Etsy offered a glimpse into the backend of its sales-tax collection practices, explaining that more jurisdictions are now requiring marketplaces to collect the tax from buyers and remit the tax to the relevant authorities.
Etsy uses a third-party service called Vertex to make a determination for each transaction based on the locations of the buyer and seller; the product category; and a set of tax rules and mappings.
“To handle the details of these calculations we partner with Vertex, and issue a call to their tax engine via the Quotation Request API to get the right amount to show in our buyer’s cart,” Etsy explained in a post on its Code as Craft blog.
“When the buyer proceeds to payment, an order is created, and we call back to Vertex with a DistributeTaxRequest sending the order information and tax details. We sync information with Vertex through the order fulfillment lifecycle.
“To keep things up to date in case an order is canceled or a refund needs to be issued later on, we inform the details of the cancellation and refunds to the tax engine via DistributeTaxRequest. This ensures that when Vertex generates tax reports for us they will be based on a complete record of all the relevant transactions.
“Etsy collects the tax from the buyers and remits that tax to the taxing authority, when required.”
Etsy said it had to map its product categories to Vertex’s rules – “no small task” – which involved Etsy engineering and its tax and analytics teams.
Sellers often wonder how online marketplaces such as Etsy determine whether it should collect sales tax for a particular transaction – the recent Etsy Code as Craft blog post is just a glimpse into how it handles making the determination from a developer standpoint. Information about sales tax for sellers is available in a separate post on the Etsy Seller Handbook.
