In the age of e-commerce, online merchants like Etsy are invaluable business platforms for many small businesses. Platforms like Etsy give countless small businesses access to a wider audience and a simpler sales process.  

Selling your goods and services on Etsy means you don’t have to go through the process of setting up your own online store elsewhere. This can make it cheaper and more efficient for you to connect with customers online, although Etsy will receive a portion of the price as a fee for hosting your store. 

However, one of the tricky things about selling goods online is ensuring you properly handle your sales tax obligations. This is especially challenging as online merchants’ legal requirements are still changing and depend on ongoing legislative processes in different states. 

Destination-Based and Origin-Based Sales Tax

One of the reasons these taxes are so frustrating to online merchants is because states have competing methods for imposing sales taxes: destination-based or origin-based sales taxes. 

Destination-based sales taxes impose taxes on online purchases based on the shipping address. Wherever the product is going, its destination receives the sales tax. The specific tax rate is the tax rate set by the state where the buyer is located. Most states use this model to keep their consumers’ money in their own locality. 

Origin-based sales taxes use the seller’s state of origin and the current tax rate set in that area. This means the tax rate depends entirely on where the seller is based. 

These conflicting policies leave online merchants with a maze of tax obligations to find their way through, with individual tax rates varying from locality to locality. Some counties and municipalities add their own sales tax on local purchases, complicating things even further for small businesses. 

Consult with a Professional

Beyond the filing requirements in your state of origin, most of your countrywide sales tax obligations will be covered by the Etsy marketplace. However, the laws are changing quickly, and rules can vary depending on the type of products you sell and how much business you have with particular states. 

Consult with an accountant to make sure you’re complying with new obligations and taking care of your business. In such a complex and quickly changing legal environment, you need an expert who can help you adapt and protect your business.