This is probably a good time to sit down with a cup of coffee, tea or beer. There are changes coming at an increasing rate that will probably affect you. While recent policy changes I’m learning about most greatly impact micro-businesses (fewer than 10 employees), it affects other businesses and consumers in the long run. I am not a tax expert, but have been told by enough people that I have helped them find the resources to further their own research, so I’m sharing what I have compiled here with the help of Etsy. It is by no means comprehensive and any questions should go to a professional tax preparer. TLDR: We live in a New Economy. Retail has shifted to a greater percentage of online purchases and States are trying to recover sales tax that is not collected outside of the seller’s storefront. Changes are happening fast, mostly uncoordinated with each other.
There are presently 9,998 sales tax jurisdictions in the United States of America.
Taxpayers were reluctant to report Use tax on their income tax forms with their state, even when estimates can be calculated. IMO: Probably because it is super confusing?
in 2018, South Dakota (a state with historically low # residents, businesses) went to court against Wayfair to demand sales tax collection by online marketplaces with a threshold disclaimer. They won, set the precedent for all online marketplaces with multiple shops (like ebay, amazon, wayfair and Etsy) to collect and remit sales tax to each state where the consumer had their purchase shipped.
Without a federal solution regarding sales tax collection, states have independently passed “economic nexus laws” and “marketplace provider laws” with varying thresholds (#quantity or $ amount of sales in state per year), that require sellers to calculate, collect and remit sales tax to each state. Right now, there are 34 different policies.
Example: Since Pennsylvania (PA) is where my production studio is and operates from, I have had to apply for a sales tax permit for in person and online sales, download tax tables for calculating the tax rate for online purchases in each zip code, collect sales tax per transaction, and then remit it quarterly. I’ve been consistent about this. I requested to reduce the frequency of administrative work created by reporting to twice a year, but it was denied, possibly because my business’ sales are relatively low as compared to corporations. Nonetheless I persisted and just when I thought I had it figured out, I learned that marketplace facilitators, like Etsy, were going to calculate, collect and report sales tax for online sales to PA AND now Washington State (WA) in my Etsy shop. My fellow PA Etsy shop owners freaked out, needless to say. There were no clear answers for what we should do since we were already filing in the state, and would continue to have transactions for in-person sales and on our own websites. I’ve concluded to temporarily categorize all Etsy transactions as non-taxable in order to continue reporting the gross sales, and calculate as taxable all non-Etsy sales from in-person sales or on my own website going to PA residents.
Yeah, it works, for now. But does your brain hurt yet? Mine does. What if I was just starting out? What if I sell beyond a threshold in another state(s)? Where am I going to find time for 9,998 tax tables? Filling out their forms? Filing potentially quarterly sales tax returns to ALL THOSE PLACES?
I am eternally grateful for the labor that Etsy provides (which come at the expense of fees), but it doesn’t apply on other platforms, including independent websites. But, if Etsy is worried that the current system isn’t manageable with their staff of 800 people, I am pulling out my hair being a staff of 1.05 (a friend helps 3 hours a week). While I’m over here juggling tasks from selling wholesale to 40 stores around the country, attending trade shows, local pop-up markets, fulfilling orders on my own website – in addition to my Etsy shop, I can barely keep up with PA sales tax. It appears as though this policy change favors states sales tax collection at the time of transaction – and whatever whim that jurisdiction has – at the expense of micro-businesses.
It was an honor to join 20 Etsy sellers and staff from around the country in lobbying to create a simple, clear federal solution that is fair for all. We split up into 3 groups and our North Eastern group visited with the Office of Representative Nydia Velasquez (D-NY), Senator Ben Cardin (D-MD), Senator Chuck Schumer (D-NY), Congressman Steny Hoyer (D-MD), Senator Kirsten Gillibrand (D-NY), Senator John Thune (R-SD), Representative Mike Doyle (D-PA), Senator Bob Casey (D-PA), Representative Jerrold Nadler (D-NY), Representative Jim Sensenbrenner (R-WI) and Christina Sevilla, Deputy Assistant to the United States Trade Representative. Years ago, I’d met directly with the PA representatives before, on behalf of the rights of people who ride bikes on and off the road and I found it interesting to be received entirely by staffers this time around. They were mostly receptive and understanding of our position as constituents, while there were a couple folks that refused to discuss the tax issue or spent the conversation tuning out by looking at their phone, which I took as an indication of a biased agenda. Hearing other sellers’ stories, it was more pronounced how health care, student debt and living low income have additional impacts on one’s ability to sustain a business, let alone make a trip to Washington. For many, not having the foresight and language to ask the right questions presents an unfair business advantage in favor of large corporations. I am unaware of notices being sent out to micro-businesses regarding these policy changes, risks and penalties. Clearly, this was important to us and we didn’t want to be silenced.
Nonetheless, I have been trying to figure out why they felt it was not important to their office. With the stats Etsy provided:$2.3 trillion is online retail (25% increase from 2016), 2.1 million Etsy Sellers worldwide, 87% of which were women and more than half ship internationally. On the smaller scale, micro-businesses have fewer than 10 employees, work more than 40 hours a week and frequently invest their savings in their business in order to fill a need for creative innovation that is not already supported by large corporations. Surely, those numbers and altruistic goals make us significant – but could they also make us an easy target because of the implicit diversity comprising small business owners? Is it possible that those who oppose a simplified federal sales tax solution WANT to make it even more difficult for the over-worked demographic to share success without a penalty across state lines? The idea of that makes me angry. And that’s why I won’t let micro-businesses become obsolete.
WHAT CAN YOU DO?
In addition to trying to make sense of it all, you can build awareness in your community, write to your representatives in Congress (use the links above), talk with your local legislators so that they understand how this affects the future of business in their territory and fill out this form: https://action.etsy.com/USzxeDP*
*Please note that this form does not presently include Mx. (non-binary prefix in place of gender), but requires selection from limited prefixes in order for the petition company handling the data to send your contact information to the corresponding office. I am also advocating to remove this qualification on petitions in order to maximize vocal representation. Prefixes are universally required on petitions, so this means a huge portion of constituents are not able to sign petitions on issues that directly affect them. In an era where votes and input is claimed to be equal, gender should not be relevant. Let’s commit to this and repeal gender classification on petitions!