Taxes are a complicated subject that no one likes dealing with, which is why tax specialists make such a good living.
As of March 1, 2019 Printful began charging sellers additional taxes on sales where the shipping address was one of the states that they have economic nexus (you can view the full list here)
This was devastating for many print on demand sellers that only collect a small profit margin on each sale... unfortunately, it's law and there's nothing we can do to get around it.
Why this Happened
This is because on June 21, 2018 the United States Supreme Court rules in the case of South Dakota v. Wayfair that states are able to charges tax on online sales based on economic nexus.
Before the ruling, a seller had a sales tax nexus in states where they had a physical presence. After the ruling, either a physical presence or "economic" presence would establish a sales tax nexus.
What this means for us, per TaxJar:
Due to the Wayfair ruling, even if you do not have a physical presence in a state, if you pass a state's economic threshold for total revenue or number of transactions in that state, you're legally obligated to collect and remit sales tax to that state.
Now sellers will have to either:
- Take the loss on the taxes Printful charges. Mark your prices up if necessary to protect your margins, but don't indicate anywhere that this is being done for "tax purposes"
- Obtain a sales tax permit in every state, then setup Etsy to collect the proper tax rate for every state and file reports & send the taxes on to each individual state. Every state will have different rules, fees, and hoops they want you to jump through to register and remit tax payments. This is probably not feasible for the "Solopreneur" 1 man show business model.
Similar to my blog post from yesterday about the new Germany tax registration, If you earn above a certain threshold for each state, you may be liable to charge sales tax yourself.
This was meant to level the playing field a bit between online sellers and brick & mortar retail stores, as online sellers didn't have to worry about collecting sales tax previously (unless they had a physical presence in that state).
Printful + Etsy Integration Taxes
Print on demand is meant to be more of a laid back, relaxed, hands off business model, so most sellers are probably OK with letting Printful collect & remit sales tax on their behalf to the states where it's required.
This would be just fine & dandy EXCEPT for the fact that as of writing this Etsy announced that they would be doing the exact same thing.
So what's the issue?
Unfortunately Etsy and Printful are two separate entities that don't coordinate with eachother on the sellers behalf, and I can easily find instances where Etsy is charging my customers sales tax (if their shipping address qualifies them) which Etsy then remits to the state on my behalf, but Printful still charges me additional tax on the order!
Here are a few:
Unfortunately this is all the information I could find on the issue being worked out, from an admin in the Printful Insiders Facebook Group:
For now, it looks like we will just pay double taxes on some sales. If there's a positive side of things, it's that at least Etsy is passing the sales tax on to the customer & not to us (unlike Printful which doesn't interact with the customer and has to bill us directly...)
What You Can Do To Combat This
It's illegal to charge sales tax unless you're officially registered in the state the sale is going to and directly remit the tax to them.
I recently picked that up from the Amazon Seller Tax Lawyer Facebook group that I'd recommend checking out if you have any questions about ecommerce taxes.
So it's not going to be a popular option to obtain a sales tax permit in states where you're above the threshold, but that option is on the table.
If you do go that route, you can let Printful know here and then update your listings to collect tax that you will be responsible for remitting.
