Which States Require Foreign Qualification BEFORE Sales Tax Registration?
Foreign Qualification is the process where your legal entity will need to register with the Secretary of State first before applying for a sales tax permit.
We have discovered three states that require a state ID (from the Secretary of State) before applying for a sales tax permit in a state (or use tax permit).
Update 7-26-19: District of Columbia (D.C.) requires the responsible party to have an ITIN or SSN. If they do not, you are not able to register. One exception is if the applicant is an entity and foreign qualifies to do business within D.C., the office of tax and revenue said the responsible party could be the registered agent. Therefore, foreign qualification is mandatory with this option. Sales Tax System does provide support for this service.
CAUTION: This is a moving target as states review this process. This is at the end of dozens of calls to each state and hundreds of hours over the last 6-8 weeks.
Required vs. Recommended
These are the states that require foreign qualification BEFORE applying for a sales tax permit. Several more states first sounded like foreign qualification was required. Still, after calling back and asking more questions, it becomes more clear, foreign qualification was “recommended” but not “required.” Below are the ones that were “required.”
Here are the three states that “require” foreign qualification before applying for a sales tax permit.
Update: Since the marketplace nexus law went into effect in Colorado on 6-1-19, foreign qualification is no longer required.
Colorado is an FBA state since September of 2017. Separately, they also have notice and reporting laws that were effective as of July 1st, 2017. This means if you sold more than $100K in the previous year in Colorado, you should be registered to collect and remit sales tax (vs. reporting to your customers, which is costly). Perhaps you held off applying for a sales tax permit in Colorado because you had to foreign qualify first, and there were extra costs involved.
If you have FBA stock in the state, you may want to get registered to collect and remit.
The Colorado state filing fee to foreign qualify for a corporation or LLC is $100. See our fees and process below for the entire foreign qualification process. Sales tax permit registration service is separate.
Your business entity is either taxed as a regular C corporation (C corp, LLC taxed as C corp, single-member LLC owned by foreign corporation, UK Ltd company taxed as a corporation), AND your company is registered to collect and remit sales tax in Florida (or should be).
Florida is a state corporate income tax on corporations but not on partnerships, S corps, or sole proprietorships. The only tricky part is a US single-member LLC owned by a corporation (US or domestic). If your business entity is NOT taxed as a C corporation, you may ignore these steps.
FYI: the states (and we have two of our team members called for weeks, average hold time about an hour) will recommend you foreign register in each state for extra protection. That means if you bring suit against an in-state customer, your entity would need to be registered with the Secretary of State, and if you are already foreign-registered, that is a benefit but not required.
This was confusion when our team would call states with the difference of REQUIRED to foreign qualify or RECOMMENDED to foreign qualify in a state. Most states recommended you either foreign register or call the Secretary of State, and of course, they give zero input. They say speak to a professional and decide.
In the end, Florida does not 100% require it for corporations to foreign qualify. Still, they may share the information from the department of taxation to the secretary of state, and filing a state corporate return may be considered going business. This is a process to avoid the $500 fine that is addressed in the email below. You may also confirm with this Florida law firm.
As an Amazon FBA seller, depending upon your business structure (sole proprietorship vs. legal entity), some states require either before or after applying for a sales tax permit for your entity to foreign qualify or register. This falls into the category of “income tax nexus” vs. “sales tax nexus.”
For example, Colorado requires a legal entity to foreign qualify before you apply for a sales tax permit. Florida is an example of a state that requires your company to foreign qualify after you are deemed to be doing business (earning income from FBA sales).
Florida’s key state is important because it has a $500 penalty if you foreign qualify the year after you started doing business.
This applies to corporations and LLCs Taxed as a Corporation, foreign and domestic, not a sole proprietorship.
Let’s say you started business in Florida (had FBA stock and sales) in 2019. As long as you foreign qualify in the state BEFORE March 1st of 2020, you will NOT be assessed the $500 late fee.
You fill out the form, which asks for the date you started a business. We would recommend you are accurate because Florida’s signature line says you will be subject to a 3rd-degree Felony if you provide false information.
If you started selling in Florida in 2018, that means you would be subject to a $500 late fee when you foreign register (but not for two years if you file before March 1st, 2020)
Here is an overview of the process to foreign qualify to do business in the state of Florida:
Foreign means concerning another state or country. For example, if you are operating your business through a Minnesota corporation, and it needs to register in Florida, the Minnesota corporation would be foreign qualified to do business in Florida. If you have a UK LTD company, it would be foreign qualify to do business in Florida (FYI, Florida does NOT allow the ending “Ltd,” most states do…so you have to choose a second name with the ending “Inc.” is our recommendation.
Here are the steps below to register your company into Florida as a foreign entity.
- Check your name for availability in the state (if not available, another name will be required).
- Registered Agent Service for 12 months (this is the contact point to accept service of process if your company is sued in the state.
- A certificate of good standing (no more than 90 days old from your state of formation). An entity from a country outside the U.S.? Florida will require a document from your country that says your entity is in “good standing,” and it should be in English. * or Certificate of Good standing is available.
- Complete the forms to foreign qualify/register with the state along with the following documents:
- Copy of your articles of incorporation/organization
- Certificate of Good Standing from State/Country of formation dated no more than 90 days before filing.
- Send the appropriate state fee (see below).
- Pay the Florida State Fee. It is $70 for a foreign corporation.
- Submit to the Florida Secretary of State
*with our service NCP will obtain a good standing certificate if you are a US company, but if you are a foreign entity, you will need to obtain that from your home country.
Our fee for all the steps listed above is $280 plus state fees.
The Florida state fees are as follows:
Corporation Foreign Register/Qualify in Florida:
Total for NCP and Florida State Fees to Foreign Qualification for a Corporation:
Foreign qualify a Florida Corporation:
$280 Our Foreign Qualification Service
$70 in Florida State Fees
$350 in total. Go here to get started.
Oklahoma: Updated April 2019
No longer is it required to foreign qualify into Oklahoma before registering for a sales tax permit.
Oklahoma is NOT an FBA state, but it is a notice and reporting state with a threshold of only $10K in sales during the previous 12 months. If you have surpassed that number in sales, you should register for a sales tax permit in that state. This went into effect on 4/4/2018.
In the past, it was required that you first foreign qualify in the state before applying for a sales tax permit. Oklahoma requires you to register with a Vendor Use Tax (equivalent of a Sales Tax permit), but before you obtain a Vendor Use Tax, you will need to first register with the Secretary of State. This applies to both LLCs and corporations. An LLC does not have a franchise tax but vendor use tax. Here are our services to foreign qualify your company first.
Corporations are required to foreign register first before getting a Sales Tax Permit in Oklahoma. Corporations are subject to Franchise tax. LLCs are statutorily exempt from the Franchise Tax. The Oklahoma Secretary of State will issue a State Filing number and then enter the Sales Tax Permit Application.
West Virginia: Updated December 2018
West Virginia said foreign registration is no longer required for them to foreign register with the secretary of state. They will need to fill out the paper form and mail it to them. Their online application will require them to foreign register. However, since they are an out-of-state or remote seller, they should not need to register online. Updated in middle October 2018, they published a notice about the economic nexus rules.
Learn more about our foreign qualification process. Our sister brand, NCP, provides these services. Learn more here.
If you need to foreign qualify for either of these states, review the link above and reach out to sales tax system for support.
As a member of Sales Tax System, we will provide you with the proper updates on this complex subject.