How to register your business to collect sales taxes
collect sales taxes
As a business owner, one of your responsibilities is to collect sales taxes from your customers on behalf of the state your business has nexus in. Before you can start collecting sales taxes from your customers though, you need to register for this legal authority with the state and possibly your county first. Otherwise, collecting sales tax could count as a criminal offense. Fortunately, registering your business for sales taxes is a fairly straightforward process.
Make sure you need to collect sales taxes first
Your business needs to follow the sales tax laws of all states where it has nexus. This is a bit tricky to define. Historically, a business had nexus in a state if it had a physical building in the state, like a storefront, warehouse or sales office. Now, many states are expanding this definition to include businesses that just make sales or provide services in a state. If your business has nexus in a state, it’s likely you’ll need to collect sales taxes for that state.
Beyond nexus, you also need to consider whether your business will need to collect sales taxes under a state’s laws. Some states like New Hampshire and Montana don’t charge sales taxes so this isn’t an issue. States that do charge sales taxes also exempt many transactions. You may avoid this obligation if all your sales are tax-exempt.
Contact the state tax department to review your obligation
To figure out your exact obligation for collecting sales taxes, you should contact the department that handles taxes in your state. Each state has a slightly different name for this department, for example in New York it’s the Department of Taxation and Finance while in Florida it’s the Department of Revenue.
Once you’re in contact with the right department, find out if that state has an origin or destination-based system. Then, you can find out if your products and services are taxable or non-taxable. If it is unclear, many times you can ask for one of the state’s authorizes to provide a letter of determination.
Finally, you might be able to ask the state how much you need to collect for state, county, city and possibly special jurisdiction sales taxes. If the state doesn’t provide this information in a convenient way, you can always come to Zip2Tax for updated rates and tax jurisdictions.
Individual state departments should give you a pretty clear picture of what you need to do and provide you the information you need to register for a tax certificate, the next step in the process.
Register for a tax certificate
To complete the registration process, you need to apply for a certificate to get legal authority to collect sales taxes. Once again, each state uses slightly different names. It could be referred to as a certificate of authority, a tax permit, or a tax registration. The idea is the same though in all cases: it’s a document that registers your business to legally collect and remit sales taxes on behalf of the state.
The registration process also depends on your state. In Nevada, you’ll need to make a deposit and pay permit fees to keep your business registered. North Carolina, on the other hand, doesn’t charge any fees and you could register your business instantly online. You may also need to file a separate registration for your county and city.
If you’re unsure about any part of this process, be sure to consult a tax professional. This way you won’t risk being in the situation of illegally collecting taxes without a permit. While registering for sales taxes is a bit of work, it’s worth the effort to keep your business compliant.
Lucinda Rowlands has been the general manager at Zip2Tax since 2010. She has extensively researched sales and use tax regulations in order to help small businesses navigate complicated tax rules.