Etsy Sales Tax Basics: What Sellers Should Track

Etsy sales tax is the checkout tax buyers may be charged, and in many US situations Etsy automatically calculates, collects, and remits it under marketplace facilitator rules. Even when Etsy handles the tax, sellers still need clean records so their bookkeeping and any required state filings match what actually happened. The essentials to track are the ship-to location (sales tax is destination-based), whether each item was marked taxable, and the exact tax line Etsy shows as “paid by buyer” and “remitted” in your Payment account, especially after coupons, refunds, or cancellations. The most expensive slip-up is treating tax you never kept as revenue or remitting tax twice because your settings and Etsy’s auto-collection overlap.

How Etsy sales tax works at checkout and on orders

Marketplace collected versus seller collected tax

On Etsy, sales tax can be handled in two different ways, and mixing them up is where sellers get messy books.

Marketplace-collected tax is when Etsy is required to calculate, collect, and remit sales tax for the buyer’s ship-to address. In those cases, you do not “collect” the tax yourself, and you generally should not be adding extra sales tax rates for those same locations in your shop settings.

Seller-collected tax is when you are responsible for charging sales tax because Etsy is not automatically collecting for that buyer location. This is when Etsy’s sales tax tool (your Shop Manager tax settings) matters.

A practical way to think about it: if Etsy is remitting the tax, treat it as a pass-through amount you never truly received, even if the buyer paid it at checkout.

Where sales tax appears in order totals

At checkout, buyers see sales tax as its own line item in the order total.

For sellers, the tax is easiest to verify on the order receipt. In your Payment account, the order activity often reflects sales funds net of the sales tax Etsy collected, so the money that hits your available balance can look “short” if you’re expecting the full buyer-paid total.

If you need the exact labels and where Etsy displays “Sales tax paid by buyer (Remitted),” Etsy documents this in How US State Sales Tax and Fees Applies to Etsy Orders.

How remittance affects your shop payment totals

When Etsy remits sales tax, it changes two totals you should pay attention to:

Your order revenue in Etsy Payments: what you receive is effectively your item price (plus shipping, if applicable) minus the sales tax Etsy collected.
Your “tax collected” tracking: sales tax may not appear as a neat per-order inflow in your Payment account activity, so you need to rely on Etsy’s remitted tax indicators and your exported reports for reconciliation.

Bottom line: Etsy-remitted sales tax should not inflate your revenue, and it should not be something you try to remit a second time.

Etsy sales tax settings: adding rates by buyer location

When to use Etsy’s sales tax tool

Etsy’s built-in sales tax tool is mainly for US-based shops that need to charge sales tax in places where Etsy is not automatically collecting and remitting on the marketplace’s behalf. Etsy is clear that you do not need to update your shop tax settings for buyer locations where Etsy collects and remits. In those cases, Etsy handles the tax calculation at checkout.

The other key rule to remember is that Etsy’s sales tax tool is destination-based. The tax is based on the buyer’s shipping address, not where you live or ship from. Etsy also supports setting rates at different levels, like state-wide rates and more specific ZIP codes, when needed. You can review Etsy’s steps and limitations in Adding Sales Tax to Listings.

Applying a tax rate to physical product listings

Setting a rate in your shop is only half the job. Etsy also lets you control whether each listing is taxable.

In practice, sellers should do two quick checks after adding rates:

Confirm your tax rates exist for the right buyer locations (state, ZIP code, or ZIP code range).
Audit older listings to make sure the taxable setting is correct, especially if the listings were created before you set up tax rates.

Also note that discounts matter. If a buyer uses a coupon, Etsy calculates tax based on the discounted price, so your “expected tax” will look different than a full-price order.

Troubleshooting missing or double-charged tax

If sales tax seems missing, the usual causes are simple: the buyer’s ship-to location is not one you set up, or the listing is not marked taxable. It can also be confusion around marketplace-collected tax, where Etsy is remitting and you are expecting your manual rate to apply.

If sales tax looks double-charged, start by reviewing any sales tax rates you added for states where Etsy already collects and remits. Etsy’s guidance is to use your shop tax settings only for locations where Etsy does not automatically collect. Double-check an order receipt and your Payment account tax lines before changing a bunch of listings.

US states where Etsy collects and remits sales tax

States with marketplace facilitator collection

For many US orders, Etsy acts as a marketplace facilitator. That means Etsy calculates, collects, and remits sales tax on taxable items when state law requires the marketplace to do it.

