There is much to consider when you’re thinking about starting a business.
What industry should you choose? What product should you sell? How do you create a unique brand?
These are big picture questions and they tend to hog the bulk of your attention. Sometimes it’s easy to let the little things, like securing your business permits and licenses, slip through the cracks. But there’s one document that you should never forget: your seller’s permit.
If you’re in the business of selling a product or service, you can bet that you’ll need a seller’s permit before opening your doors for business. If your seller’s permit is still stuck on your to-do list, you’re in luck. We’re explaining everything you need to know about how to apply for a seller’s permit below.
What Is a Seller’s Permit?
A seller’s permit is a document that you apply for through your state. This permit fulfills two primary functions:
- It enables you to sell products or services in your state.
- It permits you to collect sales tax.
For the government, this document is important because it allows them to see how much income you’re reporting, how you’re collecting sales taxes, and whether you’re paying this tax back to the state.
If you’re thinking about operating your business without securing a seller’s permit, think again. Failure to produce one when requested could result in a hefty fine and even jail time.
What Will You Find on a Seller’s Permit?
On a seller’s permit, you will find basic identifying information about your business and authorization to sell within your state:
- Issuing party
- Your state’s seal
- Account number
- Business name
- Business address
- Language that authorizes you to engage in business
Seller’s Permit Example
Here is an example of a seller’s permit found on the Environmental & Engineering Hazmat Team’s website for an idea of what information you’ll find on this document.
Image source: Environmental & Engineering Hazmat Team
When Do You Need a Seller’s Permit?
If you’re planning to sell or lease any products, you are required to secure a seller’s permit. If you’re a service provider, like an attorney or consultant, you will also need a seller’s permit.
The laws regarding who needs a seller’s permit are often broad in scope depending on the state. California, for example, requires any entity “engaged in business” to have one. By “engaged in business” they mean you:
- Have a place of business, like an office or warehouse
- Have a sales representative or agent
- Receive rental payments from rental properties within the state
But what happens if your business is seasonal? Would you still need a seller’s permit if your business operates for a limited duration?
Yes. If your business is seasonally selling Christmas trees, for example, you still need a seller’s permit. Your state should have an option available to apply for a temporary seller’s permit. These permits usually last up to 90 days at a single location.
Also, note that if your business has multiple locations, whether in the same state or several, you must apply for a seller’s permit for each location. If you have any questions about whether your business needs a seller’s permit, you should consult your state’s taxing agency.
Do I Need a Seller’s Permit to Sell Online?
So far, we’ve discussed seller’s permits in terms of physical storefronts and businesses. But what about if you run an ecommerce business?
Some online businesses aren’t required to secure a seller’s permit unless you’re operating within a certain industry. The health care industry, for example, often requires businesses to adhere to certain rules and regulations.
Other states, however, are more strict. California’s Department of Tax and Fee Administration, for example, says that if your business makes more than three sales within 12 months, you must have a seller’s permit—that includes any sales closing through internet auction houses or for online advertisers. “Internet sales,” according to CDTFA Publication 109, “are treated just like sales made by sales representatives, at retail stores, over the telephone, or by mail order.”¹
Tax legislation is slowly catching up with the digital arena’s growth. It’s important to do your research with your state’s local tax laws to confirm you are complying with business requirements.
How to Apply for a Seller’s Permit in 2 Quick Steps
If you’ve established that your business needs a seller’s permit, you’re likely wondering “how do you get a seller’s permit?” Follow these steps to make sure your business has the proper documentation.
Step 1: Complete and Submit Your Application
The application process to secure a seller’s permit will vary state by state. Some states may require you to visit one of their local offices or mail in your application. Others may encourage you to apply electronically. Take a moment to visit your state’s website on business and tax regulations to learn about the specific process.
