Etsy operates as a marketplace facilitator in every US state that levies sales tax. That means Etsy — not you — calculates, collects, and remits sales tax on orders to US buyers. For solo makers and small shops selling only on Etsy, this covers roughly 95% of your US tax compliance automatically.
What Etsy handles automatically
- Calculating the combined state + local tax rate at the buyer's ship-to address.
- Collecting that tax from the buyer at checkout.
- Remitting the collected tax to each state on the scheduled filing cadence.
- Reporting your Etsy-facilitated sales to you on a monthly summary (in your Shop Dashboard) plus 1099-K if you cross federal thresholds.
What you still need to handle
- Off-Etsy sales. If you sell via your own Shopify store, wholesale to retailers, or in-person at craft fairs, those channels are NOT covered by Etsy's collection. You're the seller of record.
- Inventory tax nexus. Etsy doesn't use distributed warehouses the way Amazon FBA does — so marketplace-only Etsy sellers rarely pick up physical nexus via inventory. But if you hire a fulfillment partner in another state, that partner's inventory storage can create physical nexus for you independent of Etsy.
- Registration for informational filings. A handful of states require registration even when 100% of your sales are marketplace-facilitated. Check the marketplace facilitator states list for specifics.
- Income tax. Marketplace facilitator laws cover sales tax only. Federal and state income tax on your Etsy profits is your responsibility regardless.
Returns and refunds
When you refund an Etsy order, Etsy reverses the collected sales tax automatically — you don't need to do anything. If you refund off-Etsy (cash, direct bank transfer) the sales-tax reversal won't flow through Etsy's system, creating a mismatch. Always process refunds in the Etsy platform.
Mixing Etsy with your own store
Many Etsy sellers expand to Shopify to reduce fees. When you do, tax compliance shifts: Etsy keeps handling Etsy orders; you now need to handle Shopify orders yourself. That requires:
- Tracking Shopify-only revenue per state.
- Registering in states where Shopify revenue alone crosses the threshold.
- Configuring Shopify Tax or TaxJar to collect on the Shopify channel.
- Filing separately — Etsy files your Etsy tax, but your Shopify tax goes on your own return.
Further reading
Read the marketplace facilitator pillar for foundational rules, or compare top states: California e-commerce, Texas e-commerce.