How to register for states’ sales tax

Do you need a state sales tax permit? How about a sales tax license? How about a sales tax certificate of authority? Did you know they’re all the same thing? How do you spell “FEIN” anyway, and when do you need one to sell into a state?

Collecting and remitting sales tax after you hit economic or physical nexus in a state comes with a lot of questions – and you usually answer no small number of state sales tax registration questions.

To start

Most states – this can vary – ask for:

• Your reason for applying and how long you’ve done business in the state;
• Contact information for your business, including the legal name, the federal employer ID number (EIN), the business address, phone number and email address, in addition to other details;
• Your type of business and possibly its North American Industry Classification System (NAICS) number;
• Your bank information;
• The owners’ information (most states also have personal responsibility laws concerning sales tax obligations).

Sales tax registration is usually free or remarkably cheap (Arizona seems to like the amount $12) though Connecticut charges $100. Some states do want security deposits (“bonds” in North Dakota). Some states charge nothing to register electronically but do charge for paper registrations (many states also require electronic filing and sales tax remittance, too).

Among other states, Nevada’s security formula is complicated, with a $1,000 tax-due threshold and the amount calculated by frequency of filing. Some states, like Colorado, will refund your deposit after you’ve been collecting and remitting for a while. Home-rule states’ local jurisdictions may tack on added fees.

International remote sellers may also need to apply for a U.S. Foreign Employer Identification Number (FEIN), which allows the IRS to keep track of and oversee businesses that have obligations within the United States. Whether a business outside the U.S. needs a FEIN depends on a company’s activities, its connections to the U.S. and specific regulations of the countries involved.

Questions, class?

You complete your sales tax registrations and file them with the departments of revenue or taxation in each state (also possibly the secretary of state), after which you’ll be issued a sales tax ID number and the authority to collect and remit sales tax in that state.

As with nexus and taxability, each state has its own rules for which companies must file. And note that many software and service providers who claim to manage sales tax for you don’t help with registrations, except for an extra cost.

States can help with registration FAQs (Oklahoma has a video). In states like Nebraska, Ohio and Washington, among others, you can register using the Streamlined Sales Tax Registration System (SSTRS). After registering, allow about 15 days for states to mail you the state’s registration number and reporting information.

You also need to know which types of taxes you’ll be liable for. Each state has its slate of taxes, including seller’s use tax, sales tax, vendor’s use tax, gross receipts tax, business and occupations tax, and communications tax. (Not all states require out-of-state sellers to collect particular local taxes, so check.) As a seller, you will likely register for either sales tax or seller’s use tax.

Several states may want to know what your estimated taxable sales or liability may be. The states will use this information to determine how frequently you will need to file.

Additional concerns

• Some states apply different rates to tax types and some states have different tax returns for different types of tax.
• If you register with a particular start date but your plans change and you don’t start collecting until a later time, you should still file a zero due return to avoid a possible late-filing penalty.
• Before registering in a state, understand if you have any potential prior period tax exposure – such exposure could hamper your ability to mitigate prior-period risk using, for instance, a voluntary disclosure agreement.
• Once you have submitted the requested data for your state sales tax registration and assuming the state doesn’t have any additional questions or ask for additional information, each one will assign to you a filing frequency. This will usually be monthly, quarterly or annual; some states have semi-annual, bi-annual and other filing frequencies.
• Some states, like Pennsylvania, require periodic renewal of sales tax permits. Many (but certainly not all) states’ permits never expire but can of course be revoked.

Registering for your sales tax permits just begins the management of your ongoing sales tax obligations. Get in touch to learn how we can alleviate the burden and risk of sales tax compliance for you and your business.