If you've started a business and will be selling products or services in a state that charges sales tax, one of your first tasks should be to get your sales tax ID number. This allows you to collect and submit sales taxes to your state's tax authority. Without a tax ID number, your business can't collect taxes, and it risks fines and other legal actions. Show
How to Get Your NumberContact your state's tax authority or department of revenue. States usually allow you to apply for your sales tax number online. You'll want to take this step as soon as possible, because your state may not allow you to conduct sales until your number has been issued, usually in the form of a paper certificate. Depending on your state's rules, you may be required to provide:
Tax ID Numbers vs. Resale CertificatesSome people confuse state tax ID numbers with resale certificates, although they are two different things. A tax ID number permits a business to collect and submit sales taxes. A resale certificate, on the other hand, prevents double-taxation on an item that will be resold to someone else. Here's how a resale certificate works: Let's say you own a vintage jewelry business, and you visit an antique mall and find several pieces that you think you can resell at a profit in your boutique. While the seller of these pieces would normally be required to charge you sales tax on the retail value of these pieces, but because you are not the end user of the items and you plan to resell them, you provide the vendor with a resale certificate. The vendor then charges you for the jewelry itself, but not the sales tax. Check your state's tax authority to see if it provides blank resale certificates or guidance for creating your own. Further Sales Tax ResponsibilitiesOnce you have your sales tax ID number, you'll be expected to:
TipSome areas require the collection of additional county or local sales taxes. Make sure that you understand the requirements in your location before opening for business. Does your business need to collect sales tax and remit it to the state or local tax authority? And if it does, how do you go about getting a sales tax license? Moreover, what if your business is selling your products across state lines? Do you need to charge and remit sales tax in those states, too? These are all valid and important questions! We’re going to delve into them in this article to give you some helpful food for thought as you research what requirements apply to your business. Please keep in mind that all I share here is for discussion purposes. For professional tax guidance, talk with a certified tax advisor or accountant. How Does Sales Tax Work?Sales tax is a tax paid to the state (and sometimes local) government authority for the sales of certain tangible goods and certain services. In most states, the law allows businesses that sell the products or services to collect sales tax funds from their customers at the point of purchase. Then, those businesses must report and pay those collected funds to the state. Sales tax is a pass-through tax, meaning that businesses do not mark up the tax amount and profit from it. The tax that they collect is what they must report and pay.
Typical exemptions from sales tax in many states include:
What is a Sales Tax License?A business selling products and services that are subject to sales tax will need a sales tax license. Some states refer to it by other names such as seller’s permit or sales tax permit. A business must apply for a sales tax license to be authorized to collect sales tax from customers and remit those dollars to the state (or local tax authority) to which it’s due. States issue sales tax licenses so that they can monitor the collection, reporting, and payment of sales tax. Businesses are assigned a sales tax number or permit number when they receive their sales tax license. In some states, temporary sellers (such as those that operate around holidays or at events, like Independence Day fireworks retailers or rummage sale operators) must obtain a temporary seller’s permit. What is the Difference Between a Sales Tax License and a Resale Certificate?A Sales tax license identifies businesses that sell taxable goods and services on a retail basis. A resale certificate may go by different names in different states. Several alternate names include “resale permit,” “wholesale certificate,” “reseller’s permit,” “nontaxable transaction certificates,” “sales tax exemption certificate,” and “sales and use tax resale certificate.” Again, the name doesn’t really matter. A reseller license (resale certificate) gives a business permission to sell taxable products on a wholesale basis to retailers without collecting sales tax. The understanding is that the retailer will be collecting sales tax from its customers and remitting it to the state. Note that some states use “sales tax certificate” as “resale certificate” interchangeably. This can get a little confusing. For this article, the term “resale” and “reseller” will refer to selling on a wholesale basis. Often businesses with a reseller permit will also have a sales tax license. However, that’s not necessary all the time. Manufacturers that only sell components for other products typically do not collect sales tax and may not need a sales tax license from the state. Do You Need a Sales