How to Collect and Remit Sales Tax as a New Business

What Sales Tax Registration Means for a New Business

Sales tax registration is the process of obtaining permission from a state (and sometimes certain local jurisdictions) to collect sales tax from customers and remit it to the proper tax agency. Once registered, your business becomes responsible for:

• Charging the correct sales tax rate on taxable sales
• Collecting and tracking sales tax separately from revenue
• Filing sales tax returns on schedule (monthly, quarterly, or annually)
• Remitting the tax collected by the filing deadline
• Maintaining records that support the amounts reported

Step 1: Determine Where You Must Register (Nexus)

You generally register for sales tax in states where your business has sales tax nexus. Nexus can be created by physical presence or by meeting a state’s economic threshold. Common nexus triggers include:

• Physical presence: office, store, warehouse, inventory stored in a fulfillment center, employees, or regular in-state services
• Economic nexus: exceeding a state’s sales revenue or transaction volume threshold
• Marketplace activity: selling through online marketplaces that may collect tax on your behalf in some states

Physical Presence Nexus: Typical Examples

• Renting a booth at recurring in-state events
• Using third-party logistics (3PL) warehouses to store inventory
• Sending employees to perform installations, repairs, or training

Economic Nexus: What to Check

• State-specific revenue threshold (often based on gross sales into the state)
• State-specific transaction threshold (number of separate sales)
• Measurement period (current or prior calendar year, rolling 12 months, etc.)

Step 2: Confirm What You Sell Is Taxable (and Where)

Taxability depends on the state and the type of product or service. Before you register, identify:

• Which items are taxable, exempt, or taxed at a reduced rate
• Whether shipping, delivery, installation, warranties, or digital products are taxable
• Whether services (repair, consulting, labor) are taxable in the states where you operate

Step 3: Gather Information Needed to Register

States typically require similar information for sales tax registration. Prepare the following to reduce delays:

• Legal business name, DBA (if any), and business address
• Entity type (sole proprietor, LLC, corporation, partnership)
• Ownership details (responsible party, members/officers)
• Business start date and date you will begin making taxable sales
• Products/services sold and NAICS/industry classification (if requested)
• Estimated monthly taxable sales
• Federal EIN (commonly required for LLCs/corporations and many other cases)
• Banking details for electronic payments (if you plan to pay via ACH)

Step 4: Register for a Sales Tax Permit in Each Required State

After determining nexus and taxability, apply for a sales tax permit (sometimes called a seller’s permit, sales and use tax license, or sales tax account). Many states offer online registration and issue a permit number and filing frequency.

Registration Timing: When to Apply

• Before collecting tax: Register prior to charging sales tax to customers.
• Before opening day: If you are launching a storefront or website, register early enough to set up your checkout correctly.
• After hitting economic nexus: Register as soon as thresholds are met (or when you reasonably expect to meet them), based on each state’s rules.

Internal Resource Links

If you need help understanding the registration process, review the sales tax application requirements. If you still need a federal tax identifier, you can start with an EIN application to support state registrations and account setup.

Step 5: Configure Your Checkout to Collect the Correct Tax

Once registered, configure your invoicing and point-of-sale systems to charge the correct tax. Key setup items include:

• Tax rate sourcing rules: origin-based vs. destination-based rules for the states where you collect
• Product tax codes: correct mapping for taxable vs. exempt items
• Exemption handling: ability to mark customers as exempt and store exemption certificates
• Shipping taxability: whether shipping is taxable in each relevant state

Step 6: Manage Exempt Sales and Resale Certificates

New businesses often make exempt sales (for example, sales for resale or sales to exempt organizations). To support exempt treatment:

• Collect the correct exemption or resale certificate before treating a sale as exempt
• Validate the certificate is complete and matches the customer and transaction type
• Store certificates in an organized system (by customer and state)
• Track exempt vs. taxable sales separately for return reporting

Step 7: File Sales Tax Returns and Remit the Tax

After registration, you must file returns even if you have zero taxable sales for a period (many states require “zero returns”). Your state will assign a filing frequency based on expected or actual volume.

Common Filing Frequencies

• Monthly
• Quarterly
• Annually

What You’ll Report on a Typical Return

• Gross sales
• Taxable sales
• Exempt sales (by exemption type in some states)
• Tax collected (state and local components where applicable)
• Use tax due (if applicable)

Step 8: Maintain Records That Support Your Filings

Good recordkeeping helps you file accurately and respond to questions from tax agencies. Maintain:

• Sales invoices/receipts and daily sales summaries
• Tax collected by jurisdiction (where required)
• Exemption and resale certificates
• Return copies, payment confirmations, and correspondence
• Documentation for refunds, credits, and chargebacks

Common Mistakes New Businesses Make (and How to Avoid Them)

• Registering late: Register before collecting tax and promptly after nexus triggers occur.
• Charging tax without a permit: Many states expect registration first; get your account active before charging.
• Using the wrong rate: Confirm sourcing rules and keep rate tables updated.
• Ignoring local taxes: Some states have local jurisdictions with additional rules and reporting.
• Not filing zero returns: Missing filings can trigger notices and penalties even with no sales.
• Weak exemption documentation: Missing or incomplete certificates can turn exempt sales into taxable liabilities.

FAQ: Sales Tax Registration, Collection, and Remittance for New Businesses

1) Do I need to register for sales tax before making my first sale?

If you will be making taxable sales in a state where you have nexus, register before you begin collecting sales tax. This allows you to set up checkout properly and file under an active account.

2) Can I charge customers sales tax if I haven’t received my permit number yet?

Many states expect a valid sales tax account before you collect tax. If your registration is pending, delay charging sales tax until your account is issued, or follow the state’s specific guidance for pending applicants.

3) What’s the difference between a sales tax permit and a resale certificate?

A sales tax permit authorizes your business to collect and remit sales tax. A resale certificate is used to buy inventory without paying sales tax when the items will be resold.

4) If I sell online, do I have to register in every state?

No. Online sellers register where they have nexus. Nexus can be created by physical presence (inventory, employees) or by meeting economic thresholds in a state.

5) What if a marketplace collects sales tax for me?

In many states, marketplaces collect and remit tax on certain marketplace-facilitated sales. You may still need to register and file returns for other sales channels, use tax, or state-specific reporting requirements.

6) How do I know whether my product or service is taxable?

Taxability varies by state and can depend on product type, delivery method, and customer use. Confirm taxability rules in each state where you are registered and ensure your checkout system applies the correct treatment.

7) What is use tax and when would my business owe it?

Use tax generally applies when you buy taxable items without paying sales tax (often from out-of-state vendors) and then use, store, or consume them in a state. Many sales tax returns include a line to report use tax due.

8) What happens if I make no sales during a filing period?

Many states still require a return to be filed for that period. Filing a zero return on time helps avoid late filing notices and penalties.

9) How do states decide whether I file monthly or quarterly?

Filing frequency is commonly assigned based on expected or historical taxable sales volume. States may change your frequency over time as your sales increase or decrease.

10) If I’m registered in a state, do I have to collect tax in every city or county in that state?

Collection depends on the state’s local tax structure and sourcing rules. Some states require collecting local taxes based on the delivery