I earned $150 on Etsy last year and was wanting to know how to file this on federal and state returns, the Etsy FAQ didn't answer what I needed to know.

The first step will be to determine whether you have a hobby or a business.  

Hobby:

If an activity is not for profit (determined to be a hobby versus a business), losses from that activity may not be used to offset other income.  If you're just doing this as a fun or creative side venture with no real profit motive, it may be considered a hobby.

To enter hobby income and expenses in TurboTax please follow these steps:

• Sign in to your TurboTax account
• Click on Federal Taxes tab
• Choose Wages and Income
• Scroll down to Less Common Income and click Start to to right of Miscellaneous Income, 1099-A, 1099-C
• Click Start to right of Hobby income and expenses

The IRS doesn't allow you to deduct hobby expenses directly from hobby income. Instead, you can deduct expenses as an itemized deduction subject to 2% of your adjusted gross income. Also, the amount that you claim as an expense cannot be greater than your income from the hobby. In other words, your hobby cannot generate a loss.

Taxpayers can choose to itemize expenses on their tax returns or take the standard allowable deduction. Hobby expenses can only be deducted if you itemize your deductions.

If you don't have any other itemized deductions, TurboTax will deduct the greater of the standard deduction or itemized deductions. TurboTax will choose the one that lowers your overall tax liability.

Business:

An activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.You may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the taxpayer’s trade or business. A necessary expense is one that is appropriate for the business.  Unlike a hobby, business expenses may be taken to offset business income.  As you will need to report business income and expense on a Schedule C Profit or Loss from Business, you may need to upgrade to TurboTax Online Self-Employed version.

Once you are in your TurboTax return, in the search button on the blue dashboard type in self employment income. Click on "Jump to self employment income".

Please see this IRS article Business or Hobby? Answer Has Implications for Deductions

Note:  Sales tax is handled through your state.  Each state has their own guidelines and procedures.

http://www.taxadmin.org/state-tax-agencies  (choose your state)