Etsy’s official list of jurisdictions where it collects and remits includes (with various start dates): Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming. The most reliable way to confirm the current list (since it can change) is Etsy’s own Help Center article, How US State Sales Tax and Fees Applies to Etsy Orders.

Local tax and home rule city exceptions

Local sales tax can be the confusing part. Some places have home rule cities, where local governments impose and administer their own sales taxes. In those areas, Etsy may still be required to collect local tax at checkout, even when the rate doesn’t match a simple “state rate” expectation.

From a tracking perspective, this is why the ship-to address (not just the state) matters when you reconcile Etsy tax amounts.

States where you may still need to register

Even if Etsy remits sales tax on your Etsy orders, you may still need to register or file in a state if you have nexus there (for example, a physical presence or certain business activities). Some states also require informational returns that report marketplace sales, even when the marketplace remits the tax.

If you sell off Etsy too (your own site, in-person sales, wholesale), your state registrations and filings may still be necessary, because those non-Etsy sales are not covered by Etsy’s remittance.

Sales tax nexus for Etsy sellers: when you must collect

Physical nexus triggers for online sellers

Physical nexus means you have a real-world connection to a state that can require sales tax registration and collection. For Etsy sellers, common physical nexus triggers include having a home studio or office in the state, keeping inventory there, hiring an employee or contractor who works there, or attending events where you make taxable sales (like craft fairs).

If you have physical nexus in your home state, you often still need to understand your state’s rules even when Etsy collects and remits on marketplace orders. Your state may treat those Etsy sales as marketplace sales that get reported differently than your direct sales.

Economic nexus thresholds and marketplace rules

Economic nexus is based on sales activity into a state, even without a physical presence. It became the nationwide norm after the US Supreme Court’s June 21, 2018 decision in South Dakota v. Wayfair. Many states started with thresholds like $100,000 in sales and/or 200 transactions, but a growing number of states have been removing the transaction-count test, which matters for sellers with lots of low-priced orders.

Here’s the key Etsy-specific nuance: marketplace facilitator laws can shift the “collection” duty to Etsy for Etsy orders, but they do not automatically erase your need to register or file. If you also sell through other channels, your non-Etsy sales can still trigger economic nexus and collection duties.

Destination-based versus origin-based sourcing basics

Sourcing is the rule that decides which tax rate applies.

Most ecommerce sales tax is destination-based, meaning the rate is based on the buyer’s ship-to address. That aligns with how Etsy calculates tax at checkout for many orders.

A smaller set of states uses origin-based or mixed rules for some in-state sales, where the seller’s location can influence the rate. If you have in-state sales outside Etsy (like local pickup, in-person markets, or a separate website), sourcing rules are one reason you can’t assume every order will be taxed the same way.

What Etsy sellers should track for sales tax compliance

Taxable sales, exempt sales, and resale certificates

For sales tax compliance, your first job is separating what was taxable from what was not, and proving why.

On Etsy, “taxable” often comes down to three things: the buyer’s ship-to state, what you sold (some product types are exempt in some states), and whether the order qualifies for an exemption. Etsy may also handle certain exemptions at checkout in specific cases, but you still want your own clean paper trail.

At minimum, track these fields per order:

Ship-to state (and ZIP code when it matters)
What was sold (SKU or listing name that ties back to the product)
Whether the item was marked taxable in Etsy
Any exemption indicator (if applicable) and the reason

If you ever sell wholesale or to resellers off Etsy, track resale certificates separately, including the customer name, state, certificate number (if provided), and the dates it was valid. That documentation is what supports “exempt sale” treatment if you’re audited.

Shipping, handling, and discounts tax treatment

Shipping, handling, and discounts can change the taxable amount, and the rules vary by state. That’s why you should track the building blocks of the total, not just the final tax line.

In your records, keep:

Item subtotal
Shipping charge
Gift wrap or handling (if you use it)
Discounts and coupons (Etsy promos, shop coupons, and any order-level discount)
Sales tax charged to the buyer, and whether it was remitted by Etsy

This makes refunds and partial refunds much easier to reconcile later, especially when tax is recalculated on the reduced amount.

Keeping product taxability notes per state

The easiest way to stay sane is to maintain a simple “taxability notes” sheet for your product categories. Think: “stickers,” “clothing,” “food,” “digital downloads,” “custom items,” and “shipping.” Then note any states where you’ve confirmed special rules.

