Wherever you sell your art, you may need to pay sales tax. You can do this in one of two ways. You can wrap the sales tax into the price of your work and do the reverse calculation– making it easier to sell work to your customers in nice round numbers. Or- you can add the cost of tax to the price of your work at the end.
For example $450 plus tax = $450 + 8.5% = $450 + $38.25= $488.25. OR $450 including tax equals a price of $450 for the consumer. You then have to do the reverse calculation to find out how much you owe the state. Therefore: $450 – $35.25= $414.75. I like these 2 sites to figure it out: sales tax states and ConvertIt. Whichever way you do it, you are required by law to pay those taxes to your state. Each state has different rules about this- and even different municipalities. Pay attention to where you are!
Forty-five U.S. states and Washington D.C. all have a sales tax. States and local areas use sales tax to pay for budget items like schools and roads. But states don’t collect sales tax from citizens directly. They rely on business owners like you to collect it from your buyers and then remit it from time to time (usually monthly, quarterly or annually.)
If you are an artist who primarily works from your home or studio, then you might only have sales tax nexus in your home state. However, other business activities can create sales tax nexus, including:
- A location – a store, office, warehouse, factory or other location creates nexus
- An employee – employees, many contractors, sales people, installers and repairers create nexus
- A drop shipping relationship – Drop shipping can include using a 3rd party to print and send your designs, like t-shirts; depending on your negotiations with your drop shipper, you may have nexus if you drop ship
- An affiliate – some states consider 3rd party affiliates who send customers to your online store to create nexus
- Art shows or craft fairs – In some states, if you sell within their borders for just a handful of days (such as at a festival or craft fair) then you have nexus there
- Storing inventory in a warehouse – Storing inventory in a warehouse in a state, such as selling your Amazon Handmade products through Amazon FBA, creates nexus
Handling Sales Tax with In-Person Sales
Whether you sell your artwork out of your studio or own a brick and mortar location, collecting sales tax in-person is one of the more painless ways to deal with sales tax.
The “point of sale” is important here. For in-person sales, the point of sale is where the two of you are standing while you make the sale. So you’d only be responsible to charge a single sales tax rate – the sales tax rate at the location where you are selling your items.
For example, you sell your items out of your studio in Sedona, Arizona, you’d charge all of your customers the 9.35% Sedona sales tax rate.
If you are selling from your booth at a craft fair in Duluth, Minnesota, you’d charge your buyer the 6.875% Duluth sales tax rate.
You can look up U.S. sales tax rates here.
Sales Tax at Festivals and Craft Fairs
Now say you travel across state lines to sell at a festival or craft fair. Does that create nexus? As with almost every sales tax question, the answer is “it depends.”
Every state is different when it comes to sales tax on temporary sales such as at a craft fair or festival! Some states provide a wealth of information or special publications just for festival vendors. Other states treat every seller – from people who own in-state retail stores to people who are coming to the state to make sales for just a single weekend – just the same.
For example, when selling at a craft fair in Arkansas (as an out-of-state vendor) you are required to collect sales tax and turn it into the festival organizer daily. In Colorado, you are required to register for a “special event” sales tax license. But in Georgia, you are not required to register for a sales tax permit at all as long as you don’t make sales in the state for more than 5 days in the calendar year, or don’t collect more than $100,000 in sales over the course of the fair.
Sales Tax when Selling Online
Selling online is when sales tax starts to get tricky. If you only have nexus in your home state, you are only required to collect sales tax from buyers in your home state, even when selling to people all over the country online.
Though, unlike with in-person sales, the sales tax rate you charge your customers will likely vary when you are selling online. A handful of states are what is known as “origin-based” sales tax states, where you charge every customer in the state the sales tax rate at your business location. But most states are “destination-based” sales tax states, meaning you are required to charge your buyer sales tax at the sales tax rate at their ship to address.
Sales Tax on Shipping
When selling online, you also need to take sales tax on shipping into account. About half the states consider any shipping charges you charge your customer to be a taxable part of the sale. The other half say that shipping is non-taxable as long as you separately state the shipping charges on your invoice.
Filing your Sales Tax Returns
So you’ve done everything right and have been charging sales tax to your buyers. Soon enough, your sales tax filing due date will roll around.
Sales tax filing due dates vary by state, but are generally either monthly, quarterly or annually. As a general rule, the more sales tax you collect from buyers in a state, the more often that state is going to want you to file a sales tax return.
If you only make in-person sales from one or two locations, filing a sales tax return is fairly simple. You just tally up how much sales tax you collected from buyers in a state, find your jurisdiction or jurisdictions on the state sales tax filing form, and enter how much you collected. You will likely have to break down the amounts you collected in state, county and city taxes, but if you only have one or two locations this is fairly doable.
On the other hand, if you sell online and have collected sales tax from buyers in many jurisdictions, filing sales tax is much more difficult. Keep in mind that states and local areas all use the sales tax you collected to pay for things like schools and fire departments. Because of this, states require that you break down how much sales tax you collected by state, county, city and other district so they know how to allocate the sales tax funds you are going to send them.
If you made online sales and collected multiple sales tax rates, filing your sales tax return can quickly turn into a time-consuming headache.
The most popular handmade marketplace on the internet needs no introduction. But when it comes to handling sales tax, Etsy gets a little more complicated.
Etsy does not calculate how much sales tax you should collect. Instead, they allow you to enter how much sales tax you want to collect from buyers by state and zip code. This works great if you live in an origin-based state. You can simply tell Etsy to collect the same amount of sales tax from all buyers.
But if you live in a destination-based state where you are supposed to collect sales tax based on your buyer’s ship to address, you’ll be required to enter all the sales tax rates from your state. Ouch! They also only allow you to enter sales tax by 5-digit zip code, which, while mostly accurate, doesn’t always get it right.