A typical Etsy seller is a female entrepreneur working out of her home to supplement her household’s income. The marketplace said expecting her to calculate, collect, and remit sales taxes on every single sale in nearly 10,000 different tax jurisdictions would be devastating.
Etsy made the case in its amicus brief in the Supreme Court case South Dakota v. Wayfair, Inc, Overstock.com, Inc., and Newegg Inc. Currently, thanks to the Quill v North Dakota Supreme Court ruling, only merchants with nexus (a physical presence) are required to collect and remit a state’s sales tax.
Etsy is against the overturning of Quill – in fact, it said even with Quill in place, determining how to handle tax-exempt sales, sales tax holidays, and product taxability coding can be a daunting task for sellers, particularly for small and midsize businesses.
In a press release, the company said, “Platforms like Etsy lower the barriers to entrepreneurship, and have allowed for anyone with an idea and an internet connection to turn their creative passions into thriving businesses. In filing this brief, we’re standing with Etsy’s community of 1.9 million sellers – and all microentrepreneurs – and asking the U.S. Supreme Court to support small businesses and leave Quill intact.”
In its brief, Etsy said the typical single-person business selling craft products on Etsy to earn supplemental income lacks the substantial resources necessary to ensure compliance with the sales tax laws of potentially thousands of jurisdictions.
The company cited survey data that suggests a significant percentage of Etsy sellers would stop selling if forced to collect sales tax in additional jurisdictions.
Etsy also said South Dakota paints the picture of “exclusively small, local in-state retailers on the one side, against exclusively large, online giants such as Amazon on the other.”
But that’s inaccurate, Etsy said. “Online giants already are collecting and remitting sales taxes nationwide, so overruling Quill will not affect them; the burden of overruling Quill would fall instead on the small online businesses that South Dakota’s brief entirely ignores.
“Many of those small businesses sell through Etsy, and Etsy survey data suggest that if Quill were overturned, the burden of interjurisdictional sales tax compliance would discourage small businesses from selling into the interstate market at all.”
Etsy used an example of how difficult sales tax compliance can be: “one State, for instance, may distinguish between shoes “primarily designed for athletic activity” and shoes that are not, while another State may treat both types of shoes as the same.”
“The administrative burden of addressing interjurisdictional sales tax compliance obligations would be devastating to the typical Etsy seller.”
The marketplace learned the lesson itself, it explained, when it began collecting sales tax in the State of Washington after the state passed the “marketplace facilitators” law.
“Etsy began complying with the law when it went into effect on January 1, 2018, and encountered classification problems at the outset. The sale of craft food items, for example, posed an immediate issue.” It went on to explain the challenge of determining how to classify such items depending on certain ingredients (any food containing flour cannot be considered candy, for example).
“A marshmallow pop would be considered “candy” and exempt from Washington’s remote retail sales tax, but a pecan pie bar from the same seller likely would not be, as the latter contains flour.”
Another challenge Etsy pointed to: “Many States exempt transactions from sales tax obligations based on the status of the buyer.”
“But,” the company said, “neither Etsy nor any third-party tax compliance software is capable of collecting this information automatically.”
You can read Etsy’s press release with a link to its amicus brief on this post on the Etsy blog.
It is doubtful if Etsy can correctly calculate Washington State destination-based sales tax correctly without geocoding every address in the state. Boundaries for collecting Regional Transit Authority (RTA) taxes included the sales tax rate do not coincide with ZIP codes and split some incorporated or unincorporated locales. It is likely that non-RTA buyers may wind up paying higher RTA sales tax rates because of difficulties checking every address.