Now that you’ve filed your organization paperwork for your new business, there’s one more application before you’re finished. That’s for a sales tax license that allows you to collect and pay sales tax on retail items you have sold.
However, before we dive into the application process, let’s quickly review what a sales tax is and when you need it.
What is sales tax?
Sales tax is applied at retail point-of-purchase. All states — except for Delaware, Hawaii, Montana, New Hampshire and Oregon — have sales tax. As a business owner, your state likely requires you to collect sales tax from your customers at the time of purchase.
Important for e-commerce or mail order businesses: You are required to charge your in-state customers a sales tax, but don’t have to charge your out-of-state customers a sales tax. For example, if your business is located in Denver and a customer in Boulder buys from you, you need to charge them a sales tax. But if a customer in Seattle buys from you, you don’t have to charge them a sales tax. However, it’s not this black and white, because your business’ physical presence comes into play and could change where you are required to charge sales tax.
If your business has a physical presence, like a warehouse or office, or even an employee or contractor in another state, then chances are you have what is called nexus. Having nexus means you are liable for sales tax collection and remittance in a state, it also means you need to apply for a sales tax license. Keep in mind that you have to start collecting sales tax from your nexus date, so avoid paying back taxes by applying for a sales tax license when you start your business. For an easy to use guide on nexus download our piece “The Truth About Nexus .”
So what is a sales tax license?
A sales tax license is a license issued by the state that allows you to legally collect sales tax and remit it to the issuing state. As we covered above, you should always get a sales tax license in your home state. If you have nexus in another state or multiple states, you also need to get a sales tax license there as well.
If taxes aren’t already complicated enough, each state’s procedure for getting a sales tax license is different. The good news is they don’t make the process too complicated since it is beneficial to the state to collect sales tax. Be aware that a sales tax license could be called other things in different states. Look for the words: reseller’s license, vendor’s license, or resale certification. These are all different ways states describe sales tax licenses.
The easiest way to get a sales tax license is to visit
the state government website of the state you do business in. This can easily be found by Google search of “[your state] sales tax license application.” Navigate to the appropriate yourstate.gov site. In some states, you may pay an application fee. Check out our blog series “How to file in… ” for state specific tips on registering in your state.
Note: once you receive your sales tax license, you are expected to start filing sales tax returns from that day forward, even if it is a $0 filing.
Colorado, our home state and a good example state.
Each state is a little different in the sales tax license application process, so let’s run through a quick example — in Colorado, where Taxify is based, the process is a little more complicated since Colorado is a Home Rule state.
- Go to the Colorado Department of Revenue website.
- Click on Instructions and Forms in the top menu. On the next page, click “Retail Sales Tax” in the table under Forms by Tax Type.
- Scroll down until you see “Sales Tax License – Registration.” You can e-file or fill out the PDF and mail it in. With the e-file option, you get step-by-step instructions.
If you choose to efile, you’ll get your license number the same day. Once the fees are paid, your license will be mailed to you in 2-3 weeks. If you choose to mail in your application, it could take 4-6 weeks for processing.
Registration Fees: The fees you’ll pay for this sales tax license are dependent on when your first day of sales was. The year is split up into two sections: January-June and July-December. The fees are further split up based on odd-numbered or even-numbered years.
For example, if your first day of sales was sometime between July and December in 2014, your fee is $12. To apply for this retail sales tax license, you will pay an additional $50 fee. This fee is credited as a deposit against your account. Once your business has collected and paid $50 in state sales taxes, this $50 will be refunded to you automatically.
Important note: Because Colorado is a Home Rule state, you need to apply for a sales tax license in your city. Search online for your city’s revenue department and “retail sales tax license.” Many cities have the option to fill out the Retail Sales Tax License form online.
Of course, like all tax-related filings, this process is not the same in every state. Check out our series “How to file in… ” for tips on filing for a sales tax license in your state. And as always if you have questions about sales tax licenses or any sales tax issues, just contact us. we are here and always happy to help.