What is a Seller's Permit and when do I need one? A Seller's Permit (sometimes called a Sales and Use Permit, or Sales Tax Permit) is a type of license issued by your state (sometimes a county or locality) that allows you to sell tangible goods (wholesale or retail) and collect sales tax on those sales. Failure to obtain a Seller's Permit could result in penalties, fines and back taxes, so it's important to know the when, where, why and how of Seller's Permits. Keep reading to find out more.
When Do I Need A Seller's Permit?
If your business sells or leases tangible products either via wholesale or retail channels that would be subject to sales tax if the item is sold retail, you must apply for a Seller's Permit.
This applies to all business entity types (sole proprietors, LLC, partnerships and corporations).
Some states also require certain service providers to obtain a Seller's Permit as well.
As far as online sellers, it's important to check your state requirements because you may not be required to obtain a Seller's Permit to conduct business online.
Where do I obtain a Seller's Permit?
Generally you register for a Seller's Permit through your state's agency that regulates businesses, but some states may also require you to register via the county or locality. Visit this IRS website to be directed to the correct state and local agencies for your state.
If your business has a presence in several states (for example offices, employees or inventory), you may need to apply for a Seller's Permit in multiple states. It is possible to sell in another state and not be required to obtain a Seller's Permit if you sell beneath the state's economic threshold (typically $100,000 - $500,000 in sales plus a specified number of transactions).
In most states, it is free to obtain a Seller's Permit, but the states who do charge average $20 with the exception of a couple states who charge up to $100.
Why do I need a Seller's Permit?
By obtaining this license, a seller is agreeing to act as an agent for the state to collect sales tax on taxable products and services they sell and remit the sales tax to the state on a quarterly basis.
In California and other states, the Seller's Permit also allows the seller to issue and provide resale certificates to their customers and suppliers. The resale certificate allows you to purchase items from your suppliers that you will sell in your business without paying sales tax to that supplier. This is a great savings for your business!
Some states require you to apply separately for a resale certificate and renew them periodically. In general, they are valid until they are revoked in writing.
It is also important to note, if you are a business that is required to have a Seller's Permit and you do not register your business, you could face fines, penalties or even criminal charges. Make sure to register your business before collecting any sales tax!
How do I use my Seller's Permit?
Once you obtain your Seller's Permit (in California, you are able to download and print it immediately upon registering your business online), you may post your permit at your place of business.
When your business uses a supplier to obtain products to resell in your business, they will ask for a copy of your Seller's Permit to keep on file so they do not charge you sales tax on your transaction.
You need to keep a strong bookkeeping record of all transactions and the amount of sales tax collected from your customers. The Sales Tax returns are filed quarterly along with the payment of the sales taxes collected.
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