You’re not trying to become a tax expert. You’re building a reference so you can answer basic questions fast, like: “Is this item usually taxable?” and “Did we treat it consistently this quarter?”

If you need a quick refresher on how Etsy treats marketplace-collected sales tax and where it shows up in your Payment account, Etsy summarizes the key seller-facing details in How US State Sales Tax and Fees Applies to Etsy Orders.

Refunds, cancellations, and chargebacks: sales tax adjustments to watch

Full and partial refunds and tax reversals

Refunds are where Etsy sales tax tracking gets real. The tax outcome depends on who collected the tax and whether the refund was full or partial.

When a buyer gets a full refund, the clean result is that the item price, shipping (if refunded), and the associated sales tax are reversed. With a partial refund, sales tax is usually adjusted to match the reduced taxable amount. That is why it helps to keep the “before” and “after” numbers for every adjustment, not just the refund total.

For bookkeeping, avoid a common mistake: treating the sales tax line as your expense. If Etsy collected and remitted the sales tax, you generally should not be booking it as money you received and then “paid back.” Instead, your records should reflect that the buyer paid tax, Etsy remitted it, and your refund reduced what you actually kept.

Returns after remittance and what to document

Returns can happen weeks later, after the tax on the original order has already been remitted by Etsy or reported in your period totals. Even when Etsy is handling the tax side, you still want documentation that shows the timing and the reason for the adjustment.

This matters for reconciliation. Your Etsy reports, payouts, and monthly bookkeeping might show the original sale in one period and the refund in another. If you ever need to explain why your gross sales, refunds, and net deposits don’t “tie out” cleanly by month, these return notes are what save you.

Etsy’s Help Center explains how marketplace-collected sales tax is shown to sellers and how it’s treated on orders, which is useful context when you review refunds: How US State Sales Tax and Fees Applies to Etsy Orders.

Data points to capture for each adjustment

For each refund, cancellation, or chargeback, capture these specific data points:

Original order number and original order date
Buyer ship-to state (and ZIP code if relevant)
Adjustment type: full refund, partial refund, cancellation, return, chargeback
Adjustment date (the date Etsy processed it)
Amounts before and after: item subtotal, shipping, discounts, and sales tax
Whether sales tax was marketplace-collected and remitted by Etsy on the original order
Reason code or short note (damaged, late delivery, buyer changed mind, non-delivery, etc.)
Links or internal references to supporting proof (messages, photos, tracking, case outcome)

Reports to export from Etsy and how to reconcile tax amounts

Where to find transaction, payment, and tax data

Etsy spreads the details you need across a few places, so it helps to build a simple monthly routine.

For order-level detail (what sold, where it shipped, what the buyer paid), export CSVs from Shop Manager. For payout-level detail (what Etsy actually sent to your bank, and what fees were taken out), use your Monthly statements in Finances and generate the monthly CSV.

One important Etsy quirk: sales tax that Etsy collects and remits is not always shown as a neat “tax collected” line in your Payment account activity. You may need to confirm the tax amount on the order receipt itself, then tie it back to your exported data.

If you want the exact menu path for downloading Orders and Etsy Payments CSV exports, Etsy documents it in How to Download a Spreadsheet of Your Sold Transactions.

Matching Etsy-collected tax to your records

When reconciling, focus on three numbers per month:

Gross buyer payments (items + shipping + discounts applied + tax paid by buyer).
Net sales funds credited to you (what Etsy treats as your sale proceeds).
Deposits (what actually hits your bank after fees and any other activity).

For marketplace-collected tax, the clean approach is to record it as a tax amount paid by the buyer but not as revenue you kept. That keeps your P&L honest and prevents you from “remitting” tax twice.

1099-K reporting versus sales tax reporting (2025–2026)

A 1099-K is an income reporting form, not a sales tax report. For the 2025 tax year (forms available by the end of January 2026), Etsy states the federal 1099-K threshold is $20,000 in gross sales and 200 sales, with some states using lower thresholds.

Also, 1099-K totals are typically gross. They can include amounts like shipping and any sales tax you collected yourself, and they do not automatically net out fees or refunds. That’s why your sales tax tracking and your income tax reporting need separate, consistent records, even when Etsy is doing the sales tax remittance for many orders.