Seller's permits and sales tax: what a new business needs to know

What is a seller's permit?

Sales tax in the US is set by states and, in many places, by cities and counties too. A seller's permit (California's term) or sales and use tax permit (Texas's term) is the state registration that lets you collect that tax and send it to the state. California describes it as a state license to sell items at the wholesale or retail level and to issue resale certificates to your suppliers.

Rates and rules differ by state. Texas, for example, charges a 6.25 percent state sales and use tax on most goods and some services, and cities, counties and special districts can add up to 2 percent more. Your state revenue or comptroller website lists the rates that apply to your location and products.

Who needs a seller's permit?

Generally, anyone who sells or leases taxable tangible goods in a state where they are doing business. The official examples:

• California: if you sell or lease merchandise or other tangible items in California, even temporarily, you are generally required to register and get a seller's permit, including when you sell through online marketplaces or classified sites.
• Texas: you must apply if you are engaged in business in Texas and sell or lease tangible personal property, or sell taxable services, in Texas.
• Occasional sales: California generally does not require a permit for occasional sales, which it describes as no more than two sales in a 12-month period, such as an occasional garage sale.

Services are taxed differently from state to state; Texas, for example, taxes some services. If you sell only services, check your state's list of taxable services before assuming you need nothing.

How do I get a seller's permit?

Apply through your state tax agency's website before your first taxable sale. Expect to give your business's legal name and structure, your Social Security number or EIN, your business address, what you sell, and an estimate of your sales. Texas asks for your NAICS industry code and tells applicants to allow two to three weeks for the permit to arrive.

Fees vary. California says there is no charge for a seller's permit, though it may ask for a security deposit depending on your business type and expected sales, and it offers temporary permits valid for up to 90 days for short-term selling. Once you hold a permit, California says you must file sales and use tax returns, pay the tax due on your taxable sales and keep records of your sales and purchases.

How do resale certificates work?

Once you hold a permit, you can give your suppliers a resale certificate when you buy goods you will resell. The supplier then does not charge you sales tax, because the tax will be collected when your customer buys the finished item.

Use it only for items you will actually resell. California warns that issuing a resale certificate to avoid tax on things you will use rather than sell is against the law, and that issuing one when you do not intend to resell the merchandise is a misdemeanor. Things you buy to use in the business, rather than to resell, are not covered.

Do I have to collect sales tax in other states when I sell online?

Possibly, once your sales into a state pass the threshold that state sets. Texas, for example, does not require a remote seller to hold a permit if its total Texas revenue was less than $500,000 in the preceding twelve calendar months; above that, it must get a permit and collect.

Marketplaces change the picture. In Texas, a marketplace provider must collect and remit sales tax on sales made through its marketplace. A seller based in Texas still needs its own Texas permit even if it sells only through a marketplace, while an out-of-state seller whose Texas sales all go through a provider that has certified it collects the tax does not, as long as it keeps records of those sales. Check each state where your sales are growing; the rules are state by state. Selling channels are covered in how to sell products online.