As a business, you will need to collect sales tax whenever you make a sale to a customer who resides in a state where you have a “physical presence”.
This physical presence is what is commonly referred to as a Nexus. This will most likely be the state you reside in for most craft entrepreneurs that work from home. If however you own warehouses, attend craft fairs across state borders or hire employees in other states, you may have more than one Nexus to collect taxes for.
For example, if you live in Florida, your Nexus is Florida and you’ll be required to collect sales tax from your customers based in Florida.
As another example, say you live in South Carolina and you store your goods in a warehouse just over the border in North Carolina. Then you hire your brother in Virginia to work for you. It may be that you will have nexus in all three of those states.
Once you have determined your nexus, you’ll want to read up on the sales tax requirements for this state. You’ll also need to ensure that you have registered to charge sales tax - it is unlawful to collect sales tax without first registering for a permit. Be sure not to skip this step.
Tip: Etsy provides useful instructions that will lead you through the process of determining nexus and creating your sales tax settings for your listings.
How to calculate your sales taxes
State sales tax can be calculated by tallying all tax collected in all of the states in which you have nexus.
How to file your state taxes
As this is a state level tax, rules and ways of collecting this tax will differ. Contact your state tax representative for details.
Don’t forget that some states require what’s called a “zero return,” which is for those sellers that didn’t collect any sales tax. If you don’t file one of these, you could be hit with a fee or penalty.