Published February 5, 2025
Do I Need To Register for a Sales Tax License?
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Staying compliant with sales tax codes and processes is crucial for all businesses. However, when establishing or growing a business, sales tax is often overlooked. Part of the confusion is that there are so many differences in sales tax codes in each state, and staying on top of each state's requirements can be overwhelming. To stay compliant and successful, companies need to apply for and maintain a sales tax license in every state they do business in. This important document signals your compliance with local tax codes.
The sales tax license process can be complex and confusing. In this article, we’ll set the record straight and answer some commonly asked questions.
A sales tax license is a document that allows a business to make taxable sales and collect sales tax on the goods and services it sells. A sales tax license has to be obtained before the business collects sales tax in that state. Also referred to as a seller’s permit, retail license, or sales tax permit, a sales tax license is required in every state where you form a sales tax nexus (defined as a connection to the state, like a physical location, employees, or inventory).
Operating in a state and collecting sales tax without a sales tax license can lead to hefty fines, legal consequences, and your business being shut down. Additionally, the owners, shareholders, and responsible employees may be held personally liable for sales tax collected and not remitted. Even well-meaning businesses and their owners can get in serious trouble if they don't understand the sales tax codes in each state and follow them.
Registering for and obtaining a sales tax license is relatively simple, but each state has its own agency and application process. Businesses need a separate sales tax license from every state in which they have a nexus, meaning getting licenses from multiple states requires businesses to research and contact the proper agencies.
Because every state has its own sales tax requirements, the sales tax license application process often reflects the state’s sales tax code. In most states, businesses collect sales tax on behalf of the state. Those cases require a traditional sales tax license and the promise that businesses will collect and remit sales tax appropriately. Some states, including Arizona, Hawaii, and New Mexico, impose sales tax on businesses, which then pass it on to their customers. These states may have different requirements and forms for sales tax licenses. Five states (Alaska, Delaware, Montana, New Hampshire, and Oregon) don’t collect a statewide sales tax, so businesses with a nexus in those states don’t need to collect a sales tax license.
Any business that has nexus in a state must have a sales tax license in that state before it can collect sales tax. Businesses with a nexus in multiple states need a separate sales tax license for each state.
Businesses can establish nexus in a state in a few different ways. There is no shared definition of nexus across all states, and specifics change regularly. It's important for businesses to stay on top of changing regulations to ensure they are paying sales tax properly in the states where they've established nexus. Most states follow something similar to these qualifications:
Not all qualifications need to be met, meaning that businesses that operate entirely online still have nexus and must register for a sales tax license if they have sales in a state, even if they don’t have physical property or inventory stored in the state. Similarly, a business with brick-and-mortar stores but less than $100,000 in annual sales has still established nexus.
Many states require businesses to register for a sales tax license as soon as nexus is established and not wait until the following calendar or fiscal year. Therefore, it’s important to understand where your business has nexus and know when you are approaching nexus in each state so you can apply for a sales tax license.
However, even if a business hasn’t established nexus in a state, it still may be required to get a sales tax permit. Some states, like Texas, require companies to get a temporary or occasional sales tax permit for occasional or temporary sales in the state when the business hasn’t established nexus.
Some states have different sales tax licenses, including options for retailers, wholesalers, or marketplace sellers. All states with a statewide sales tax now require marketplace facilitators with nexus to register for a seller’s permit and then collect and remit sales tax on behalf of third-party (marketplace) sellers.
The cost of a sales tax permit varies by state. Many states offer sales tax licenses at no cost, but the cost ranges from free in many states to $100 in Connecticut. Most of the cost of a sales tax license covers the administrative costs of reviewing the forms.
The length of a sales tax license also varies by state, with many states requiring businesses to renew their license annually, or every two years and pay the accompanying fee each time. In other states, such as California and Texas, sales tax licenses are valid for the lifetime of the business and don’t ever need to be renewed.
The process of obtaining a sales tax license varies by state but tends to follow the same general steps. Some states have more complicated processes than others, but generally, the steps to registering for a sales tax license are fairly simple. The most important step for business owners is to gather all the needed information.
Start by identifying the correct agency that handles sales tax licenses. In most cases, it is the state’s tax department or department of revenue. Each agency has a set of forms, typically available online, that the business owner needs to complete. Physical forms may also be available in certain government buildings, but online registration tends to be faster and the recommended option.
To complete the forms, business owners need to provide information about their business, which typically includes the following:
Once the forms are complete, the state’s agency reviews them, and a sales tax permit is available. The review process can take up to four weeks, and businesses aren’t allowed to make taxable sales before they have a sales tax license (if they've established nexus). That means businesses entering new states need to plan ahead and give themselves time for the sales tax license to be obtained before officially opening for business.
In most states, businesses are required to post their sales tax permit where customers can see it, including posting a copy of the license in every physical location where they collect sales tax. Different requirements may exist for remote sellers, including adding a notice to their website about collecting sales tax.
Not all sales tax licenses need to be renewed. In some states, including California and Texas, sales tax licenses are valid for the lifetime of the business.
In most other states, sales tax licenses need to be renewed, typically every two to four years. You won’t need to renew your sales tax license if your nexus in the state has lapsed, meaning you no longer meet the qualifications. Renewing a sales tax license typically follows the same or similar steps as applying for a new sales tax license, including submitting a form online or by mail. Renewals may be processed faster than the initial application. As soon as the new license is available, it needs to be posted at all physical retail locations. If you want to learn more about sales tax and how to prepare your business with a smooth sales tax process (no matter where you're located), contact The Sales Tax People to get started with a customized sales tax system for your business needs.
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