Convenience store business licenses are not a one-stop-shop
Anyone who has worked retail, particularly in a convenience store, knows it’s tough: working late nights and weekends, standing on your feet all day, and fielding cranky customers.
Opening and owning a new convenience store is tough, too — with a pallet-full of additional challenges, such as business licenses, permits, and tax obligations.
Licensed to sell
Convenience stores present one of the most diverse licensing requirements in the retail sector because of the myriad items they sell, often in a variety of forms — frozen burritos typically require a different license than do fresh burritos.
Of course, license requirements often differ from state to state, city to city, and town to town. Even definitions vary. What one municipality calls a license, another may call a permit. We’ll also use the terms interchangeably here.
The difference is in the details
Convenience stores typically call for the same basic type of licenses other retailers need in order to operate legally: retailer seller permit, business operation license, and certificate of occupancy. Where licenses get specific is in the particular products and services they sell.
Products and services that may require dedicated licenses or taxes for a convenience store:
- Frozen food
- Ready-to-eat food
- Fresh fruits and vegetables
- Packaged food
- Over-the-counter medication
- Alcoholic beverages
- Lottery tickets
- Tobacco and vape products
- Live bait
- Automotive repair, servicing, or detailing
- Money distribution centers (ATMs)
- Electric vehicle charging stations
Multiple locations can also add permit complexities. As we mentioned above, license requirements and definitions can vary within municipalities. If you want to expand to another state or even city, you’ll need to check with those local directives.
Also, if you’re acquiring an established store, you will most likely have to transfer licenses for many products.
As with most industries, the recent pandemic has piled on more road bumps for convenience store owners. Though a drop in sales hit most stores, many soon felt a welcomed surge of customers who opted for a quick trip to a convenience store rather than traipsing through the grocery. Store owners were pushed to get creative and expand their spectrums to compete with fast-food restaurants, accommodate customers' needs, and invigorate impulse buying. Many began offering up delivery or curbside pickup, adding new products, and bulking up their stock of staples, such as milk, bread, and toilet paper. And of course, some of these new products and services required additional licenses and tax obligations.
Many of those new products and services may have warranted tax obligations, too.
Very taxing taxes
Whether you’re a new convenience store owner or established and just bringing in new products, knowing what to tax and how to do it can be a daunting puzzle.
California takes the puzzling prize. For instance, if you’ll pay tax on a hot taco. But buy it cold? No tax. California doesn’t tax cold prepared food. What if you pick up your to-go pizza after it gets cold? And then we have New York state that declares a taco a sandwich, but Massachusetts says not so.
Many states decree sales tax based on the status of the food as it is sold: hot, cold, prepared, frozen, packaged. Some even make tax conditional to whether or not utensils are handed out with the purchase.
“There are so many strange tax laws,” says Lisa Dodson, who manages the price book for Yesway. “For example, in Iowa, a candy bar that contains flour is non-taxable, but one without flour is taxable. We can’t have those kinds of complexities slowing our growth or creating unnecessary compliance risks such as penalties, fines, or customer dissatisfaction.”
Each new acquisition in a different state aggressively complicates sales tax compliance. Just one new store can produce 1,000 to 10,000 new SKUs on top of the local motley rules and regulations.
And the only hurdle isn’t simply learning on which products you must collect sales tax. Oh no. Total tax compliance involves use tax as well, which bears two prongs: consumer use tax and seller use tax.
What’s the difference?
- Sales tax is levied by states and local municipalities on consumer transactions, the collection of which is determined by sales tax nexus.
- Consumer use tax is a means for states to secure lost revenue when an eligible sale isn’t taxed. This can happen in several situations, such as when a seller doesn’t have sales tax nexus in the state and doesn’t collect sales tax on products sold there. The buyer is then accountable for remitting the consumer use appropriate tax to authorities. Consumer use tax liability can also be triggered when a seller consumes inventory purchased tax-free for resale.
- Seller use tax comes into play when an ecommerce seller has economic nexus in the state — the seller must pay seller use tax.
Wrapping it up
The rules, regulations, and complications that haunt convenience store openings and product line expansions can feel overwhelming. But don’t let that paralyze you from pursuing success. Resources exist to help you navigate business licenses, acquire new locations, and get a handle on sales tax and consumer use tax.
If you’d like to dig deeper into business license information, click over to our blog: Business licenses: How many do you need, and how do you get them? To get your bearings on the latest sales tax changes, read: June 2021 Roundup: Sales tax laws you need to know.
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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