MSDTaxLaw.com

How to Register your Online Business for Sales Tax

You need to register to pay sales tax with multiple states, but how do you get started? Like many online retailers, you may have discovered the sales tax laws you were familiar with were turned on their head in June 2018 when the landmark decision, South Dakota vs. Wayfair, came down from the Supreme Court of the United States. Prior to this case, online retailers may only have been registered in the states in which they were physically located. This could mean that even a large business may only be registered in one state. Overnight, many remote sellers went from having to be registered in their home state to needing to register all over the country.

Realizing that there are just as many sales tax registrations as there are states (and localities!) that collect sales tax, you may feel overwhelmed at the prospect of registering in so many different states. But do not take this process lightly! A wrong answer could result in an audit and an assessment of taxes. In fact, many of these registrations seem innocuous enough until you realize the sneaky nature of the questions asked. Make sure to not only read the applications carefully, but also understand the full implications of each answer given. Even states with a simple one-page form may have intentionally ambiguous questions there to trick you.

Regardless, prior to getting started, you will want to gather all your information so that you can complete the forms. What sort of information do states require? A non-exhaustive, general list is below:

Address
Addresses of officers
Bank Name        
Bank Branch      
Bank Address   
Bank Routing    
Corporate name              
County
Credit Card Processor   
Date of incorporation    
DBA      
Date of Birth  
Driver License   
Driver License State       
Email Address   
Fax Number
Federal Filing     
FEIN      
List specific products and/or services you provide             
Mailing Address               
Merchant ID      
NAICS Code       
Name of officers
Name of officers
Phone number
Phone number of officers
Social Security Number
Social Security Number of officers  
State incorporated         
Type of incorporation    
Where Product(s) Listed/Held for Sale    
Website

Of course, some states ask for unique information. For example, some states will want the owner’s spouse’s social security number and contact information. It is up to you what information you feel comfortable divulging to a state, but remember, an incomplete application can be rejected. Most states will not call you to get any missing information over the phone and will instead simply mail a letter rejecting the application for being incomplete. Taxpayers who end up in a position where they are collecting tax in a state but cannot remit it because their registration application has been rejected could be accused of committing the crime of theft of state funds if the state finds out about the unremitted money. As a result, the timing of these applications can be quite important for businesses already collecting tax from customers.

Furthermore, business owners should prepare for the nominal fee many states charge to file an application. This is typically a processing fee that will need to be addressed to the state’s Department of Revenue. Of course, many state taxing authorities go by names other than “[State] Department of Revenue.” Make sure you are addressing the check to the proper agency.

Most importantly, it is vital for taxpayers to understand that registration is not the end of the road. Depending on your sales into the state, you may be required to file monthly returns with the state even for months in which you have no sales. While registration can be a tedious, time consuming process, it is only the beginning for businesses, which should be prepared to absorb the compliance cost and burden of collecting and remitting in a state immediately upon registering. 

Taxpayers who have already identified the states with which they have nexus may be overwhelmed by the potentially complicated process of registering in multiple states. While there are not many ways to simplify the process, the Streamlined Sales Tax Agreement does offer one solution. Specifically, the SSTA allows for a single registration application to be filled out to register for sales and use tax remittance in 23 states. The catch is that you cannot pick and choose which states you are registered with. Rather, registering through SSTA results in the sales tax registration in the following states:

Arkansas
Georgia
Indiana
Iowa
Kansas
Kentucky
Michigan
Minnesota
Nebraska
Nevada
New Jersey
North Carolina
North Dakota
Ohio
Oklahoma
Rhode Island
South Dakota
Utah
Vermont
Washington
West Virginia
Wisconsin
Wyoming

As the name implies, the Streamlined Sales Tax Agreement does streamline the registration process for taxpayers needing to register in all 23 states. However, it has been our experience that even one unnecessary registration can produce a long-term burden that outweighs any efforts saved up front by doing the SSTA registration rather than applying individually in each state.

Taxpayers unsure about how to progress through the registration process should consult a competent tax attorney. While the forms may appear straight forward, they can be full of traps for an unwary taxpayer uninformed on the full consequences of their answers. While sales tax laws in the United States have changed permanently, and the adjustment period may be difficult, states hope that clear, economic nexus standards will clean up the nexus ambiguities for businesses in the long term.  

Jeanette Moffa is an attorney who concentrates on state and local taxes at Moffa, Sutton, & Donnini, P.A. She is an executive council member of the American Bar Association Tax Section State and Local Tax Committee and the Florida Bar Tax Section. Ms. Moffa is an author of both the CCH’s Expert Treatise Library: Sales and Use Tax as well the ABA’s Sales and Use Tax Deskbook. In addition, her regular columns on state and local tax issues can be found in State Tax Notes and Actionline, a publication from the Florida Bar’s Real Property, Probate, and Trust Law Section. She also serves as assistant editor to the Sales and Use Tax Deskbook and Actionline. Ms. Moffa is a regular speaker at the American Bar Association Tax Section conferences, the Institute of Professionals in Taxation, the Florida Bar Tax Section, the Florida Bar Real Property, Probate, and Trust Law Section, and the FICPA. In her free time, she teaches as an adjunct professor at Broward College.