When I opened my Etsy shop in 2013, navigating sales tax was my least favorite thing ever. I wasn't sure where to begin, I wasn't sure what steps to take, and the whole process in general was overwhelming. I think sales tax is one of those things that we're overwhelmed by simply because we don't know what to do. So today, I'm going to share a bit of how sales tax works for the Elah Tree shop and hopefully provide you with tips that encourage you and help you move forward in your journey.
ARE YOUR PRODUCTS TANGIBLE? HOW ARE THEY DELIVERED?
I think the internet broke the business world, haha! When policies or procedures (or whatever you want to call it) where put in place for sales tax people were only thinking about physical products. Products that could be shipped, delivered, picked up, ect. The concept of digital products weren't a thing, i.e. the internet broke the business world.
When I launched the Stock Collection, I remembered trying to figure out sales tax for my very first Etsy shop, where I sold and shipped physical goods. The major difference now is that all of my products are digital and they are all delivered electronically. In New York, sales tax is not charged on digital goods that are delivered electronically. In regards to New York, it is all about how the product is delivered, as long as it is delivered electronically sales tax is not charged. Now, if I were to burn images on to a disk or put images onto a flash drive, then the product turns into a physical product that has to be delivered and in turn sales tax would have to be charged.
One thing about the Elah Tree shop is that everything runs electrically. When you purchase items in the shop you receive an instant download, delivered electronically. When I work with clients on custom stock all of their images are delivered electronically via Google Drive.
What if you don't live in New York? I lot of states view digital products and electronic delivery very similar to New York. This is when you'll need to do a little research. When I was in the process of determining sales tax here in New York, I simply started on Google doing a little research.
What if your products are physical and are shipped or delivered? As far as I know, all physical products require sales tax and each state charges a different amount of sales tax. Here, in New York, sales tax is approximately 8.875%. As a small business owner selling physical products, you simply act as a conduit for the government to collect sales tax. Most states make it pretty easy to register and charge sales tax. Check out your states .gov page and search sales tax.
CONFIRM WITH YOUR TAX ADVISOR
Once I did my research and determined that digital items delivered electronically did not require sales tax, I confirmed with our tax advisor. This was as easy as me shooting her an email. I let her know what I was trying to figure out and what types of products I was offering. She double checked my research and emailed me back confirming. She also sent me supporting documentation for my records. Having a great tax advisor or accountant will make determining these business questions so much easier. Even if it's just asking a quick question.
Are you in the process of determining sales tax for your business? How is your biz journey coming along? I would love to hear! xoxo. Samantha