Do I Need to Register for Sales Tax Permits in Every State Across US to Sell Online? Explained
Selling online across US state lines opens doors to a vast customer base, but it also introduces the complexities of sales tax compliance. Obtaining a US sales tax permit in each state where you have sales tax nexus is crucial to avoid penalties and audits down the road. This blog post will guide you through the process of registering for sales tax permits in various US states.
What is a US Sales Tax Permit and How Does it Work
A sales tax permit also known as a seller’s license, is a document issued by a state’s tax authority that allows you to collect and remit sales tax on taxable goods you sell to customers in that state. For online businesses, the sales tax nexus determines whether you need to apply and get a permit.
What Does Sales Tax Nexus Mean in the US
Nexus refers to a connection between your business and a state that obligates you to collect and remit sales tax. Simply put, nexus is a legal term that means you have a significant connection or presence in a state that subjects you to its sales tax laws.
There are two main ways to establish nexus and determine if you need a sales tax permit in a state:
What Triggers US Sales Tax Nexus for Online Businesses
The first step to registering for a sales tax permit is to determine if you need one in a state. This depends on whether you have nexus in that state, and if so, what kind of nexus you have. Thus, to determine if you have nexus in a state, you need to keep track of your sales and transactions by state, and compare them with the nexus rules and thresholds of each state.
You can use a sales tax software or a sales tax calculator to help you with this task. You can also check the official websites of each state’s department of revenue or taxation for more information on their nexus requirements and definitions.
- Physical Presence: Having an office, warehouse, or any inventory storage facility in a state creates a physical nexus.
- Economic Nexus: Even without a physical presence, exceeding a certain sales threshold within a state can establish economic nexus. These thresholds vary by state, so it’s important to check the specific regulations for each state you sell to. The Federation of Tax Administrators (https://taxadmin.org/) website provides a helpful overview of sales tax laws for all US states.
Types of Sales Tax in United States
There are two main types of sales tax in the United States:
- State Sales Tax: This is the most common type, levied by individual states at varying rates.
- Local Sales Tax: Many states allow localities (cities, counties) to add additional sales tax on top of the state rate.
These taxes are typically applied to the sale of goods and sometimes specific services. Some states also have special sales taxes on specific items, like gasoline or restaurant meals.
How to Apply & Calculate Sales Tax Rates in the US
There are two main components to consider when applying and calculating sales tax rates in the US:
- Tax Rate Determination: This refers to how the overall sales tax rate is reached.
- Tax Base: This defines what items or services are subject to sales tax.
Tax Rate Determination:
- Combined Rates: This is the most common scenario. The total sales tax rate is a combination of:
- State Sales Tax Rate: This is set by each individual state and varies widely, ranging from 0% to over 10%.
- Local Sales Tax Rates: Many localities (cities, counties) add their own sales tax on top of the state rate. This can create a complex web of rates depending on the specific location.
- Single Rate: In a few states, there’s only a single sales tax rate applied throughout the entire state. This simplifies things for both businesses and consumers.
Tax Base:
- Taxable Goods and Services: Generally, most tangible personal property (clothing, electronics, furniture) is subject to sales tax. However, there can be exemptions for certain items like groceries, medication, or clothing (depending on state).
- Non-Taxable Goods and Services: Services like education, healthcare, and financial services are often exempt from sales tax. There can be variations between states on these exemptions.
Calculating Sales Tax
Once you know the combined sales tax rate (state + local) and whether the good/service is taxable, the actual calculation is straightforward:
- Convert Sales Tax Rate to Decimal: Divide the sales tax percentage by 100 (e.g., 7% sales tax becomes 0.07).
- Multiply Sales Tax by Price: Take the sales tax decimal and multiply it by the original price of the good or service.
- Add Sales Tax to Price: Add the calculated sales tax amount to the original price to get the final price including tax.
Two Ways to Determine Where the Sales Tax for a Transaction is Levied in the US
There are two main ways to determine where the sales tax for a transaction is levied in the United States:
1. Destination-Based Sales Tax
This is the most common method, used in most states and Washington D.C. Here, the sales tax rate is based on the customer’s location (destination).
- Impact on Seller: This method is more complex for the seller as they need to determine the combined sales tax rate applicable to the buyer’s address. This can involve multiple rates depending on local jurisdictions on top of the state tax.
- Impact on Customer: The customer may pay a higher or lower sales tax depending on their location compared to the seller’s location. For example, if they live in a city with an additional local tax on top of the state rate, they’ll pay more than someone buying from the same seller in a different city with no local tax.