Regardless of which state you’re applying within, there are various questions you can expect. Some questions include (but are not limited to):
- Business name
- Business entity
- Business location(s)
- Date your business opened
- Calendar quarters (for seasonal businesses)
- Monthly sales figures
- When you started collecting tax within your state
- Description of your products or services
- An estimated amount of sales tax you will collect
- NAICS code (more on this below)
In addition to answering the above questions, you will likely be requested to provide some of the following documents:
- Your social security number
- Photocopy of driver’s license
- Name and location of your suppliers or vendors
- Business banking information
- Name of the person(s) maintaining your account
- Sometimes the information of a personal and professional reference
Please note that there are additional steps you may need to take, depending on the nature of your business and which industry you operate within. A bar, for example, may provide proof of a liquor license before you apply for your seller’s permit. Operating within the cannabis industry or selling fuel or gasoline may also subject you to secure additional permits and licenses.
Remember that a seller’s permit is required for each location of your business. If you have stores in Nevada and Alabama, for example, you’ll need to secure a permit for each location while adhering to each state’s requirements.
You might be wondering whether there’s an application fee, like when you’re registering your business. The answer varies. Some states, like California, do not charge any application fees for securing a seller’s permit, while other states will charge a nominal fee.
What Is a NAICS Code?
Earlier, you may have noticed that the application process will require you to provide a NAICS code. NAICS stands for North American Industry Classification System and it’s used to categorize businesses by industry.
If your business is within the agriculture industry, for example, the NAICS code is 11. Finance and insurance is 52. And for retail trade, your code is 44-45.
For a more comprehensive guide and list of NAICS codes, you can head over to the United States Census Bureau website.²
Step 2: Fulfill Your Post-Application Responsibilities
After you register, you’re not done yet. Remember: A seller’s permit allows you to sell products or services within your state and collect sales tax. You’ll then need to make sure you’re remitting that tax to the state.
Every state has their own specific rules around sales tax. Some states request that you file these returns monthly, while others require quarterly or annual filing. Familiarize yourself with your state and local tax requirements to ensure that you’re complying with your tax obligations. While you should still consult with your state’s taxing agency, you can use this breakdown of state and local sales tax rates to get you started.
If you use accounting software, you can likely automate this process so you don’t have to worry about submitting your sales tax return on time. You may also want to consider hiring a bookkeeper or accountant can free your time and energy to focus on other business operations.
Some states will also require you to report any changes within your business. Some updates you may need to report include:
- Change of your business address
- Change in business ownership
- When you add or drop a partner
- When you sell your business
- When you buy another business
- When you decide to close your business
Seller’s Permits: Frequently Asked Questions
Q: Is my seller’s permit the same as a business license?
No. A seller’s permit is not the same as a business license. A seller’s permit is required if you’re selling a product or service or must collect sales tax. A business license, however, is not required for some businesses.
We recommend that you check with your county’s local business license department to understand which permits and licenses are required to operate your specific business.
Q: What’s the difference between a seller’s permit and resale certificate?
A seller’s permit, as we covered above, allows you to sell products or services and collect sales tax. A resale certificate is similar but it is applicable when businesses buy products for resale purposes.
If you’re purchasing items from a wholesale supplier, for instance, with the intention to resell them to your customers, a resale certificate allows you to not pay sales tax at the point of purchase. Then, when you sell these items, your customers will pay sales tax and you will remit this to your state. A resale certificate, in essence, prevents duplicate sales tax to be paid for the same item.
Q: Is a state sales tax ID the same as a seller’s permit?
Yes, they are the same. You will be assigned your state sales tax ID when you secure a seller’s permit.
Q: How long is a seller’s permit good for?
This varies by state. In some states, your seller’s permit is valid for however long you own your business. In other states, you might need to renew your permit every one to five years.
Q: How do I cancel my seller’s permit?
If your business is no longer operational, then you have no use for your seller’s permit. As the former business owner, you should return your seller’s permit to the state agency that handles your taxes.
Depending on your state, you will need to submit a formal document. California, for example, requires business owners to submit a Notice of Closeout. In this document, you will disclose the date of when your business closed or was sold, the selling price, and escrow information.
Figuring out how to get a seller’s permit can be tedious but is necessary when setting up your business. Once you finish this step, though, know that you’re one step closer to legally launching your business.
Just make sure to set up a system to track the amount of sales tax your business accrues and to file the appropriate paperwork with your state when necessary. Your business accounting software is a good place to start, or you may also consider hiring a bookkeeper or accountant to help manage the process.