Do I Have to Charge Sales Tax on Handmade Items?
Confused about sales tax on handmade items? Here's what makers need to know about nexus, marketplace facilitator laws, and your annual tax obligations.
Last updated: April 2026
If you sell handmade items — whether on Etsy, Shopify, at markets, or through your own website — you’ve probably wondered whether you’re supposed to be collecting sales tax. The honest answer is: it depends. And it’s changed a lot since 2018.
The good news? If you sell primarily through Etsy, the platform now handles sales tax collection and remittance on your behalf in most US states. Shopify sellers using the Shop channel got similar coverage from January 2025. But there are still situations where the responsibility falls squarely on you — and knowing the difference matters.
Here’s a breakdown of every tax obligation you’ll face as a handmade seller, starting with sales tax.
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Do You Need to Collect Sales Tax on Handmade Items?
Sales tax in the US is governed at the state level, not federally. Whether you need to collect it comes down to whether you have “nexus” — a sufficient connection to a state that requires you to register and remit tax there.
There are two types of nexus to know about.
Physical nexus
This is the original kind. You have physical nexus in a state when you have a tangible presence there — your home studio, a warehouse, employees, or even regular attendance at craft fairs. For most makers working from home, this means nexus only in the state where you live.
Economic nexus (the Wayfair ruling)
In 2018, the Supreme Court’s South Dakota v. Wayfair ruling changed everything. States can now require out-of-state sellers to collect sales tax even without a physical presence, based purely on their sales volume.
Most states adopted economic nexus thresholds of $100,000 in sales or 200 transactions per year into that state. If you exceed those numbers, you’re required to register and collect sales tax there — even if you’ve never set foot in the state.
For most small handmade businesses, hitting $100K into a single state is a long way off. But it’s worth knowing the rule exists, especially as your business grows.
How Etsy and Shopify Handle Sales Tax For You
This is the part that’s changed most dramatically since this post was first written.
Etsy: fully automatic in all taxable states
Etsy operates as a marketplace facilitator under laws that now exist in every US state that has a statewide sales tax. This means Etsy automatically calculates, collects, and remits sales tax on your behalf for all orders placed through Etsy.com — covering all 45 states (plus DC and Puerto Rico) that have statewide sales tax. You can’t opt out of this in those states, and you shouldn’t need to.
The catch: this only covers sales made through Etsy’s platform. If you also sell through your own website, at markets, or via other channels, you’re still responsible for sales tax on those transactions. For a deeper dive into exactly how Etsy’s marketplace facilitator rules work, see our post on Etsy marketplace sales taxes.
Shopify: it depends on how you sell
Shopify itself is not a marketplace facilitator for your regular online store. If customers buy from your Shopify website directly, you remain responsible for collecting and remitting sales tax in states where you have nexus — that’s still your job.
However, as of January 2025, sales made through the Shopify Shop app (the Shop sales channel) are now handled under marketplace facilitator rules. Shopify collects and remits sales tax on Shop channel orders shipping to or within the US. Importantly, this doesn’t apply to Shop Pay transactions on your own storefront — only orders placed directly through the Shop app.
If your store runs entirely through a Shopify website, assume you’re responsible for your own sales tax compliance.
Other platforms
Amazon, Walmart Marketplace, and most other large marketplaces also operate as facilitators in most states. Always verify with the specific platform — laws shift, and coverage varies.
Managing Sales Tax When You’re On Your Own
If you sell through your own website, at craft fairs, or through channels that don’t act as facilitators, you’ll need to handle your own sales tax. Here’s the basic process.
Step 1 — Determine your nexus states. Start with your home state. Then consider whether you have employees, warehouses, or regular market attendance in other states.
Step 2 — Register for a sales tax permit in each nexus state before you start collecting. Collecting without a permit is unlawful — don’t skip this step.
Step 3 — Calculate tax owed by tallying all sales tax collected in each state.
Step 4 — File returns per the rules in each state. Filing frequency, deadlines, and even whether you owe a “zero return” (for periods with no sales) vary. Check with your state’s revenue department for specifics.
Tip: A “zero return” is a real thing — some states require you to file even when you collected nothing. Missing one can result in a fee.
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Annual Income Taxes for Handmade Sellers
Sales tax is separate from income tax. You still owe federal (and usually state) income tax on your business profits, regardless of whether a platform handles sales tax for you.
Your annual income tax is due in mid-April (the exact date shifts slightly year to year depending on weekends and holidays). As a self-employed maker, you’ll declare all business income as self-employment income and owe taxes on your net profit — revenue minus allowable business expenses.
Filing a Schedule C
If your business has a pass-through structure like a sole proprietorship, you’ll attach a Schedule C to your personal Form 1040. This form reports your revenue, expenses, and cost of goods sold (COGS).
Schedule C has five parts:
- Part I — Revenue, cost of goods sold, and gross profit
- Part II — Indirect business expense deductions (not production costs)
- Part III — Inventory tracking to derive COGS. You’ll enter beginning and ending raw material inventory values here. This is where accurate tracking all year pays off.
- Part IV — Vehicle-related deductions
- Part V — Any other expenses not covered above
For a full walkthrough, see our Schedule C guide for handmade sellers.
You can file online using software like TurboTax, H&R Block, or similar tools. If this is your first year running a product-based business, having a CPA review your return is worth it. Accountancy fees, by the way, are fully deductible as a business expense.
