Etsy hosted a session on the discussion boards last week where a representative from Intuit answered sellers’ tax questions. Etsy has a partnership with Intuit, offering integration with QuickBooks Self-Employed and TurboTax Self-Employed.
“Tax season is here in the United States and we know that accounting and bookkeeping can sometimes be time-consuming and challenging,” Etsy wrote. It invited sellers to ask questions for a CPA from Intuit to answer.
Many of the questions sellers had revolved around sales tax, which Etsy is required to collect from buyers located in certain states – see more information in this Etsy help file.
A sampling of the questions sellers asked (excerpted) follows:
“Why is the state sales tax collected and paid by Etsy showing as income to me when I never receive it? Is this something I now have to claim as income when it’s a sales tax?”
“Taxes are not shown in the Etsy monthly CSV report at all, which makes balancing it a nightmare.”
“Do we need to pay income tax on inherited items we are selling at or below market value??”
“How do I prove to the State of Indiana that this sales Tax that Etsy said they collected was actually paid and how do I account for that deduction that came out, do I lump it in with Fees and subtract it from my Sales and credits?”
“We are utilizing different marketplaces to sell our products, Etsy, eBay and Shopify. From everything I have gathered, we should be concerned with the 200 transaction that forces us to pay taxes in the state. Now I also understand that Etsy and eBay sellers don’t need to worry about paying these taxes, since both these platforms are charging them and remitting them. Now my question is, do we have to count the transactions that were made in Etsy and eBay (even though they’re getting paid already) to know if we have an economic nexus in the state?”
“I’m in WA. I purchased some supplies (materials to make my items) on Etsy in 2019 and paid sales tax that Etsy automatically corrected. As I have a reseller permit with my state and eligible for tax exempt on these particular purchases, I will have to apply for a refund with my state later. My question is: what is the best way to record these sales tax temporary paid on quickbooks? Do I record it as an expense to write off in 2019 and put it back as an income in 2020 when I get refunded? What is the tax line I should assign for these? Thank you.”
You can read the questions and answers on this thread on the Etsy boards.
From what I’m interpreting in the IRS definition of “transactions” it means total sale transactions. Not number of items sold. For me, my shop sales is equal to multiple items in one sale. So this makes a difference.
At issue is the fact that I do not make enough sales in any particular state to warrant collecting & paying sales tax. The markeplace does as an aggregate.
I’m seeing a trend towards making the sellers pay for marketplace’s handling of those funds and making payments to the various states. Personally, my take on it is that the marketplaces are making interest and using those funds until such time as they actually make the payments to the state, which is quarterly.
So in effect, the marketplaces are already making money on this new tax collecting policy and should not be considering it to be an expense, but a new source of temporary funds.