What does this mean?
This is a permit that allows you to collect and pay sales tax.
Does this apply to me?
If you are in the business of selling to and from states that collect sales tax, then probably. Note however that you will need to do this for several states where you have presence or “nexus.”
Why is making this mistake going to harm my business?
Without a seller’s permit, you won’t be able to collect sales tax where states require that you do. However, if the state won’t let you collect sales tax, you will still be liable to pay them. As a result, you actually be paying sales tax out of your own pocket.
Failure to pay sales tax on the other hand may result in fines and penalties, and sometimes even criminal prosecution. Check out Avoidable Mistake 32 for more info on how to tell if you have nexus, and what happens if you fail to pay sales tax.
You could avoid this by:
Conducting a dedicated survey of of the sales tax rules of every state where you have transactions to see if you need to get a seller’s permit. You won’t need to in states that don’t impose sales tax and in those where you don’t have nexus.
Will sells novelty hats online. He organized his company in Delaware because he heard that there is no sales tax there. But his goods ship from San Francisco, where his office and warehouse is.
Will created a viral video about why he decided to start selling his hats, and the company became very popular, particularly in San Francisco and entrepreneurs in Silicon Valley.
He was a bit overwhelmed with the sudden exponential increase in demand. To cope, he just focused on meeting every order as soon as possible. He made more than a million dollars from this sudden spike in interest over his hats. And since he was in Delaware, he didn’t collect sales tax on any of the sales.
A year later, he received notices from San Francisco and California telling him to pay sales taxes on the sales he made in San Francisco and California. Unfortunately, since he actually had a presence in those areas, he was supposed to collect and pay sales taxes for those sales. And what’s worse--since his customers had already paid and the sales were already complete, he couldn’t go back and tack the sales tax price onto their purchases. So he had to foot the bill himself, which put his company out of business since he operated on such low margins.
Will could’ve avoided this by having a better understanding of sales taxes and by collecting the sales taxes at the point of sale.