What are my responsibilities for sales tax?

As we are not a qualified tax professional, we can only give you some general areas to consider and research regarding an artist’s responsibility for sales tax:

General Principles of Sales Tax for Artists:

Even for artists doing only online sales, sales tax responsibilities can be quite significant and are often more complex than for purely brick-and-mortar businesses due to evolving “economic nexus” rules.

Here’s a breakdown of an artist’s responsibilities for sales tax when selling exclusively online:

• Home State/Country Nexus (Physical Nexus):

1. • You almost certainly have a physical nexus in the state/country where you operate your business, store your inventory, or create your art. This means you are generally responsible for collecting sales tax from all customers located within that specific state/country.
   • Example: If you live and operate your online art business from California, you must collect California sales tax from all customers whose shipping address is also in California.

• Remote State/Country Nexus (Economic Nexus):

1. • This is the most complex part for online sellers. Following the 2018 U.S. Supreme Court Wayfair decision, states can now require out-of-state sellers (remote sellers) to collect sales tax if their economic activity in that state exceeds certain thresholds, even if they have no physical presence there.
   • Thresholds: Each state sets its own thresholds, which are typically based on:
     • Gross Sales Amount: e.g., $100,000 in sales into that state annually.
     • Number of Transactions: e.g., 200 separate transactions into that state annually.
     • Combined: Some states use a combination of both.
   • Monitoring: As an online artist, you need to monitor your sales into every state (or relevant jurisdiction if outside the US). If your sales into a particular state cross that state’s economic nexus threshold, you are then responsible for:
     • Registering for a sales tax permit in that state.
     • Collecting sales tax from all customers in that state.
     • Remitting the collected tax to that state.
   • Important Note: These thresholds reset annually, so you need to keep track year-round.

• Marketplace Facilitator Laws:

1. • If you sell your art through a platform like Etsy, Shopify (using their payment processor and marketplace features), Amazon Handmade, or similar online marketplaces, many states have “marketplace facilitator” laws.
   • What this means: In states with these laws, the marketplace itself (Etsy, Amazon, etc.) is responsible for calculating, collecting, and remitting sales tax on behalf of its sellers for sales made through their platform.
   • Artist’s Responsibility: If you only sell through such a platform in states with marketplace facilitator laws, your sales tax burden for those states might be significantly reduced or eliminated. However, you still need to:
     • Understand which states have these laws and if your platform is complying.
     • Be aware that these laws do not typically cover sales made directly from your own website or other channels.
     • You still need to collect sales tax for your home state (unless your marketplace collects for that too, which can happen).

• What to Tax (Tangible vs. Digital vs. Services):

1. • Just like with in-person sales, you need to understand what is taxable in each state where you have nexus.
   • Tangible Goods: Physical prints, original paintings, sculptures, etc., are almost always taxable.
   • Digital Products: This is highly varied. Some states tax digital downloads (e.g., downloadable art files, digital brushes), some don’t, and some only tax certain types. You’ll need to check the specific rules for each state where you have nexus.
   • Services: Custom commissions that are purely service-based (e.g., painting a mural on a client’s wall in another state) are generally not subject to sales tax, but again, state laws vary. If the commission results in a tangible product shipped to the customer, it’s more likely to be taxed.

Steps for Online Artists:

1. Identify Your Home State Nexus: Register for a sales tax permit in your home state.
2. Track Sales by State: Implement a system to track your gross sales and transaction count into every U.S. state (and relevant international jurisdictions if applicable). Many accounting software or e-commerce platforms can help with this.
3. Monitor Economic Nexus Thresholds: Regularly check your sales against each state’s economic nexus thresholds. When you cross a threshold, you must take action.
4. Register in Remote States (If Necessary): If you hit an economic nexus threshold in a new state, you must register for a sales tax permit before you start collecting sales tax from customers in that state.
5. Understand Marketplace Facilitator Laws: If you use platforms like Etsy, review their policies and understand how marketplace facilitator laws affect your tax obligations on those sales.
6. Charge and Collect Correctly: Ensure your e-commerce platform or accounting software is configured to collect the correct sales tax rates (which can vary by county and city within a state) from customers in all states where you have nexus.
7. File and Remit: File sales tax returns and remit the collected taxes to the appropriate state tax authorities by their deadlines.
8. Keep Meticulous Records: All sales, taxes collected, and remittances should be documented.

Crucial Advice:

• Tax Professional: Given the complexity of economic nexus and varying state laws, it is highly advisable for any online artist to consult with a tax professional (accountant or tax attorney) who specializes in e-commerce and multi-state sales tax. They can help you determine your specific obligations and set up proper procedures.
• Automation Software: Consider using sales tax automation software (like Avalara, TaxJar, or the features built into platforms like Shopify Plus) to help manage the calculations, filings, and tracking across multiple states.
• Research Your Specific Jurisdiction: Visit the official website of your state’s Department of Revenue (or equivalent tax authority) for detailed, up-to-date information on sales tax laws for small businesses and creative professionals.

Ignoring sales tax obligations can lead to significant penalties, interest, and audits. It’s a critical part of running an art business legally.

Selling online opens up a global market, but it also significantly increases the complexity of tax compliance. Don’t overlook these responsibilities!