One way or another, commercial and trading activities are the most popular type of business relations. So, if you plan to sell some products or goods, most likely than not, you’ll need to get a seller’s permit before you open your doors to customers and clients. What is a seller’s permit? Why do you need it? How to get it? Our article will help you find the answers and get a full understanding of this type of regulatory document.
What Is a Seller’s Permit?
A sales tax is one of the most common government surcharges applied to entities engaged in some sort of commercial activity. It is normally levied on merchandise to be sold and added to the final price of goods and products. As such, it is paid by the buyer. However, it is the vendor who is responsible for this tax collection and its payment to the department of revenue.
Sales tax regulations are state-specific. Yet, tax rates and rules vary not only by state but also by the type of business structure, the type of interaction between the parties of commercial relations, and the type of commercial activity itself. Anyway, if you act as a vendor and sell some products or items (be it wholesale or retail), you’ll have to function as a sales tax collector as well. And to let the government agencies identify you in this role, you’ll have to acquire a seller’s permit.
The document is also called a seller’s license, sales tax permit, or a sales tax ID number. Usually, it is issued by the state and is used to let the state trace and control how you collect and pay back sales taxes. The document is also often called a reseller’s license or permit. Yet, these are two different types of regulatory documents. Though associated, they are not the same. While a seller’s permit outlines the tax collection obligations of the vendor, a reseller’s permit is rather meant for the buyer. It eliminates the sales tax payment for those entities that buy merchandise for further resale.
When Do I Need a Seller’s Permit?
Whether you need this permit or not depends on the state governing law. If you sell any type of goods or products, most states will require that you collect sales taxes. Certain states even charge those over lease and rent services along with many other service providers (designers, attorneys, consultants, shippers, etc.) Meanwhile, there are a few states that don’t charge sales taxes at a state level. Thus, in Alaska, Oregon, Delaware, New Hampshire, and Montana, you won’t have to obtain a seller’s license.
Types of Businesses to Get a Seller’s Permit
Sales taxes are flimsy ground. There are a lot of details and nuances you need to keep in mind and consider. State laws concerning this tax mostly differ in the types of products and services to be taxed. Though you need to check with your state revenue department if you need a seller’s license or not anyway, typically, business situations when you’ll have to serve as a consumption tax collector are as follows:
- You sell the portable property and items to the public within the jurisdiction where your company is registered and located. Tangible property in this case refers not only to consumer goods and products but also to vehicles, equipment, tools, machinery, etc.;
- You provide certain types of services open to a sales tax under the state regulations;
- Being out of the state, you still have “nexus” there while operating via third-party representatives, hired employees, or intermediaries selling on your behalf;
- Remote sales with revenues exceeding certain amounts are also exposed to sales taxes. If you market across the states, you’ll have to register a separate vendor’s permit in each state in your network to match all local regulations.
Online Sales: Is a Seller’s Permit Applicable Here?
Trading and commercial activities have largely moved to online platforms. Online sales is a steadily growing tendency, and states have been recently given more freedom and authority to impose taxes on Internet sales transactions. Thus, the Supreme Court decision has nullified the rule of physical presence in the state or locality to have nexus in that jurisdiction. This legal decision regulates out-of-the-state sales and makes online marketplaces open to sales taxes.
Similar to offline sales taxes, tax rules for online sales also vary by state. Today, most states do levy sales taxes on online sales. Yet, online sellers are only exposed to those if they hit a threshold revenue amount or a specific number of transactions. You can check the exact taxation rules and current limits on the website of the Sales Tax Institute. If you are under a threshold minimum, there is no need to get a seller’s permit accordingly. Some states, though, are still quite forgiving to online sales and have no tax requirements in this concern.
Before You Apply for a Seller’s Permit
If the products or services you sell are exposed to a sales tax and you do need to acquire a vendor’s permit to eligibly run your trading activities in the state, there are certain prerequisites you need to observe before applying for that license:
- Get a tax identifier for your enterprise. It’s a federal tax number or an EIN, which is issued by the IRS. No matter if you have hired employees or not, you will need this number for many other aspects such as taxation, licensing, and even opening a bank account.
- Obtain a NAICS code. NAICS system is applied by the government to group organizations by industries and types of activity they run. Initially used rather for statistic purposes, this classification is very useful in many concerns. Thus, NAICS codes are widely used by tax authorities to distinguish between taxable products and services. Notably, you’ll have to assign a NAICS number to every product or item you sell.
- Prepare your company profile. Specify the type of your business structure and when your company was launched along with the business activities you run. Additionally, you’ll be required to provide your business bank account details.
Applying for a Seller’s Permit
Governed by state laws, a seller’s permit is a document issued by the State Department of Revenue. Currently, all states come up with an online application and you won’t have to go anywhere. All you’ll have to do is to fill in a detailed application form on the Department’s website and pay a registration fee that ranges by state. Noteworthy, some jurisdictions provide this type of business license for free.
The questions you’ll have to answer and data to be submitted to pass through the application process vary by state. However, commonly, they will require you to state:
- Your company’s EIN and your own social security number;
- Your company name, starting date, and type of activity you run;
- Spots and locations where you operate including online marketplaces;
- Your company’s monthly turnover on sales with online trade revenues included;
- NAICS codes for products and services you are going to sell;
- The date you plan to start collecting sales taxes and estimated charged amounts per month.
On top of that, many states require some added data to verify your identity or that of your venture:
- A copy of your driver’s license;
- Your bank account details;
- Contact data of your suppliers;
- Name and address of your accountant;
- Info of personal references;
- Details of the previous seller’s permit if you’ve acquired this business.
In most jurisdictions, seller’s permits come without an expiration date and are renewed automatically. There are a few states, though, that require the vendor’s license renewal on an annual and biennial basis and even charge fees for that. Besides, if your trading activities are seasonal, you can get a temporary permit that covers sales tax collection for a period of up to 90 days.