2. Origin-Based Sales Tax:
Only a handful of states utilize this method. Here, the sales tax is based on the seller’s location (origin).
- Impact on Seller: This method simplifies things for the seller as they only need to charge one rate to all customers within the state.
- Impact on Customer: This method can be less fair to the customer. If they live in an area with a higher local tax rate than the seller’s location, they might end up paying a lower tax rate than they would locally.
Which States have Origin-Based Sales Tax System in the United States
Here are the states in the US that currently have origin-based sales tax:
- Arizona
- California (mixed – state and local taxes are origin-based, but district sales taxes are destination-based)
- Illinois
- Mississippi
- Missouri
- New Mexico
- Ohio
- Pennsylvania
- Tennessee
- Texas
- Utah
- Virginia
Which States Have Destination Based Sales Tax System across the United States
This applies to the majority of US states and Washington, D.C. Here’s a list of states that operate the destination based sale tax system;
- Alabama
- Arkansas
- Colorado
- Connecticut
- Delaware
- District of Columbia
- Florida
- Georgia
- Hawaii
- Idaho
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Nebraska
- Nevada
- New Jersey
- New Mexico (as of July 1, 2021)
- New York
- North Carolina
- North Dakota
- Oklahoma
- Rhode Island
- South Carolina
- South Dakota
- Vermont
- Washington
- West Virginia
- Wisconsin
- Wyoming
Steps to Register for US Sales Tax Permit
There are two main methods for obtaining a sales tax permit: online application and paper application. The online application is generally the preferred method due to faster processing times. Here’s a breakdown of the online application process:
How to Register for US Sales Tax Permit Online in Every State Across US
Here’s a guideline on the the process for applying and obtaining a sales tax license (also known as a seller’s permit or sales tax permit) in the US
- Determine Nexus: Before applying, you need to understand if you have “nexus” in a particular state. Nexus refers to having a connection strong enough to require you to collect and remit sales tax. This can be established by; having a physical presence in the state (store, office, warehouse). storing inventory in the state, having employees working remotely in the state, and reaching a state’s economic nexus threshold (varies by state) from online sales
- Find Your State’s Tax Authority: Each state has its own Department of Revenue or Taxation website that governs sales tax regulations and applications. You can find the relevant website with a simple web search.
- Gather Necessary Information: You’ll need basic information about your business, such as your business entity type (sole proprietorship, LLC, etc.), your Federal Employer Identification Number (EIN), social security number (for sole proprietorships), information on products or services sold, and your business address & contact details. If you don’t have an EIN yet, you can easily obtain one for free through the IRS website (https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online).
- Create an Online Account: Visit the website of your state’s tax authority and create an online account. This will allow you to access various tax services, including sales tax permit applications.
- Complete the Online Application Form to Apply for the Permit: The online application form will typically request information about your business, your sales tax nexus in the state, and the types of products or services you sell.
- Submit the Application Electronically and Wait for Approval: Once you’ve completed the application form, review it carefully and submit it electronically. You should receive confirmation of your application submission and processing timeline.
While the online application is preferred, some states may also offer a paper application process. This is usually a slower option and might require additional paperwork. The relevant website for downloading a paper application can usually be found on the same webpage as the online application instructions.
Streamlined Sales Tax Registration System (SSUTA)
If you sell in multiple states, you might be able to utilize the Streamlined Sales Tax Registration System (SSUTA) for a more streamlined registration process. Check with your state’s Department of Revenue for details.
State by State Sales Tax Permit Requirements
The general process for registering for a sales tax permit involves gathering information, applying online or by mail, and waiting for processing. However, specific requirements and deadlines can vary by state. Here, we’ll highlight resources for some of the most popular states where e-commerce businesses frequently operate:
California: The California Franchise Tax Board (https://www.ftb.ca.gov/) website offers comprehensive information on sales tax permits, including online applications and detailed instructions. Be aware that California has a specific economic nexus threshold of exceeding $100,000 in sales from California customers within a 12-month period.
Texas: The Texas Comptroller of Public Accounts (https://comptroller.texas.gov/) website provides information on sales tax permits for online sellers. Texas also has an economic nexus threshold, but the specific amount can change, so it’s best to refer to the Comptroller’s website for the latest information.
Florida: The Florida Department of Revenue (https://floridarevenue.com/) website is your one-stop shop for sales tax information in Florida, including permit applications and nexus rules. Florida currently has an economic nexus threshold of exceeding $100,000 in sales or 200 transactions from Florida customers within a 12-month period.
