Online marketplace Etsy recently announced that they would begin collecting sales tax on all sales to buyers in the state of Washington. This means every Washington consumer will now pay sales tax when making a purchase on Etsy. And this means some things will change for Etsy sellers who are currently collecting Washington sales tax from their customers. Let’s break it down.
Why is Etsy collecting sales tax on purchases shipping to Washington?
This decision is Etsy’s response to the state of Washington’s new “Marketplace Facilitator Law.” The law, which went into effect on January 1, 2018, requires online marketplaces meeting certain criteria to take responsibility for collecting Washington sales tax on behalf of the 3rd party sellers who sell on the marketplace.
What does this decision mean for Etsy sellers?
Let’s look at how this decision will affect two groups of Etsy sellers: 1) sellers who are required to collect Washington sales tax and had previously been collecting Washington sales tax, and 2) sellers who do not have sales tax nexus in Washington and were never obligated to collect Washington sales tax.
What does this mean for Etsy sellers who were previously collecting sales tax in Washington?
From now on, whenever you make a sale to a buyer in Washington, Etsy will collect and remit the sales tax to the Washington Department of Revenue on your behalf.
However, Etsy sellers with sales tax nexus in Washington are still obligated to do the following:
- hold a valid Washington sales tax permit
- file a Washington Sales & Use tax return and the corresponding Washington Business & Occupation (B&O) tax return by the assigned deadlines
That said, filing your sales tax return will get easier, especially if you only sell on Etsy. Now, instead of being required to break down the sales tax you collected in each city, county and special taxing district in Washington, you are only required to include a line on your return stating the amount of sales tax Etsy collected on your behalf. You state this amount as an “Other” deduction on your Washington sales tax filing, and should label this deduction “sales tax remitted by third party.”
The only caveat there is that this still means you are required to keep track of how much sales tax Etsy collects on your behalf.
Important sales tax note for multichannel sellers
Both Etsy and Amazon are now complying with Washington’s Marketplace Facilitator law. That means they are collecting sales tax on behalf of 3rd party sellers using their platforms. But if you have sales tax nexus in Washington and make sales on other channels, such as your own online store, or another marketplace that isn’t obligated to comply with Washington’s law, then you are still required to collect sales tax from your Washington buyers on those sales.
When it comes to filing your sales tax return, multichannel sellers are still required to break down the sales tax you’ve collected from your buyers by city, county and other special taxing district within Washington. (This is apart from the sales tax that Etsy or Amazon collected on your behalf.) You can read more about how to handle Washington sales tax here, or learn about automating Washington sales tax with TaxJar by trying a 30-day no risk free trial.
What does this mean for Etsy sellers who are not obligated to collect sales tax in Washington?
If you do not have sales tax nexus in Washington, then you still have no obligation to register for a Washington sales tax permit or file a Washington sales tax return.
The only difference you will see is that Etsy will now collect Washington sales tax from your buyers on your behalf.
For more info, here’s how Etsy has advised sellers:
To Sum it Up
- If you don’t have sales tax nexus (i.e. an obligation to collect sales tax) in the state of Washington, the only thing that changes is that Etsy will charge sales tax from your customers
- If you do have sales tax nexus in Washington, continue filing your Sales & Use tax and B&O tax returns by your assigned deadlines, though the way you file a sales tax return may change somewhat
- Multichannel Etsy sellers who have sales tax nexus in Washington: continue collecting sales tax on your other online shopping cart and marketplace sales
Have questions or something to say about Etsy collecting sales tax on behalf of Washington sellers? Start the conversation in the comments!