Can I collect sales tax without registering to do so?
Business owners are often told that before they start selling items, they should register for a business license and sales tax permit. This will put them in a position to pay sales tax on each item they sell, preventing costly fines and penalties.
In some cases, however, it might be tempting to open for business without having those permits in place. Since some states still require permit requests to be mailed in rather than completed online, it can be easy to procrastinate.
Selling qualifying products and services without collecting sales tax may have its own repercussions, but collecting sales tax without being registered can put your business in serious trouble. Here are a few things to know.
The dangers of selling without a permit
If you’re a casual seller, offering items through a website or at events, you may find that you can get away with selling a small amount without a permit.
In fact, in Tennessee, only businesses making at least $4,800 in product revenue are required to get a permit. In California, anyone who makes at least three sales in a 12-month period is required to apply, regardless of the amount.
Without a permit, you may be fined, although many states aren’t aggressive about policing this, especially among sellers without a store.
Collecting sales tax on purchases without remitting the amount collected to the state falls in a different category, however. By charging customers sales tax and pocketing the money, your business is committing fraud. Texas investigates this through its Criminal Investigation Division, with guilty parties subject to criminal penalties ranging from a misdemeanor to a second-degree felony. Mississippi considers this tax fraud. If state investigators determine that you weren’t willingly attempting to defraud customers, they’ll likely deem it negligence instead of fraud, reducing the penalties you’ll face.
How to become legal
Sellers often delay getting a tax permit because they assume it’s a convoluted process. However, many states provide step-by-step instructions on obtaining a permit, which can have it in your hands within a matter of days. Even if you don’t own a storefront, you may need to display your permit at any craft fairs, festivals, or other events where you sell items.
Before selling your first item, go to your state government website and take all measures necessary to get a permit. You’ll be covered if questions come up and in many cases it costs you absolutely nothing. Also check the laws in any states where you plan to sell to customers to see if your business qualifies as having nexus. Remember that if you sell on Amazon, any distribution warehouses your products pass through could earn you a qualification as having a physical presence in the state.
Whether you’re required to file for a sales tax permit in a particular state largely depends on local laws. In many cases, if you earn more than a certain amount or make more than a minimum number of sales each year, you’ll likely be required to file. If you’re collecting sales tax from customers, though, you’re required to remit that sales tax to the state or face fraud charges, which can come with criminal penalties.
The 2021 sales tax changes report: midyear update
Your guide to navigating the complicated world of tax compliance and preparing for the future
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