Sales Tax Permit Registration Mistakes To Avoid
As an e-commerce seller, obtaining a sales tax permit is a vital part of your process to collect and remit sales tax. Remitting sales tax requires obtaining sales tax permits or licenses to collect in the states where you have sales tax nexus. Our goal is to help you avoid these costly sales tax permit mistakes made during the sales tax registration process. This is especially important since states have the list of Amazon FBA sellers and they are expecting sales tax compliance.
Over the last several years, we have applied for thousands of sales tax permits giving us essential knowledge in avoiding key sales tax mistakes that could greatly affect your e-commerce business.
The Top Sales Tax Permit Mistakes To Avoid
Filling out the Wrong Sales Tax Application.
Take the time to ask yourself if you are an out of state seller, applying for a sales tax permit, or an in-state seller applying for a sales tax number. Applying for the wrong permit can lead to unwanted results. Each state is different. In some states, the instruction is clear: if you are are an out-of-state seller, you are applying for a use tax permit. However, this is not always the case. 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; just make sure you get it right from the start.
Not Taking into Account Time Frames.
If you are an international seller without a SSN, states such as Minnesota, Texas, and Wisconsin will require you to MAIL in a sales tax application. The challenge with those three states is that the time frame may range from 2-10 weeks. This means you will have to 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. This is how long a typical rejection letter takes. Apply before October, or you will pay 10% out of your own pocket when your sales increase 3-5X during November-December.
Not Knowing that Many States are a Multi-Step Process.
A common error is a misconception that you only need to submit the application and then you are good to go, but that is not always the case. For example, 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. And without a tax account, you can’t automatically remit sales tax. Indiana, Maryland and New Jersey are similar to their process. Similarly, Connecticut will mail you two letters 10 days after applying, one with electronic options to file, and the second with a PIN, which you will need to access the electronic filing area (like what a bank would send you). This makes it almost impossible for foreign sellers without a U.S. address and scanning service. (which we offer).
Not having a U.S. Virtual Address to Scan Your State Mail.
We recommend all sellers now consider using a U.S. virtual mailing address for the states in which they have permits vs their home address. The main reason is the list of 27 states that will mail either a PIN, Code, or actual permit number after you register online. These key items will be mailed to the address used on the application. These items will come with many other items from each state and likely get lost in your mail (some appear as junk mail). This causes expensive delays in your complete registration process. Finally, changing your address, moving…if you forget to update every state, that could be a disaster. We do have a US address service if you need support. Go to this link to learn more about our U.S. Virtual address services.
Not Foreign Qualifying/Registering and File Annual State Tax Returns as Required.
This is a hot ever-changing subject. As you may know, many 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 are able to apply for a sales tax permit. What happens the following year? A lot of steps come into play and support is strongly recommended. Go to this link to learn more about our Foreign Qualification Services.
There are other unforeseen issues/delays that only come with experience.
Some examples include Georgia, Indiana, and Michigan. 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 are seeing 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 part of the end of their experiment to figure out how to apply for permits in each state. In order to properly and completely register your sales tax permits, you must find a company with experience, one that you can trust.
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 that is updated weekly. We invest the time and money for our team to make these calls to the states to double-check or clarify the process. Since our main company, NCP, has been in business since 1997 (over 21 years), we know the questions to ask the Secretary of State and Department of Revenue when it comes to foreign qualifications.
Beware of the biggest problem that happens to most: “You or another company may get the right answer to a WRONG question.” This happens often, and you will pay for that in the end.
You want 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. As a previous member, you should know we have made dozens of important updates to our system over the last several months in many of these key areas.
Need support? Reach out to us at [email protected] with your concerns or help required and we will follow up with the best services and solutions for you.