Sales Tax-the DIRTY lowdown of how it impacts your handmade or creative business.
Sales Tax is totally overwhelming and often confusing for handmade and/or creative business owners. And it’s little wonder – few understand (or even want to think about) the impact that the Supreme Court ruling that went into effect June 21, 2018 had on every business that sells on the internet, including us “little guys”.
Here’s the DIRTY lowdown on Sales Tax and it’s impact on your creative biz in a Q & A sort of way
Q. I thought I ONLY had to worry about collecting & remitting tax for sales made in my home state.
No matter what, you ALWAYS have to charge, collect & remit Sales Tax to your home state on items that are considered taxable. There’s no way to get around that one.
IF, you only sell in your home state, then YES, you ONLY have to worry about collecting & remitting in your state. And, you still have to know what if the items or services you sell are subject to sales tax or not and keep track of all that so you can complete your Sales & Use Tax Return.
BUT, if you:
- frequently do craft fairs in other states, OR
- sell to customers in other states from your own website
Then, you MIGHT have to collect, track & pay Sales Tax to other states!
Q. So, what’s changed?
Oh boy, EVERYTHING has changed! Let’s see if I can keep this complicated issue simple.
Under the old law (BEFORE 6/21/18) businesses were required to charge, collect and remit tax on certain items that were sold to customers within the state that the business resided (aka your home state). This was commonly known as physical presence nexus. This meant that as a Vermont business I only had to worry about sales to Vermont customers, if I sold something to someone from ANY other state – then the customer might be responsible for paying Use Tax on the goods or services they bought from me.
The new law (AFTER 6/21/19) is known as economic nexus and is based on the WHERE our goods and services are shipped to – our home state is still included.
Q. Why on earth would anyone make such a law?
Well, we have our State and/or Local governments and brick & mortar stores to thank for this (along with a bunch of Supreme Court Justices who just don’t have a clue).
- State and local governments have felt that they have “unfairly” been deprived of sales tax revenue due to the popularity of eCommerce companies (yes, that includes us) selling on-line to customers who would otherwise have paid sales tax to in-state retailers.
- In-state retailers have felt that they were being deprived of sales opportunities caused by the ability of out of state retailers being able to offer the same merchandise to customers without having to charge those customers sales tax.
Q. Is there any provision or exemption for us “little guys”?
Yes there is, so don’t freak out!
Under the new law economic sales tax nexus there is something called a trigger. That trigger is based on sales revenue (a specific amount of sales), transaction volume (a specific number of sales), OR a combination of both BEFORE you have to register, charge, collect and remit sales tax to another state.
Let’s take a look at what that looks like in this example:
- your business is located in (insert state name)
- you sell a lot of goods and/or services to customers in Vermont
- when you reach $100,000.00 or more in gross sales to Vermont customers in 12 months, OR
- have 200 or more separate transactions (invoices) in 12 months
- then you must register with the Vermont Department of Revenue as an out of state seller, sign up for a Sales tax account, begin to charge, collect and remit sales tax.
But that doesn’t mean it’s easy or standard across all the States. Every state has different triggers AND every state is going to have different ideas about what is and isn’t taxable! So while your beautiful shawl might be considered exempt from sales tax in one state (because it’s considered clothing) it might be taxable in the next.
Q. How on earth am I going to know what the triggers are for each state and how do I figure out if my goods or services are taxable or not in each state?
Even that isn’t easy! But these are the resources that I use.
To determine the triggers (or thresholds) for each state about Sales Tax-the DIRTY lowdown of how it impacts your handmade or creative business, I use this chart from the Sales Tax Institute – https://www.salestaxinstitute.com/resources/economic-nexus-state-guide
To help me determine what is and isn’t taxable on a state-by-state basis, I use information from a website called The Sales Tax Handbook. Once there, click on the State name on the left (this opens a page for that specific state) then in the Table of Contents for that state, click the link for What Sales are Taxable.
UPDATE 8/26/21
If you don’t want to spend HOURS researching the “triggers” (and I wouldn’t blame you if you didn’t) I’ve put together a 28 page eBook that includes a state-by-state listing of what the trigger is, if digital products are taxable and what happens if you go into another state to exhibit at a craft fair.
You can purchase your copy for $5.00 through 9/15/21
[wpecpp name=”Sales Tax Guide” price=”5.00″ align=”center”]
Q. So, can I track all of this in spreadsheets?
Well, I suppose you could. But honestly I wouldn’t want to!
As of July 17, 2019, there were 11,113 total sales tax jurisdictions across the country according to a company called Vertex, Inc. (a company that makes sales tax tracking software.)
When we did our research for our software business, we were very interested in a program/product by a company called Tax Cloud
Q. So, all of this information is for people who sell from their own website – what about if I sell on Etsy, Ravelry, Amazon, eBay, etc.?
I’m going to be totally honest and tell you I really don’t know much! I personally don’t sell on any of those platforms, so I don’t have a lot of advice to give on Sales Tax-the DIRTY lowdown of how it impacts your handmade or creative business.
These platforms are all considered to be a Marketplace and if you sell your finished items, goods (patterns), or services (tech editing) on one of these platforms you are considered to be a Marketplace seller. Each state could have it’s own rules about Marketplaces and how your sales tax is handled and reported.
For example, I received a mailed notice from the California Department of Tax and Fee Administration or CDTFA (say THAT 10 times fast!) for our software biz back in August that basically said:
If you are a marketplace seller, beginning October 1, 2019, that I wouldn’t be responsible for reporting and paying the sales and use tax toCDTFA on retail sales of my tangible merchandise through a marketplace that is registered or required to be registered with CDTFA as a retailer. It also went on to say that if I was required to be registered and file returns with CDTFA that I was to REPORT the sales made through the marketplace in the TOTAL SALES section and THEN claim a deduction as “OTHER” for the sales that resulted from the marketplace.
From that letter, I determined that if I had $500 in sales from my website and $500 in sales from my Etsy Shop – I’d report $1000.00 in TOTAL sales and then take a deduction of $500 for the sales from my shop.
See why I don’t want to go there? That even made MY head hurt! LOL
I found an extensive discussion in an Etsy forum on Sales Tax.
I would highly recommend that you contact whatever marketplace/platform that you sell on and ask them for specific details.
So there you have it, Sales Tax-the DIRTY lowdown of how it impacts your handmade or creative business.
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