New York: The New York Department of Taxation and Finance (https://www.tax.ny.gov/) website offers resources on sales tax permits and economic nexus for online sellers. New York has a relatively low economic nexus threshold of exceeding $100,000 in gross sales from New York customers within a 12-month period.
These are just a few examples, and the specific requirements for your state may differ.
State by State Sales Tax Permit Registration and Application Details in US
The table below shows a summary of the steps and the fees for registering for a sales tax permit in each state. You can also find a list of links to the official sources and forms for each state at the end of this article.
| State | Online Registration | Paper Forms | Cost/Fee | Filing Method |
|---|---|---|---|---|
| Alabama | My Alabama Taxes | Online Only | $0 | Form or Online |
| Arizona | AZ Taxes | JT-1 | $12 per location. Individual cities have additional fees ranging from $1 to $50 | |
| Arkansas | Arkansas Taxpayer Access Point | AR-1R | $50 | |
| California | Tax and Fee Administration | Online Only | $0 | |
| Colorado | MyBizColorado | CR 0100AP | $4 – $16 plus a $50 deposit | |
| Connecticut | Department of Revenue Services | Online Only | $100 | |
| Florida | Department of Revenue | DR-1 | $5 by mail, or free if completed online | |
| Georgia | Georgia Tax Center | Online Only | $0 | |
| Hawaii | Hawaii Tax Online | BB-1 | $20 | |
| Idaho | Idaho Business Registration | IBR-1 | $0 | |
| Illinois | MyTax Illinois | REG-1 | $0 | |
| Indiana | InBiz | Online Only | $25 | |
| Iowa | Department of Revenue | 78-005 | $0 | |
| Kansas | Department of Revenue | CR-16 | $0 | |
| Kentucky | Kentucky One Stop Business Portal | 10A100 | $0 | |
| Louisiana | GeauxBiz | Online Only | $0 | |
| Maine | Maine Revenue Services | Paper Form | $0 | |
| Maryland | Interactive Web Services | CRA | $0 | |
| Massachusetts | MassTaxConnect | Online Only | $0 | |
| Michigan | Michigan.gov | 518 | $0 | |
| Minnesota | Department of Revenue | ABR | $0 | |
| Mississippi | Department of Revenue | Online Only | $0 | |
| Missouri | MyTax Missouri | 2643 | $0, but a bond may be required | |
| Nebraska | Nebraska One-Stop Business | 20 | $0 | |
| Nevada | NevadaTax | APP-01 | $15 for each in-state location. Out-of-state sellers pay the minimum $15. | |
| New Jersey | Division of Revenue | NJ-REG | $0 | |
| New Mexico | Taxpayer Access Point | ACD-31015 | $0 | |
| New York | Department of Taxation and Finance | DTF-17 | $0 | |
| North Carolina | Department of Revenue | NC-BR | $0 | |
| North Dakota | Office of State Tax Commissioner | SFN 21950 | $0 | |
| Ohio | Ohio Business Gateway | STEC-B | $0 | |
| Oklahoma | Oklahoma Tax Commission | Packet A | $20 | |
| Pennsylvania | PA Enterprise Registration | PA-100 | $0 | |
| Rhode Island | Division of Taxation | BAR | $10 | |
| South Carolina | MyDORWAY | SC-1110 | $0 | |
| South Dakota | Department of Revenue | Tax Application | $0 | |
| Tennessee | Tennessee Taxpayer Access Point | RV-F1300701 | $0 | |
| Texas | Webfile | AP-201 | $0 | |
| Utah | Taxpayer Access Point | TC-69 | $0 | |
| Vermont | myVTax | BR-400 | $0 | |
| Virginia | iReg | R-1 | $0 | |
| Washington | Department of Revenue | Business License Application | $19 | |
| West Virginia | Business for West Virginia | SST-100 | $30 | |
| Wisconsin | Department of Revenue | BTR-101 | $0 | |
| Wyoming | Department of Revenue | ETS Form 101 | $0 | |
| District of Columbia | MyTax.DC.gov | FR-500 | $0 |
Is a Sales Tax Permit the same as a Resale Certificate in US
A sales tax permit is not the same as a resale certificate, which is a document that allows you to buy products for resale without paying sales tax. A resale certificate is issued by the state where you buy the products, not where you sell them. To use a resale certificate, you need to have a valid sales tax permit in the state where you sell the products.
Is a Sales Tax Permit the same as Business License in US
A sales tax permit is also not the same as a business license, which is a document that allows you to operate your business in a state or locality. A business license is issued by the state or local government, not by the state tax authority. To obtain a business license, you may need to have a valid sales tax permit in the state or locality where you operate your business.
