Sales Tax Permit Registration Mistakes to Avoid

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As an e-commerce seller, you want to avoid sales tax permit mistakes. This is the key part of the process when you are collecting and remitting sales tax is required.  Yes, some states like Washington and Pennsylvania and more coming soon will collect sales tax, but you still need to get registered and file sales tax returns.

Sales Tax Registration Mistakes to Avoid

Avoid these Costly Sales Tax Registration Mistakes-They are Costly

The process to get registered means obtaining a sales tax license or permit to collect and remit sales tax in the states where you have sales tax nexus. Since the June Wayfair vs South Dakota case, you now have to worry about the economic nexus states, in many cases when you sell only 200 units in a state.

We have applied for thousands of sales tax permits for clients over the last several years and we wanted to share some key costly mistakes to avoid.

1. Are You Applying for a Sales Tax or Use Tax Number? Are you an out-of-state seller applying for a sales tax number or an in-state seller applying for a sales tax number? Each state is different. In some states, it is very clear, if you are an out-of-state seller, you are applying for a use tax permit, some states they combine sales/use tax as one option. Every checkbox takes you down a pathway and may come back to haunt you when audited; just make sure you get it right from the start.

2. Not Taking into Account Time Frames. Another huge sales tax permit mistake is not taking into the cost of the time frame. If you are an international seller without an SSN, these states will require you to MAIL in a sales tax application, Minnesota, Texas, and Wisconsin. The challenge, with those three states, is the time frame may range from 2-8 weeks. This means you will continue to pay sales tax, plus penalties and interest out of your own pocket until you have a license to collect. Any mistakes causing a sales tax application to be rejected may take up to 8 weeks before you find out from the state. This is how long a typical rejection letter takes. Apply in early October, or you will pay 10% out of your own pocket when you sales increase 3-5X during November-December.

3. Not Knowing that Many States are a Multi-Step Process. When you apply for a sales tax permit in Florida, you will receive a letter. You can’t create a tax account until you receive that letter. Without a tax account, you can’t automatically remit sales tax. Indiana, Maryland and New Jersey are similar to their process. Connecticut will mail you two letters 10 days after applying. One with electronic options to file, and the second with a PIN, which you will need to access the electronic filing area (like what a bank will send you). This makes it almost impossible for foreign sellers without a U.S. address and scanning service (which we offer).

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12 Questions to Ask BEFORE Forming a U.S. Entity

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These 12 questions below are not only important to ask, but are necessary to get the best answer and support. They apply to all foreign e-commerce sellers looking to establish a U.S. entity. Forming a U.S. company is not as simple as forming a single member LLC with a mail address. There is much more involved. These questions will help keep you on track when working with a U.S. entity provider.

US Company Formation

Ask these 12 questions before forming a U.S. company

  1. Do I Even Need to Form a U.S. Entity as a Foreign Seller?

    This leads to your options to sell in the U.S. as a foreign entity vs the advantages of using a U.S. entity.

  2. How Long will it Take to Form my U.S. Company Correctly?

    You will need to know the factors that will determine the length of time to form your entity, apply for the EIN, establish a bank account, as well as get into compliance with sales tax. Don’t get fooled by “incorporate in 24 hours or less” headlines; these usually lead to costly mistakes.

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