Tax License in Every State Where You Sell Products?When a business has “nexus” in a state, it must obtain a seller’s permit (if the state or local government levies a sales tax). Having a physical presence—such as an office, store, or warehouse—in the jurisdiction establishes nexus. However, economic activity without a physical presence might also constitute a nexus. With the Supreme Court ruling on the South Dakota v. Wayfair case, states may mandate out-of-state businesses to collect and remit sales taxes when they have more than 200 sales transactions or $100,000 of sales within the state annually. (Note that some states have enacted their own threshold levels.) Nearly every state has enacted nexus laws that affect remote sellers, including online marketplaces. The Tax Institute provides an up-to-date Remote Seller Nexus Chart. They’ve also created an Economic Nexus State Guide that explains the thresholds that determine economic nexus in each state. Note that remote seller nexus comes in various flavors. A state may address one or more in its laws to require businesses that meet the criteria to register to collect and remit sales tax:
Be aware that businesses that sell taxable products in states where it doesn’t have nexus must inform their customers. States have been becoming more sensitive to out-of-state businesses getting an unfair competitive advantage. Think about it; for example, let’s say customer Lena Smith can buy an item sales-tax-free by ordering it from a seller in another state. But if she buys that same item from the store down the street, she has to pay six percent sales tax. Suppose that item costs $500 before tax. Lena might find it pretty appealing to order from the out-of-state seller so that she can save $30. To level the playing field, many states and local agencies levy a use tax (usually equal to the sales tax in their jurisdiction). If an individual or business entity buys a taxable product from outside of its taxing jurisdiction– and the seller did not collect sales tax–the buyer must report and pay a use tax for the storage, use, or consumption of that item. Before You Apply for a Seller’s PermitBefore I discuss how to get a seller’s permit, here’s a checklist of some things you may need to have in order first.
How to Get a Sales Tax LicenseStates usually have their seller’s permit applications available online. Visit your state or local tax authority’s website to find details about how to get a sales tax certificate and for rules about the collection and remittance of sales tax. You may also request seller’s permits through tax authorities’ offices. The amount of time it takes for states to issue sales tax licenses varies. The filing costs vary, as well. In some states, like Florida, seller’s permits are free when ordered online. Others charge a fee, which can range from $10 (like in Rhode Island) to $100 (like in Connecticut). Some states require that businesses renew their sales tax certificates every one to five years. After receiving a sellers permit, businesses with a physical location in the state must display it in a conspicuous place where it can be easily seen. Remote sellers and online businesses must follow the state or local tax authorities’ rules that apply to them. Collecting and Paying Sales TaxSellers typically collect the sales tax at the time that a customer buys the product or service. The percentage of each sale that a business must collect and remit varies by state and local tax authority. The business then uses the appropriate form to report sales tax collected and sends it to the state (or local tax agency) along with a payment that matches the sales tax dollars reported. Businesses may need to file sales tax forms monthly, quarterly, or annually—depending on the state or local tax authorities’ rules and the amount of sales tax the business collects. How CorpNet Can HelpIf you fail to obtain a sales tax license or collect and remit the sales tax you’re responsible for, you could face fines and penalties. CorpNet can make sure you stay compliant and in good standing with the state and local tax agencies! We can research the sales tax licenses and resale certificates that you need for your business. Also, we can help you register for sales and use tax to ensure you get your seller’s permits as quickly as possible. How do I get a sales tax license in Alabama?Businesses must use My Alabama Taxes (MAT) to apply online for a tax account number for the following tax types. Once you register online, it takes 3-5 days to receive an account number. You can read full instructions on how to register select tax types through My Alabama Taxes Help.
How much is a Michigan sales tax license?4. How much does it cost to apply for a sales tax permit in Michigan? There's no charge to register for a Michigan sales tax permit, but other business registration fees may apply. 5.
How do I get a sales tax number in Mississippi?To get a sales tax permit, you'll need to register online through the MS Department of Revenue website. Registration is free, and you'll need to provide the following information: Business name. Mailing address.
How do I get a sales tax ID number in Missouri?Go to the Missouri Department of Revenue for more information or call at (573) 751-2836 to get a sales tax number or sales tax exemption.
|