There are two things to do before you begin collecting sales tax for states:
Establish nexus (meaning you are obligated to collect sales tax based on what you sell, where you sell it and how much of it you sell)
Get a sales tax permit from any state where you have nexus
Think of nexus as a connection between businesses and states that helps companies know when they are required to pay sales tax. Until 2018, nexus connections were based solely on physical presence in a state, like where companies hold inventory or have employees. Now, there are many things that create Nexus, like sales revenue or transaction thresholds.
Want to learn more about Nexus? Read The Nexus Perplexus
Sales Tax Permits (Registering with the State)
States require businesses to register before paying sales tax. Sales tax permits are different than resale certificates. Resale certificates allow you to purchase goods without paying tax for resale. Sales tax permits (also referred to as sales tax licenses or sales tax registrations, depending on the state) tell the state tax agency that you are going to collect and remit sales tax on items sold by your company to comply with their tax laws.
There are different types of sales tax permits, requirements to register and fees charged during the process by state. Some permits will need to be periodically renewed and others will last for as long as you are in business.
To confirm where you’re obligated to collect sales and need to complete registration, use our Nexus Tracker.
Since the nexus rules changed in 2018 and the increase of online shopping, states have continued to change who is responsible for sales tax when marketplace facilitators are involved. Some states are transitioning to requiring the marketplace facilitator to collect and remit sales tax on behalf of all businesses that use their platform to make a sale. Still others require each individual business to register and pay sales tax depending on the individual state laws. We can help you determine which states require action from you to stay compliant and where your marketplace is falling short with our Marketplace Monitor.
Can you handle sales tax? OYA you can!