Etsy sellers are frustrated by the company’s confusing approach to the new sales tax law

Margaret Maringili displays some of the trinkets she sells online at her Etsy shop that she and her husband have been handcrafting in their home studio in Courtenay, British Columbia, on September 16.Rafal Gerzak / Rafal Gerzak

Nearly a decade ago, Margaret Marangili and her husband Hubert sold handmade wooden Christmas decorations from their Vancouver Island home via the online marketplace Etsy.

Prior to her retirement, Ms. Maringgele worked in banking and accountancy. Even against this backdrop, she said, recent changes Etsy made to comply with the new federal sales tax law had suddenly turned selling on the platform into a serious bookkeeping headache.

“We are either forced to increase the price of some clients or affect our profit margins on others,” she said. “It’s a nightmare.”

Etsy Inc. Etsy-Q is one of the largest online marketplaces for small business owners specializing in handmade goods and vintage items. According to the US-based company, it has 378,000 sellers in Canada that generated combined sales of $15.5 billion in 2021.

On social media and on Etsy Community message boards Sellers have increasingly complained about how the company is responding to new federal law aimed at ensuring that digital platforms — including giants like Amazon.com Inc. AMZN-Q and Netflix Inc. NFLX-Q – impose sales tax on their Canadian customers.

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The policy was announced by the federal government in late 2020, and it went into effect on July 1, 2021. The platforms were given a 12-month grace period to implement it. Different companies have taken different actions: for example, Amazon allows merchants in its marketplace to collect and remit taxes on the items they sell, while eBay’s centralized approach collects and remits taxes on behalf of sellers.

But Etsy opted for a more complex approach.

Etsy’s first contact with sellers about its new rules was on May 31, a month before the compliance deadline. The new policy states that Etsy will begin collecting and remitting federal and provincial sales tax for sellers who have not already done so. (Businesses that have not made at least $30,000 in a one-year period are not required to register with the Canada Revenue Agency to collect and remit sales taxes.)

But sellers who used to collect and remit those taxes are now told they can no longer charge sales tax to customers at checkout. Instead, Etsy said, these sellers should raise their prices and find out for themselves how much money they should transfer to a CRA.

Mrs. Maringgele and her husband Hubert Maringgele are packing some ready-made trinkets. Ms Maringgele says that even with her background in banking and accounting, recent changes made by Etsy to comply with the new federal sales tax law have turned selling on the platform into a serious bookkeeping problem.Rafal Gerzak / Rafal Gerzak

“You must adjust your listing prices to collect any required taxes, and then transfer them to the appropriate tax authorities using GST/GST. [Goods and Services Tax/Harmonized Sales Tax] or your QST [Quebec Sales Tax] Deposit. “

Cindy Baldassi, who makes and sells jewelry and stone accessories in Calgary and trains other e-commerce entrepreneurs, said this approach has left many sellers confused.

“They had a lot of time to do this, and they gave the sellers an entire month’s ultimatum,” she said. “Then they expect everyone to solve their problem for them.”

Ms. Baldacey said Etsy’s directive to raise its prices to include tax is bad for its business because it makes its prices appear higher than those of competitors who are not required to include taxes in their retail prices. This policy is confusing for her to manage because different counties have different sales tax rates (from 5 percent to 15 percent), so she will have to know the average increase that picks up a variety of prices, while keeping on track. In terms of jurisdiction the buyers had to transfer the appropriate amounts to the CRA.

“All your expenses, put them in the price, and it will all work out, that’s their reasoning,” said Mrs. Baldace.

Etsy has had other problems with sellers this year. In April, thousands of them around the world boycotted the platform when it raised transaction fees to 6.5 percent from 5 percent. And in August, Etsy began collecting GST on service fees it charges Canadian sellers.

Etsy spokeswoman Lily Cohen declined to explain why the company took this approach to comply with federal law. The Globe pointed to the company’s May 31 announcement and a help page for sellers explaining the policy.

CRA spokeswoman Nina Yusupova said the tax agency cannot discuss its relations with Etsy due to confidentiality rules. However, I suggested sellers read the CRA GST/HST website to make sure they comply.

Ms Baldassi said that because of this complicated sales tax situation, she has started winding down her Etsy store after 14 years on the platform and will only return if they find a more seller-friendly way to handle sales tax.

It continues to take US orders (which don’t require sales tax to be collected) for now, but has stopped taking Canadian orders – although the platform won’t let it block Canadian orders directly, which is the only way you can think of to discourage buyers were lifting Canadian shipping rates to $600. (Two things came up anyway, she said, and she countered both.)

Ms Baldace said she would focus for now on building her own website instead.

“When Amazon does a better job of helping Etsy sellers, it’s not a good look,” she said.

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