For nearly a decade, Margaret Maringgele and her husband Hubert have sold handmade wooden Christmas ornaments from their home on Vancouver Island through the online marketplace Etsy.
Before she retired, Ms. Maringgele worked in banking and accounting. But even with that background, she said, recent changes that Etsy has made to comply with a new federal sales-tax law have suddenly turned selling on the platform into a serious bookkeeping headache.
“We’re forced to either overcharge some customers or take a hit on 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 who specialize in handmade goods and vintage items. According to the U.S.-based company, it has 378,000 sellers in Canada who made a combined $15.5-billion in sales in 2021.
On social media and on the Etsy community’s message boards, sellers have increasingly complained about how the company has responded to the new federal law meant to ensure digital platforms – including such giants as Amazon.com Inc. AMZN-Q and Netflix Inc. NFLX-Q – are charging sales tax to their Canadian customers.
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The federal government announced the policy in late 2020, and it took effect July 1, 2021. Platforms were given a grace period of 12 months to implement it. Different companies took different tacks: For instance, Amazon lets merchants on its marketplace collect and remit taxes on the items they sell, while eBay’s centralized approach collects and remits tax on behalf of sellers.
But Etsy has chosen a more complicated approach.
Etsy’s first communication with sellers on its new rules was on May 31, a month before the deadline to comply. The new policy stated that Etsy would begin to collect and remit federal and provincial sales tax for sellers who hadn’t already been doing so. (Businesses that have never 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 had already been collecting and remitting those taxes were now being told they could no longer charge customers sales tax at checkout. Instead, Etsy said those sellers should raise their prices and figure out on their own how much money they should remit to the CRA.
“You should adjust your listing prices to collect any required taxes, then remit it to the appropriate tax authorities with your GST/HST [Goods and Services Tax/Harmonized Sales Tax] or your QST [Quebec Sales Tax] filing.”
This approach has left many sellers baffled, said Cindy Baldassi, who makes and sells stone jewellery and accessories in Calgary and coaches other entrepreneurs about e-commerce.
“They had so much time to do this, and they gave sellers one whole month worth of warning,” she said. “Then they expect everyone to fix their problem for them.”
Ms. Baldassi said Etsy’s guidance to raise her prices to include the tax is bad for her business because it makes her prices appear higher than those of competitors who aren’t required to include taxes in their retail prices. And the policy is confusing for her to administer because different provinces have different sales-tax rates (from 5 per cent to 15 per cent), so she would have to figure out an average increase that captures the variety of rates, while also keeping track of which jurisdiction the buyers were in in order to remit the proper amounts to the CRA.
“All of your expenses, roll them into the price, and it’ll all work out, that is their logic,” Ms. Baldassi said.
Etsy has had other trouble with sellers this year. In April, thousands of them around the world boycotted the platform when it raised transaction fees to 6.5 per cent from 5 per cent. And in August, Etsy started collecting GST on the service fees it charges Canadian sellers.
Lily Cohen, a spokesperson for Etsy, declined to explain why the company took this approach to complying with the federal law. She pointed The Globe to the company’s May 31 announcement and to a help page for sellers that explained the policy.
CRA spokesperson Nina Ioussoupova said the tax agency could not discuss its relations with Etsy because of confidentiality rules. However, she suggested sellers read the CRA’s GST/HST website to make sure they are in compliance.
Ms. Baldassi said that because of this sales-tax imbroglio she has started to wind down her Etsy store after 14 years on the platform and won’t return unless they find a more seller-friendly way to handle sales tax.
She continues to take U.S. orders (which don’t require sales tax collection) for now, but has stopped taking Canadian orders – although, because the platform won’t let her block Canadian orders directly, the only way she could think of to dissuade buyers was to hike her Canadian shipping prices to $600. (Two orders came in anyway, she said, and she refunded both.)
Ms. Baldassi said that for now she is going to focus on building up her own website instead.
“When Amazon is doing a better job of helping sellers than Etsy, it’s not a good look,” she said.