Wondering whether or not you should apply for a Sales Tax License, but you’re not sure how it works or if you are required to do so?
Each state has different rules and regulations for business owners, and then there are the five NOMAD states that don’t have a sales tax; New Hampshire, Oregon, Montana, Alaska and Delaware.
There is not one rule that applies at the national level regarding sales tax, and it’s all a little confusing as some states require the consumer to self-report tax if a vendor doesn’t collect it at checkout.
What Is a Sales Tax License?
Essentially, a sales tax license is a permit or registration that business owners must obtain if they’re selling goods and services within certain US states.
This is a different license than your business license, which allows you to operate your business. A sales tax license (otherwise known as a ‘sales permit’, or ‘sales tax permit’) which allows you to collect sales tax from your customers. You must be sure to register in each state that you owe sales tax.
How Do I Know Which States To Register In For Sales Tax?
If you have created Nexus in a state, you will be required to pay sales tax. You might be wondering ‘what is nexus?’, don’t worry… we can break it down for you here. Nexus is the connection a business has between itself and the state, which is commonly categorized into the following:
Physical Nexus:
A physical connection refers to when a business has some kind of physical presence in the state. This might be by having an office, a kiosk or a store, and even more uniquely, if you have inventory stored, or remote workers located in the state.
Economic Nexus:
You might also have nexus through your economic status within the state. This is especially important for eCommerce, as online shoppers are commonly in many different states. Nexus will be created if the state’s threshold or the number of transactions has been exceeded, creating an obligation for your business to pay sales tax.
Whether you need a sales tax license will also depend on the type of goods/services you sell. Additionally, some states may exempt certain goods or services from sales tax. For example, groceries might be exempt in some states like Washington and Nevada. While others, like Florida, tax prepared food.
How Do I Register For Sales Tax?
As mentioned above, be sure first to know which states you are obligated to pay sales to, and if you’re unsure, it’s recommended to seek advice from a sales tax expert to avoid hefty fines. If you’re ready to apply, you’ll need to do the following:
Step One: Gather Relevant Information and Documents
Each state will have different requirements, some may require you to have your projected sales figures, others may not.
However, you will commonly need your:
- Business licence
- Contact information
- Business details (name, address, structure type)
- Employee identification number (EIN).
Step Two: Find The Correct State Registration Website
Be sure to find the correct online website for the state/s you’re looking to apply to, and then double check you have all of the documents needed.
To make your life easier, we’ve linked each state to their relevant government registration page and written the registration fee next to each, so that you can register your business for sales tax faster and easier.
Alabama ($0), Arizona ($12), Arkansas ($50), California ($0), Colorado ($16 + $50 deposit), Connecticut ($100), Florida ($5), Georgia ($0), Hawaii ($20), Idaho ($0), Illinois ($0), Indiana ($25), Iowa ($0), Kansas ($0), Kentucky ($0), Louisiana ($0), Maine ($0), Maryland ($0), Massachusetts ($0), Michigan ($0), Minnesota ($0), Mississippi ($0), Missouri ($0), Nebraska ($0), Nevada ($15 for each location), New Jersey ($0), New Mexico ($0), New York ($0), North Carolina ($0), North Dakota ($0), Ohio ($25), Oklahoma ($20 + $10 per extra location), Pennsylvania ($0), Rhode Island ($10), South Carolina ($50), South Dakota ($0), Tennessee ($0), Texas ($0), Utah ($0), Vermont ($0), Virginia ($0), Washington ($19), West Virginia ($30), Wisconsin ($20), Wyoming ($60)
Step Three: Apply For the License
The good news is most states allow for convenient online applications. You can usually find the application form and instructions on the state’s tax department website. This is the fastest and most efficient way to apply.
However, be aware that a few states may still require you to submit a paper application by mail. In these cases, you should be able to find the downloadable application form on the state’s tax website as well.
Step Four: Wait For your License to Arrive
Processing times can vary depending on the state, but most applications are reviewed within 2 to 6 weeks from the date of submission. Some states may offer expedited processing for an additional fee, which can significantly shorten the wait time to a few business days.
Once you get your license you must store it in a safe place with your other important business documents. You might need to provide a copy for various purposes, such as opening a business bank account. Now that you have your license on hand you can start collecting sales tax and filing your tax returns.
Can Your Sales Tax License be Denied?
Yes, your sales tax license can be denied in some cases. Here’s why:
- Incomplete or inaccurate information: Make sure your application is filled out completely and accurately. Missing information or inconsistencies can raise red flags and lead to delays or denial.
- Business history issues: In some cases, a history of not complying with tax regulations in the past could lead to denial.
What to do if denied: If your application is denied, you’ll typically receive a notification explaining the reason. You should be able to appeal the decision by following the instructions provided by your state’s tax agency. This might involve submitting additional documentation or attending a hearing.
Final Thoughts
Obtaining a sales tax license is a crucial step for any business owner who plans on selling taxable goods or services. By following the steps outlined in this article, you can ensure a smooth and efficient application process.
Remember to stay up-to-date on any changes in your state or local regulations to maintain compliance. With a valid sales tax license, you can operate your business with confidence and fulfil your tax obligations.