One reason that a lot of Etsy sellers hesitate to open their own websites is that they don’t know how to handle sales tax. The good thing is that for most physical products and US sellers, it’s not going to be as complicated as they think it will be.
For other types of products or situations, it can definitely be pretty complicated, so there are different things to take into account.

Disclaimer- I’m not an accountant, and I’m not an attorney. This article is meant to be a starting point for you to look into what you need to do to be legally compliant with the tax laws where you are, but it’s not legal or financial advice. Consult a tax professional to determine what you need to do to be legally compliant with the tax laws where you’re located.
Table of Contents
- Do you have to collect sales tax on your website?
- How should I keep track of sales and VAT tax?
- How to use a hybrid selling method for international and digital items.
Some of the links in this article are affiliate links that will pay me a small commission if they’re used to purchase something. To see the entire affiliate policy click here.
Do you have to collect sales tax on your website?
Sales tax is based on whether you have “nexus” in a state, which basically means that you have some kind of a physical presence in that state.
If your business is located in a state, you have nexus there. If you sell at craft shows in another state you also have nexus there. And if you have a warehouse in a third state, you have nexus there. (Not that most of us will have warehouses, but it’s any physical presence that determines nexus.)
If you have nexus in a state, you’ll need to find out what that state requires legally as far as registering for sales tax goes.
If your state or country requires businesses to collect sales tax, you’ll probably have to register to collect them. The complicated thing about it is that there are so many different laws about sales tax that can vary from state to state, and even from county to county within a state.
In general, most sellers will have to collect and remit (send in) sales tax to the state where they’re located. Along with that, if you sell in person in other states because of doing craft fairs or shows, you might have to register there, too.
Each state has its own laws about who needs to register to collect sales tax, and it’s generally done as part of the business license process.
To see a list of the states’ websites where you can check the requirements for business licenses and sales tax, click here to read this article about that: Can You Sell On Etsy Without A Business License?
On top of that, you might have to pay VAT and other taxes to other countries if they don’t have exemptions for international stores.
If you’re located in a country other than the US, you’ll need to check with your country’s tax authority to see what the requirements are.
The bottom line is that you’ll probably have to collect sales tax, at least from sales within the state or country you live in, and maybe from international orders, too.
Since I can’t give specific advice about sales tax and VAT tax, I’ll refer you to Taxjar.com. which is a service that helps businesses understand and comply with sales tax laws. They have a bunch of articles about it, plus guides to help you decide whether you have to register.
Once you figure that out, the rest is just setting everything up on your website.
How should I keep track of sales and VAT tax?
Once you’ve investigated whether you need to collect and remit sales tax, you’ll need to set it up on your website. Most website builders have sections where you can enter the amounts of sales tax that you have to collect for specific places so that the tax will be charged to the customers correctly.
If you use a WordPress site with WooCommerce as your e-commerce plugin, it will let you set up the sales tax that way.

On my website, I set up the sales tax for Virginia customers, since that’s where I’m located. Once that’s done, each order that comes from Virginia will have the sales tax added to it, then I have to send it in to the state on a quarterly schedule.
As far as international sales go, I don’t sell internationally on my website because I don’t want to deal with figuring this out!
If I was going to sell internationally I would hire someone or use a service like TaxJar to determine whether I had to collect VAT, then I’d get it set up correctly with their expert advice.
So I’m avoiding that issue, but there’s one type of product that you can’t control as far as where they’re sold, and that’s digital products.
To deal with that, and with international sales, you might have to get creative.
How to use a hybrid selling method for international and digital items.
One way to get around the issues of VAT and digital taxes is to only sell those on Etsy or another marketplace that’s required to collect and remit those taxes for you.
I know that the main goal of getting your own website is to get off of Etsy, but if you don’t want to deal with the sales taxes and registrations for international sales, a hybrid method would work.
If you sell within your own country on your own website, and only sell internationally on Etsy, you won’t have to deal with the VAT issues.
Because of marketplace laws in the US that make the selling platform responsible for collecting taxes, you can let them do that for you.
I sell digital keyword lists on Etsy instead of on my website because that way, anything that sells internationally will be covered when Etsy handles the payments.
You could do the same thing with international orders for physical products to the countries where you’re required to collect VAT.
Keep shipping those things from your Etsy shop (or other marketplaces that have to collect the taxes) and don’t sell internationally on your website.
It also might end up that you’re not required to collect and remit the VAT, if there are countries that have exceptions for international sales.
Depending on how that’s set up, there might only be a few countries that would require you to collect VAT on your website sales, so for physical products you could just choose to not sell to those specific countries.
It’s worth it to pay for a month of TaxJar, or to check with the tax program that’s included with your website, to see what you’re legally required to do. After you know the facts, you can decide what’s best for your business and set things up the right way.
Setting up sales tax on your website isn’t as bad as you might think it will be unless you have a lot of complicating factors. There’s enough help available that you should be able to figure it out, but depending on what and where you sell, you might have to be flexible about things!
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