Etsy Sellers: We Want Our DST Fees Back, Please

Sellers are demanding Etsy return fees tied to Canada's digital services tax (DST) after Canada said last week it would rescind the tax. According to the law enacted last year, large technology companies had not been paying the country taxes on revenues generated from Canadians. However, on June 29, Canada halted collection of the tax in order "to advance broader trade negotiations with the United States." The first remittance of DST had been due on June 30.

Two months after the law was passed last year, Etsy began charging Canadian sellers a new "Regulatory Operating fee" of 1.15% on the total amount of transactions, stating it was due to the fact that "the cost of doing business in many countries increased with new regulations in those countries."

Canada applied the 3% DST on marketplaces' revenue earned from the following: Online marketplace services; Online advertising services; Social media services; and Certain sales of user data.

Yet, as ecommerce consultant Cindy Baldassi pointed out in a post on Tumblr last year, Etsy was charging sellers 1.15% of their total transaction amount:

"Etsy is not charged 3% tax on sellers' gross income; they are being taxed on some of the fees they charge us. If the goal is to force Canadian sellers to cover the whole amount owed, it's not clear why the company is not just applying a 3% fee on our fees, instead of this much higher cash grab. 

"My calculations show that 1.15% of my gross income on Etsy's platform is almost 3 times as much money as 3% of the fees I pay Etsy would be."

Amazon likewise imposed a fee last year but acknowledged its new "digital services fee" was tied to digital services taxes: "On October 1, 2024, we'll introduce a digital services fee for digital services taxes (DST) that are implemented by the governments of Canada, the UK, France, Italy, and Spain."

One of the readers who reached out to us about the issue said someone at Etsy told a seller that the fee was not directly tied to the DST and said the Regulatory Operating Fee was part of its ongoing efforts to comply with local laws and regulations.

Etsy did not respond to our two inquiries.

Amazon did respond, and a spokesperson provided us with the following statement:

"Amazon applauds Canada's decision to rescind the Canada Digital Services Tax Act. Digital services taxes are discriminatory, stifle innovation, and harm consumers, and we appreciate the U.S. government's work to address DSTs around the world."

Trade negotiations between the US and Canada resumed this week with a previously agreed-upon July 21 deadline still in mind, according to media reports, and marketplaces may not wish to act until there is more certainty and guidance in place.

But the recent development serves to highlight the fact that the large technology companies Canada was taxing ended up passing the costs directly onto Canadian sellers - in Etsy's case, small businesses and "mom and pops" - probably not the outcome that Canadian lawmakers had wanted or anticipated.

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