Important: Tax laws change frequently. This information is for educational purposes only and is not tax or legal advice. Consult a licensed financial professional for guidance specific to your situation.
Penalties for late filing
Filing late without an extension can trigger a 5% penalty per month on the balance owed, up to 25% total. Paying late (even when you file on time) adds 0.5% per month on the unpaid balance.
Quarterly Estimated Taxes
Because self-employed sellers don’t have an employer withholding tax from a paycheck, the IRS uses a “pay-as-you-go” system. If your business is expected to owe more than $1,000 in taxes for the year, you’re required to pay estimated taxes each quarter.
When are quarterly taxes due?
| Payment Period | Due Date |
| January 1 – March 31 | April 15 |
| April 1 – May 31 | June 15 |
| June 1 – August 31 | September 15 |
| September 1 – December 31 | January 15 (following year) |
The IRS says: If the due date falls on a Saturday, Sunday, or legal holiday, the payment will be on time if you make it on the next business day.
Tip: Set calendar alerts for each due date — and add a reminder 3 weeks out so you have time to pull your numbers together.
How to calculate your quarterly payment
Your quarterly liability is an estimate, not an exact figure. There are three steps:
Step 1 — Estimated income tax. Multiply your expected taxable income by your tax bracket percentage (check the current rates in Form 1040-ES — they update yearly).
Step 2 — Estimated self-employment tax. Multiply your taxable income by 92.35%, then multiply that figure by 15.3%.
Step 3 — Divide by four. Add your income tax and self-employment tax estimates, then divide by four. That’s your quarterly payment.
If this is your first year in business, run these numbers by a CPA before submitting. Overpaying ties up cash you could use in your business; underpaying leads to a surprise bill (plus interest) come April.
How to file
Pay using Form 1040-ES, either by mail or electronically via the IRS’s Electronic Federal Tax Payment System (EFTPS). EFTPS also lets you set up automatic debits, which is handy if your tax liability is fairly consistent.
Penalties
If you underpay estimated taxes, you’ll owe approximately 3% annual interest on the shortfall. This is calculated as part of your annual tax return.
Keeping Your Numbers Straight
All three of these tax obligations — sales tax, income tax, and quarterly estimates — depend on one thing: knowing what you made and what you spent. That means tracking your revenue, expenses, and inventory accurately throughout the year.
Craftybase imports orders from Etsy, Shopify, and other sales channels, tracks your material costs and COGS automatically, and generates the Schedule C numbers you need at tax time — without you needing to reconstruct the year from bank statements and receipts. Start a free trial and see how it works.
Frequently Asked Questions
Do I have to charge sales tax on handmade items I sell online?
Whether you need to charge sales tax on handmade items depends on where you sell and who handles collection. If you sell on Etsy, Etsy collects and remits sales tax on your behalf in all US states that have a statewide sales tax — you don't need to do anything. For your own website or channels that aren't marketplace facilitators, you're responsible in any state where you have nexus (physical or economic). Consult a tax professional for your specific situation.
Does Etsy collect sales tax for sellers automatically?
Yes. Etsy operates as a marketplace facilitator in all 45 US states (plus DC and Puerto Rico) that have a statewide sales tax. It automatically calculates, collects, and remits sales tax on every transaction through the platform — sellers can't opt out and don't need to. The one caveat: this only covers Etsy sales. If you also sell through your own website or at markets, those transactions are your responsibility.
Does Shopify collect sales tax for handmade sellers?
It depends on how your customers buy. Shopify's Shop app (the Shop sales channel) became a marketplace facilitator as of January 2025, meaning it handles sales tax on Shop channel orders. But if customers buy directly from your Shopify website, Shopify is not a marketplace facilitator — you remain responsible for collecting and remitting sales tax in states where you have nexus. Check which channel your orders come through before assuming Shopify handles it.
What is economic nexus and how does it affect handmade sellers?
Economic nexus means you may owe sales tax in a state even without a physical presence there, based on your sales volume. Following the 2018 South Dakota v. Wayfair ruling, most states set thresholds of $100,000 in sales or 200 transactions per year into that state. Small makers are unlikely to hit these numbers early on, but they're worth monitoring as your business grows — especially if you sell through your own website across many states.
What is a Schedule C and do handmade sellers need to file one?
Schedule C (Form 1040 Schedule C: Profit or Loss from Business) is the form self-employed handmade sellers attach to their personal tax return. It reports revenue, business expenses, and cost of goods sold (COGS). Part III asks for beginning and ending raw material inventory values to calculate COGS — which is why accurate inventory tracking throughout the year matters so much. Craftybase generates these numbers automatically, so there's no scrambling at tax time.
What are quarterly estimated taxes and does my handmade business need to pay them?
Quarterly estimated taxes are required if your business expects to owe more than $1,000 in taxes for the year. Because self-employed sellers have no employer withholding tax, the IRS expects payment four times a year (April, June, September, and January). To estimate your quarterly amount, add your income tax and self-employment tax for the year, then divide by four. Tracking revenue and expenses in real time throughout the year makes this estimate far easier to get right.
Please note that tax laws change frequently. This information is for educational and informational purposes only and should not be construed as tax or legal advice. Please consult a licensed financial expert in your area with specific questions or concerns.
