Registering for Sales Tax

This blog was written with the help of EIN Express. Learn more about their services: https://www.einexpress.com/ 

If you have yet determined if you have a sales tax obligation, it’s time to take a step back and revisit how to do that in two or our recent blogs:

• Top Sales Tax Questions for Internationals Business Selling into the US
• 6 US Sales and Use Tax Considerations for International Business

Once you’ve established nexus and determined that your products/service are taxable within one or more US states, it’s time to get registered. If you are a business with a physical location and employees inside the US, this can be a relatively simple process, but for those with no physical location or employees, it can be a bit tricky.  

The requirements vary greatly between states, and sometimes the application forms themselves are lengthy and complex. The information most commonly asked for in a sales and use tax permit application includes the the companies Federal EIN (Employer Identification Number), date the business first had taxable sales in the state as well as personal information including social security numbers of officers and potentially home addresses and copies of driver’s licenses as well. 

Some of this information can be especially challenging for a foreign-based business. 

The primary purpose of this nine-digit number, (EIN) is to assist with tax-related matters, allowing the IRS to keep track of and oversee businesses that have obligations within the United States. Although EINs are commonly associated with U.S.-based businesses, foreign entities may also find it necessary to obtain one in order to comply with specific legal requirements and streamline their operations in the global business arena. Whether a business outside the United States needs a Foreign EIN depends on various factors, such as its activities, connections to the U.S., and specific regulations of the countries involved.

If a US business owner has a Social Security Number (SSN), they can go to the IRS website and complete the online process to obtain the EIN for their US business entity. If a US or non US business owner does not have an SSN they can apply for their EIN via phone, fax or by mail. It is strongly recommended for US and Non US Business owners with no SSN to utilize an IRS Certifying Acceptance Agent (CAA) to handle the EIN application process and obtainment for them.

Some examples where obtaining an EIN for a foreign entity may be necessary:  

1. Nexus with the United States: If your foreign business engages in operations within the United States, such as having employees, opening bank accounts, or establishing a legal presence, you will likely need a Foreign EIN. It enables you to comply with tax obligations, file US tax returns, and ensure proper reporting to the Internal Revenue Service 
2. Compliance With U.S. Tax Withholding Requirements: In some scenarios , the U.S. tax law mandates withholding taxes from payments made to foreign businesses. Having a Foreign EIN facilitates this process and ensures compliance with tax regulations. 
3. Partnership with U.S. Entities: If your foreign business enters into partnerships, joint ventures, or other business arrangements with U.S.-based companies, having a Foreign EIN may be necessary to meet the reporting and compliance obligations of such partnerships. 
4. Compliance with Financial Institutions: Some financial institutions, including U.S. banks, may require a Foreign EIN for foreign businesses to show proper legal status in the US in order to open US business bank accounts or conduct financial transactions. 

Once the FEIN is in place, then you can proceed with the sales tax registration.  If completing the sales tax application online, each state will request a Social Security Number for a corporate officer or US employee as a responsible party.  This can be a challenge for foreign-based business with no US representative and therefore no US Social Security Number.  In this scenario, it’s possible to complete a paper application and/or call each state to complete the sales tax application. 

After the application has been completed and accepted, each state will assign 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 ongoing sales tax obligations. If you are looking for help in registering for US sales tax, have additional questions, or would like to just have someone else manage your US sales tax obligation, get in touch!  

To learn more about EIN and how to obtain one for your business, contact EIN express.