What is a Federal Employer Identification Number (EIN) and How to Obtain it
An EIN is a unique tax identification number assigned by the IRS. While not all states require an EIN for a sales tax permit, it’s generally recommended to obtain one anyway. An EIN simplifies tax filing and can be helpful for opening business bank accounts. You can get an EIN for free through the IRS website mentioned earlier (https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online).
How Long Does it Take to Obtain a Sales Tax Permit in the US
Processing times for sales tax permit applications vary by state. Some states might offer same-day processing for online applications, while others might take a few weeks. Be sure to factor in processing time when planning your sales tax compliance strategy.
How Much Does a Sales Tax License Cost in the US
The cost of a sales tax license in the US varies depending on the state. In fact, many states don’t charge a fee at all for obtaining a sales tax permit (another term for a sales tax license).
Here’s a breakdown:
- Free: The majority of states don’t charge a fee to register for a sales tax permit.
- Low Fee: Some states have a small registration fee, typically under $50.
There can be additional costs to consider in some cases:
- Local Fees: Some localities (cities, counties) might have their own fees on top of the state registration fee.
- Security Deposits: A few states require a security deposit when registering for a sales tax permit.
- Renewal Fees: Renewal fees might apply in some states to maintain your sales tax permit status.
What Does A US Seller’s Permit Look Like
There isn’t a universal format for a seller’s permit (also known as a sales tax permit) in the US. The appearance will vary depending on the state that issues it. It typically won’t be an elaborate document but rather a simple certificate with key information.
Here is some general information included on a United States seller’s permit:
- State Name and Issuing Agency: Identifies the state that issued the permit and the responsible government department (e.g., Department of Revenue).
- Permit Number: A unique identifier assigned to your business for sales tax purposes.
- Business Name and Address: The legal business name and registered address associated with the permit.
- Effective Date and Renewal Information: Shows the date the permit becomes valid and any details on renewal requirements.
- Sales Tax Rate (Optional): In some states, the permit might include the relevant sales tax rate you’re authorized to collect.
It’s not a physical card: Unlike a driver’s license, a seller’s permit is usually not a physical card you carry around. It’s more likely an official document you keep in your business records or a digital record accessible through the state’s tax authority website.
Focus on the Number: The most important element of the seller’s permit is the sales tax permit number. This number serves as proof that you are authorized to collect sales tax in that state. You’ll need to provide this number when collecting sales tax from customers.
Sales Tax Filing Frequency and Deadlines
The frequency with which you need to file sales tax returns and the deadlines for those filings also vary by state. Most states require online filing, so familiarize yourself with your state’s tax authority website for details on filing procedures and deadlines.
Why Sales Tax Compliance Matters
Obtaining a sales tax permit is just the first step. Remember to keep accurate records of your sales in each state where you have a nexus. You’ll need this data to file your sales tax returns on time. Depending on the volume of your sales, you might also consider using sales tax software or consulting with an accountant to ensure ongoing compliance. Sales tax compliance can involve ongoing costs, such as software subscriptions or accounting fees. Factor these potential costs into your business budget.
How Do You Get a Sales Tax License?
A sales tax license is another term for a sales tax permit. To get a sales tax license, you need to follow the steps and the requirements of the state where you need to register. You can find a summary of the steps and the fees for each state in the table above, and a list of links to the official sources and forms at the end of this article.
When to Register for a Sales Tax Permit?
You should register for a sales tax permit as soon as possible after you establish a nexus in a state. Nexus is the connection or presence that you have in a state that subjects you to its sales tax laws. You can have nexus in a state by having a physical presence or activity, such as a store, an employee, or an inventory, or by reaching a certain threshold of sales or transactions, depending on the state’s rules.
Do I Need to Renew my Sales Tax Permit?
Most states do not require you to renew your sales tax permit, as long as you remain in business and file and pay your sales tax returns on time. However, some states may require you to renew your sales tax permit annually or periodically, and pay a renewal fee. You should check the renewal requirements and the deadlines of the state where you are registered, and make sure to renew your sales tax permit before it expires.
Conclusion
Navigating sales tax compliance for online businesses can seem complex, but obtaining the necessary permits is crucial to avoid penalties and audits. Research your specific state’s requirements and deadlines for sales tax permits. Utilize the resources provided throughout this blog post. By staying informed and compliant, you can ensure your e-commerce venture thrives while adhering to the rules of the road in each state you operate in.
If you need more help or guidance on sales tax permits or any other sales tax issues, you can contact us at AtomicTax.