Small business FAQ > Sales tax registration 101

Sales tax registration 101

Small business FAQ > Sales tax registration 101

Sales tax registration 101

Before you can begin collecting and paying sales tax to the government, you first need to register your business. It’s actually illegal to collect sales tax without first registering in the state where you’re doing business. Luckily, registering for sales and use tax can often be done online with the relevant state revenue department. 

Read some of the most common sales tax registration questions and our answers to what you need to know to start collecting the right way. 

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this page is for informational purposes only and does not provide legal or tax advice.

Understanding sales tax registration

Most types of businesses and sellers are required to register to collect and remit sales tax with their state and local governments. Sole proprietorships are sometimes an exception to this rule.

There are numerous reasons why your business may need to register for sales tax. Among these are the different kinds of nexus, which include:

  • Physical presence nexus
  • Economic nexus
  • Affiliate nexus
  • Click-through nexus

There are also marketplace facilitator laws to consider for online sellers. Read our blog to learn more about nexus, sales tax registration, and what they could mean for your business. 

 

No. Your business license and sales tax registration are two separate, but equally important, documents you must have to legally run your business.

Your business license gives your business the right to operate in a specific jurisdiction. Your sales tax registration is what allows you to collect sales tax and remit it to a state.

You can’t just start collecting and remitting sales tax without registering. In fact, it’s illegal in most states to collect sales tax without a permit. Registering for your sales tax permit or seller’s permit essentially confirms that your business has the right to collect sales tax from customers on behalf of the state.

The truth is that you likely need to register for sales tax even if you’re not actually collecting any taxes. An example of this would be a manufacturer or wholesale company who has tax-exempt sales, but is still required to file returns.

In most cases, you only need to register for sales tax once in each state. This registration is specific to your business and the relevant state. Most changes to your business, like changing your business name, address, or telephone number, require you to amend your existing registration. Sometimes, these changes may require the state to send you a new, revised registration.

The government doesn’t usually proactively tell you if you need to register for sales tax. You’re expected to do this as part of opening your business.

The government should notify you if you owe back taxes. However, keep in mind that the government doesn’t always move fast. Just because you haven’t been contacted doesn't mean you don’t owe.

If you’re notified about back taxes by a state and also haven’t registered there then you could have to pay hefty penalties and interest.

If you receive a sales tax notice from a state, the first thing to remember is not to panic. The next step is registering in the state so you can begin collecting and remitting sales tax. If you learn that you owe back taxes, Avalara can work with you to help create a plan and get you back in compliance in states where you already owe.

If you haven’t triggered a sales tax obligation in a state, then it may not be worth your time to register. However, you should seriously consider registering if you owe sales tax in a state.

With that said, there are some things you may want to consider before registering in a new state. Registration could require your business to pay corporate taxes or remit any back taxes that may be due.

If you think you might owe back taxes, it may be best to put together a plan before you register. Registering for sales tax could require you to file returns even if you don’t have any sales, also called a $0 return. Read our blog to learn more about what you need to know before you register for sales tax.

Registering for sales tax

Sales tax registration is managed through the department of revenue of the state in which you’re selling. Sales tax registration can usually be done online but may require you to fax or mail your registration to the appropriate offices in some cases.

The process generally looks something like this:

  1. Get your business information together
  2. Visit the department of revenue website for the state
  3. Find the registration forms
  4. Fill out your sales and use tax registration and submit it to the state

You can also simplify the process by letting Avalara handle the preparation, filing, and payment for your sales tax registration.

You register for sales tax in states where you have nexus, an obligation to collect and remit sales tax. Generally, you’ll need to apply with the department of revenue for the appropriate state. This can often be done online at the department’s website.

Ideally, you should register to collect and remit sales tax before you open your business. Some states require that you apply for your sales tax certificate at least 20 days before opening.

Don’t forget to register in new states whenever you trigger new sales tax obligations. You may not need to register in additional states at first, but it could be required as your sales grow.

You need to register to collect and remit sales and use tax in each state where you have nexus.

In general, there is no fee to register for your sales tax permit or seller’s permit in many states. Please keep in mind that this may be different depending on the state and there may be additional business registration fees.

Doing sales tax registration right

You need to register in the states where you have established nexus. This is often through physical presence nexus (a physical connection to the state through an office, inventory, or employees) or economic nexus (an economic connection created through the dollar amount of sales into a state or a number of transactions). 

If you have questions about determining the states where you have nexus, Avalara has tools to help you track sales and identify where you’ve established nexus. Learn all about the various ways a business can trigger tax obligations through nexus here.

Some states offer sales tax exceptions for small businesses. These exceptions from sales tax are typically based on the dollar amount of sales, number of transactions, and whether or not you’ve triggered the nexus threshold for the state.

You should check with the state to see if they offer a small seller exception from sales tax. Read our blog on small seller exceptions and what they might mean for you.

Sales tax exemptions are sometimes available based on the items you sell, how they’re being sold, and how they’re being used.

Sales tax exemptions are often available for resellers, wholesalers, and other specific items. Check with your local government and the revenue department in your state to see if your business qualifies for a sales tax exemption. Also keep in mind that exempt sales may count toward your nexus in some states.

Whether or not you owe back taxes in a state will depend on if you’ve already triggered nexus there or not. If you sell remotely into a state, have triggered economic nexus, and have not registered to collect and remit sales tax in that state, there is a good chance you may owe taxes to the state.

Check your nexus in a state before you register to see if you potentially owe taxes. Learn all about the various ways a business can trigger tax obligations through nexus here.

If you determine you owe back taxes, our team can work with you to create a plan in states where you may already owe.

You may need to register in a new state based on sales if you surpass the economic nexus threshold in that state. For example, you need to register for sales tax in Virginia if you make $100,000 worth of sales into the state or 200 transactions.

Our state-by-state guide to economic nexus laws has the nexus thresholds you need to know for every state.

You may wonder if you still need to register to collect and remit sales tax if all your sales are done online. The truth is that registration requirements vary based on your business and how your online sales are made.

Understanding the requirements for your business can be confusing. Read our state-by-state guide to registration requirements for marketplace sellers to learn more.

Yes, you may also be required to register for sales tax in a state based on your physical presence in the state. A physical presence may create nexus because of warehoused inventory, kiosks, trade show attendance, and even remote employees.

Our state-by-state guide to physical presence nexus can help you know which physical connections might trigger a sales tax obligation for your business.

There is a good chance you’ll need to register in states where you have remote employees or seasonal workers, even if they’re only temporary. Check with the relevant state to see if your seasonal or remote employees could trigger nexus for your business.

Simplifying sales tax registration

Streamlined Sales Tax, also known as SST, is a state-run program to make sales tax compliance easier and more affordable. States will offset the cost of your tax compliance solutions from a certified provider, like Avalara. Learn more about the Streamlined Sales Tax program and how you can use it.

You typically need to register for sales tax in each state individually. However, you can register in multiple states simultaneously using the Streamlined Sales Tax (SST) Registration System if the states where you’re registering are member states of the SST program.

Contact Avalara to learn where you need to register and see if the SST program is right for your business.

Avalara and the Streamlined Sales Tax program can help you simplify and speed up your sales tax registration process. Learn how Avalara can help get you registered, and how you might be able to get the government to offset the cost.

Connect with Avalara for the answers you need to do tax compliance right.

Connect with Avalara for the answers you need to do tax compliance right.