Sales tax is more complicated than ever, especially in a post-Wayfair world. And what’s worse is that everyone who says they’re simplifying sales tax is still leaving the hardest parts – and the liability – up to you. This is especially true when it comes to state registrations. For some reason, many of the software and service providers who claim to manage sales tax for you, don’t help with registrations, and if they do it comes at extra cost.
You’ve done the work to understand your nexus footprint, you know where your products/services are taxable and now it’s time to register – where do you start?
Sales tax registrations are completed at the Department of Revenue within each state. As part of the registration, you are provided a sales tax id number and are granted the authority to collect and remit sales tax in that particular state. Similar to nexus and taxability, each state has its own set of rules for which companies must file based on certain filing frequencies and methodologies.
Sales tax registrations can be challenging if you ‘ve not completed them before. Be sure you are registering for the correct tax type. Should you register for sales tax, seller’s use tax or consumer’s use tax? As a seller you will likely register for either sales tax or seller’s use tax. In most states, the distinction is moot; however, some states apply different rates to these various tax types so it’s important to get this right. Similarly, some states will have different tax returns that you must file for these different tax types. Generally speaking, a seller’s use tax rate applies when you are selling from a location outside a state into a specific state.
All sales tax registrations will have a question as to when you started conducting business in their state. This is the date that the jurisdiction starts the clock so to speak. If you register with a start of April 15th, then a jurisdiction will likely require an April return if they have given you a monthly filing frequency. If you have registered with a particular start date, but there was a change of plans and you did not start collecting until a later time, it is important to file a zero due return or else you could be subject to a late filing penalty.
It’s important to note that you should not immediately register in a state without understanding if you have any potential prior period tax exposure. Registering in a state often takes away some of a taxpayer’s ability to mitigate prior period risk through a VDA for example. But if you’ve already gone through the process of understanding your exposure and mitigating risk where possible, registration is your next step.
More and more frequently, states are also requiring businesses to register with the Secretary of State (SOS) as part of the sales tax registration process. Registering with the SOS has a completely separate set of compliance obligations including preparing an annual report and maintaining a registered agent in the state for service of process.
As part of the SOS application process, a business must provide the address of their “registered agent” in the state. What is this?
A registered agent is someone (a person or company) that receives legal correspondence within the state and forwards this correspondence to the business.
Once you have submitted the requested data for your sales tax registration, and assuming the state doesn’t have any additional questions or ask for additional information, each state will assign to you a filing frequency This will usually be monthly, quarterly, or annual – although some states have semi-annual, bi-annual, and other filing frequencies.
Registering for your sales tax permits is just the tip of the iceberg when it comes to managing your on-going sales tax obligations. There are various options available to manage this process including in-house, outsourcing, software, or some combination of the three.
TaxConnex takes a service-oriented approach to manage sales tax and helps companies understand the requirements and ensures that sales tax returns are filed and paid properly, including assisting with state registrations. Get in touch with us at 877-893-5304 to start your journey toward compliance.
Looking to understand more aspects of sales tax? This piece was partially taken from our recent eBook – Guide to Getting Sales Tax Right in 2022 – Download it now!