What is Sales Tax and How Does it Apply to Your Art Business?
If I sell art, do I pay tax? How does sales tax apply to me and my art business? When and how do I pay? If you’ve ever asked these questions, this article is for you!
If you’re here, it’s probably because you’ve been wondering, “If I sell art online, do I pay tax?” or “Do you have to charge sales tax at craft shows?”
We know, just saying the word “taxes” makes your head spin. It doesn’t have to be that scary though, we promise!
The information below is based on United States Tax Laws. We’re not certified CPA’s or accountants, and we strongly encourage you to seek one out for advice and further support on the subject. If you’re located outside the US, the information below might not apply. We wouldn’t feel right giving you information we literally know nothing about. Try to find a local CPA or accountant who can point you in the right direction and answer some questions for you!
If I sell art, do I have to pay tax?
There are two different types of taxes that you need to know about: income tax and sales tax. If you’re making money, you owe an income tax. A sales tax is on the sale of goods or services, and it’s collected at the point of sale by a retailer, then passed onto their state government.
Sales tax is different in every state since it’s determined by your local or state government. Some states don’t even have sales tax, so it’s important to check with your local government webpage to get more detailed information.
When do I charge sales tax?
You’re responsible for collecting sales tax on applicable orders where you live. For example, if I sell something online in Texas to someone in New York, I don’t charge them my state sales tax. In the simplest of terms, you collect and pay sales tax where you live and sell.
Do I charge sales tax at craft shows?
Yes—at craft shows in your state, everyone should be subject to that local sales tax, so you’ll need to collect it. When I’ve done pop up shops for events in different states, they have given me a one-time form to fill out and then I’ve had to pay taxes to that particular state. If you’re doing a craft fair or pop up that requires travel out of state, definitely check with the event venue to see if they have guidance on sales tax requirements for you.
Do I have to charge tax on online art sales?
Typically for small businesses, online sales only have added tax if the customer lives in the same state as you. Depending on your state laws, you may also need to add sales tax to shipping when you’re sending products to a customer within your same state. I live in Texas and have to add tax to items I’m shipping within Texas.
How do I charge sales tax on Squarespace or Etsy?
If you use an online shop hosting service like Etsy, Shopify, or Squarespace, they’ll typically have settings available that apply sales tax automatically based on the percentage and applications you specify. For example, my Squarespace site is set up to automatically add 8.25% sales tax (the rate for Austin, TX, where I live) to both the order price and the shipping price, but only when the customer orders to an address also in Texas.
Here’s where it gets a bit tricky. Not all items or sales are taxed. For all publications issued regarding sales tax, visit your local government site (usually tax.state.gov). Here’s a really helpful resource if you’re located in New York.
Do I charge sales tax for wholesale orders?
Wholesale orders are exempt from sales tax because the buyer is reselling the item, and will therefore be responsible for collecting and reporting sales tax on their end. (If you’re the one wholesaling your products to retailers, make sure you get their resale certificate with their sales permit number for your records—this proves that it’s THEIR responsibility to collect sales taxes on those goods, not yours.)
How do I pay sales tax?
If you’re going to sell things, you’ll likely need a sales tax permit before you start. Again, you’ve got to check with your local state comptroller on that. It’s a very simple process to fill one out!
Another thing to remember is that your only job isn’t just to charge people sales tax. Once you’ve received the sales tax from your customer, you then have to give that money to the government—we call that filing sales tax.
As far as filing goes, some people file their sales tax quarterly, and some are approved for annual filing. This is determined by your volume of sales or income bracket. Basically, if you’re selling a lot, you may need to file quarterly, and if you’re selling a smaller amount, you may be approved to file annually (less work, yay!). An accountant can help you with this, and an accounting software like Quickbooks will come in very handy too! When the time comes, you’ll file your taxes through your state comptroller’s website.
Talk to a CPA
The most important takeaway here is to check with your local government website, and consider meeting with a CPA to discuss an action plan. With them, you can figure out the best way for you to set aside money to pay for taxes, and which of your services or products require collecting sales tax.