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Sales tax license: What is it, do you need one, and how to apply for one?


What is a sales tax license?

A sales tax license, aka sales tax permit, is an agreement with a state tax agency to collect and remit sales tax for items your business sells.


Understanding sales tax is a critical aspect of operating any business that sells tangible goods. Whether you're a budding entrepreneur or an established retailer, complying with sales tax regulations is essential for legal and financial stability. Failure to do so can result in penalties and audits and even jeopardize your business's future. 

This guide provides a clear overview of sales tax licenses, including how they work, when you need them, and how to obtain one. Learn to navigate this complex area and ensure your business remains compliant.

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Who needs a sales tax permit?

A business that sells taxable goods or services often requires a sales tax license (also called a seller's permit). This crucial document authorizes you to collect sales tax from customers on behalf of the state.  

You need a sales tax license if your business establishes a sales tax nexus with a state. Nexus means having a significant presence in a state that triggers the requirement to collect sales tax.  

Ways to establish nexus:

  • Having a physical store, office, or warehouse
  • Employing people in the state
  • Storing inventory in the state
  • Making a certain number of sales or exceeding a revenue threshold (especially relevant for online businesses) 
Sales tax license criteria

The specific requirements for nexus can vary from state to state. It's important to stay on top of your individual state's regulations or consult with a tax professional to make sure you understand everything and obtain the necessary permits.

Download the sales tax guide for small businesses

How do you get a sales tax license? 

To get a sales tax license, you'll need to register with the relevant tax authority in your state. This involves completing an application and providing specific information about your business.  

While the exact requirements vary by state, here's what you'll generally need:

A list of what is needed to apply for a sales tax license

Be prepared to provide supporting documents, which may include:

  • Business formation documents 
  • Certificate of Good Standing
  • State-specific forms or licenses

You can apply for a sales tax license online, by mail, or in person through your state's tax agency or revenue department. Make sure to check with your state's specific agency for their exact process and required forms.

Once your application is approved, you'll receive your sales tax permit, authorizing you to legally collect and remit sales tax on your taxable sales.


note icon Apply for your sales tax license well before starting your business. Processing times can vary between states, and some may require additional documentation or approvals. Starting the process early ensures you'll be ready to collect sales tax from day one.


Multistate sales tax license

Like many business permits and licenses, a sales tax license is state-specific. You need one for each state where you do business. In other words, you’ll need a sales tax license for each state where you have a physical presence or engage in taxable sales. So, businesses need to obtain a separate license for each state they operate in.

If you have a physical sales presence in a certain state, you will have to collect and pay sales taxes for that state. Any physical location where you sell—such as a small retail space or a vendor stand at a market—or where you keep inventory is a physical presence.

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Sales tax license for online businesses

Selling goods online comes with its own set of sales tax rules. Just like brick-and-mortar stores, most online businesses are required to charge sales tax.

The key to understanding online sales tax lies in the concept of "nexus." Nexus is the connection between your business and a state that triggers the requirement to collect sales tax. 

It's important to note that each state sets its own economic nexus thresholds, so you'll need to research the specific rules for each state where you sell your products.

For online businesses, nexus can be established in two main ways:

  • Physical Nexus: This occurs when your business has any physical presence in a state, including having a store, office, warehouse, employees, storing inventory, or using a drop shipper located there.
  • Economic Nexus: This is triggered when your online sales to customers in a specific state exceed a certain threshold, either in dollar amount of sales or number of transactions.
The difference between sales tax and internet sales tax

If you're selling across multiple states, consider using accounting software that automates sales tax calculation, collection, and filing. This can save you time, reduce errors, and ensure you're always compliant with the latest tax regulations in each state.




note icon While many states exempt digital goods like software, ebooks, and online courses from sales tax, this is not universal. Carefully research the taxability of your digital offerings in each state where you have nexus to ensure compliance.


When to amend or destroy your sales tax license

Applying for and getting a sales tax license is not a one-and-done deal. Most states require businesses to amend or update their sales tax license if their business details change. 

You’ll have to amend your sales tax license after any of the following changes:

  • Business name or address
  • Business locations 
  • Owner or officer

Note that some changes require a new license. For example, the state will issue a new license if the business changes its name. Alternatively, when business details change but do not appear on the license, like a business telephone number, the state will not typically issue a new license. 

You generally must surrender or destroy your license if, among other reasons, you:

  • Stop doing business
  • Sell, transfer, or assign your business to another party
  • Change the form of your business (for example, from a sole proprietorship to a single-member LLC)

You’re responsible for filing your sales tax returns until de-registration is complete, even though the return will be for zero dollars. Failure to file even a zero-dollar return could result in collection issues or penalties.




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Transactions that are exempt from sales tax

While a sales tax license permits you to collect sales tax, a sales tax certificate (or a sales tax exemption certificate) actually exempts you from paying sales tax. It’s a type of certificate that grants businesses exemption from paying sales taxes on purchasing select items in select situations.

There are two main types of exemption certificates:

  • General sales tax exemption certificates: These are issued to various entities, such as government agencies, nonprofits, and certain businesses, exempting them from paying sales tax on specific purchases.
  • Resale certificates: These are used when purchasing goods to resell them to your customers.


A list of sales tax exemptions

In addition to these general types of certificates, there are also specific situations where sales tax exemptions may apply. 

These can vary significantly from state to state, but here are some common examples:

  • Purchases of raw materials used in manufacturing: If you manufacture goods, you might be exempt from paying sales tax on the raw materials used in production.
  • Purchases of equipment used in manufacturing or agriculture: Certain types of machinery and equipment used in manufacturing or agricultural operations may be exempt.
  • Sales to specific industries: Some states offer exemptions for sales to specific sectors, such as healthcare, education, or technology.
  • Sales of specific types of goods: Certain goods, such as food, clothing, or energy-efficient appliances, might be exempt or subject to reduced tax rates.

With these exemptions, businesses can unlock valuable tax breaks and optimize their cash flow, but it can be complex. If you have questions or need assistance, don't hesitate to consult with a tax professional or your state's tax agency.




note icon

Don't assume exemption certificates are 'one size fits all.' Even within a state, different types of exemption certificates may exist for different purposes.


Download the sales tax guide for small businesses

Find peace of mind come tax time

Filing sales taxes can be overwhelming, but a little preparation can go a long way toward alleviating that stress. If you sell goods or products, your business will almost certainly have to collect taxes at some point, so get ahead of the game by applying for a sales tax license and start the process now.

With a little research, you can determine your sales tax rates and appropriate licenses. Then, use accounting software like QuickBooks Online to simplify calculating and paying sales taxes—allowing you to focus on running your business.


Sales tax license FAQ


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