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.
Some states like Washington and Pennsylvania will collect sales tax, but you still need to register and file sales tax returns.
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 transactions 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. You are applying for a use tax permit in some states if you are an out-of-state seller.
Some states combine sales/use tax as one option. Every checkbox takes you down a pathway and may come back to haunt you when audited; 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, Minnesota, Texas, and Wisconsin will require you to MAIL in a sales tax application. The challenge is that 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. Apply in early October, or you will pay 10% out of your own pocket when your sales increase 3-5X during November-December.
3. Not Knowing that the 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. With electronic options to file and the second with a PIN, 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).
4. Not having a U.S. Address Service to Scan All Your Sales Tax Mail- ALL Sellers.
This can really be expensive and is a sales tax permit registration mistake. We recommend all sellers now consider using a U.S. virtual mail scanning service vs. using your home address. You will receive buckets of mail when you get registered in each state, and having a system to sort through will be a huge benefit. We have the ideal solution for you. Click on this link. Finally, changing your address. If you forget to update every state, that could be a disaster. Why? You will NEVER receive any late or assessment notices from each state.
5. Not Foreign Qualifying/Registering and File Annual State Tax Returns as Required.
This is a hot subject. As you may know, many of the states will have you complete a nexus questionnaire after you register to determine if you have nexus (a presence) for income tax purposes also. If so, this means your business must foreign qualify or register within the state and file a state income tax return. This varies state by state, depending upon your type of business structure.
Some states even require a sole proprietorship to file a state income tax return (but foreign qualification only applies to legal entities. Foreign entities are NOT exempt.
Even if there is a tax treaty with your country, that is only at the FEDERAL level, not STATE LEVEL. One state requires foreign qualification BEFORE you can apply for a sales tax permit.
What happens the following year? A lot of steps come into play, and support is strongly recommended (which we provide).
Some other unforeseen issues/delays only come with experience. Georgia will not allow you to backdate the application for more than 6 months. Indiana wants to verify the business information and the State Tax ID number and access code you receive through the mail. Michigan requires a valid U.S. phone number.
Delays in applying for sales tax permits/getting registered are costly. The states are making updates and changes, but every month we see more mistakes, and our goal is to help you avoid them.
Do you need support for getting into compliance with sales tax and need sales tax permits as one of your first steps? We are here to help.
Caution about the Competition
Over the last year, there have been several “sales tax permit” firms and CPAs attempting to provide this service, but you don’t want to be at the end of their experiment to figure out how to apply for permits in each state.
What Makes Sales Tax System Better
We have applied for thousands of sales tax permits, invested hundreds of hours on the phone with the different states’ department of taxation and revenue, and have internal notes, step-by-step on every state. They are updated weekly!
We invest the time and money for our team to make these calls to the states and stay on hold for 30 to 60 minutes or more, on some occasions, to double-check or clarify the process.
Since our main company, NCP, has been in business since 1997 (over 23 years), we know the questions to ask the Secretary of State and Department of Revenue when it comes to foreign qualifications. Here is the big problem that happens to most: “You or another company may get the right answer to the WRONG question.”
This happens often, and you will pay for that in the end. You want this experience on your side, and you will get what you pay for in the end. We know you want to build your brand and sleep well at night. Let us help you do that.
Learn more about our sales tax permit registration system at our 8-Step Infographic.