Seller’s permits: Everything you need to know

What is a seller's permit?

A seller’s permit allows your business to collect and pay state and local sales tax on taxable goods and services. If you sell tangible personal property or provide a taxable service in a state or local area, you generally need a seller's permit to report and pay the tax on those sales. This requirement may not apply if your sale qualifies for a specific exemption.

A seller’s permit also registers your business with tax authorities and gives you a unique sales tax ID number. Other names for a seller’s permit include sales tax license, sales and use tax permit, and sales tax ID registration.

Some states use different terms. For example:

• In Arizona, a seller’s permit is called a transaction privilege tax (TPT) license.
• In Ohio, a vendor's license lets Ohio residents and businesses sell products or services. Out-of-state residents can use a seller's use tax account to sell products and services in Ohio.
• In New York, a seller’s permit is known as a Certificate of Authority. This term can mean different things in different states. In some places, a Certificate of Authority shows that you are allowed to do business in a state different from where you originally formed your business.

Sales and use tax in the U.S. is managed by individual jurisdictions, including states, counties, cities, and special tax districts. Each one sets its own tax rules and rates. There is no federal sales and use tax in the U.S.

What is sales and use tax?

Sales tax is a tax applied to the sale, transfer, or exchange of taxable items or services. It generally applies to sales to end users or final consumers and is added to the purchase price and collected from the buyer. The seller is responsible for sending this tax to the state.

In certain home rule states, local areas can manage their own sales and use taxes, separate from the state tax authority. For example, in Colorado, jurisdictions like the City and County of Denver and the City and County of Broomfield collect their own taxes. These local jurisdictions can create their own rules on which goods and services are taxed; this information is available directly from the self-collected cities.

Use tax works alongside sales tax. It is charged on the use, storage, or consumption of tangible personal property in a state where sales tax wasn’t paid at the time of purchase. Use tax is designed to ensure that people buying goods from out-of-state sellers or online pay the same amount of tax as if they bought those goods locally. The business must determine the amount of use tax it owes and pay it.

Who needs a seller’s permit?

To sell goods in a state, you need to register with that state’s tax department and/or get a seller’s permit if you have a physical or economic nexus to that state.

"Nexus" means your business has a significant link to a state that allows it to tax you. You can have a physical presence nexus in a state if you have a store, employees, or engage in activities that the state defines as creating a presence.

The economic presence nexus standard considers your sales activity in a state to see if it creates a connection that requires you to register. This can depend on the number of sales or on exceeding a certain dollar amount.

Economic nexus mostly affects businesses that do not have a physical presence in a state, e.g., remote sellers. This includes online stores, sellers on platforms like Amazon and eBay, social commerce sites like TikTok Shop and Instagram, and dropshippers.

Keep in mind that while platforms help marketplace sellers collect and pay taxes, sales through these platforms still count toward the seller’s economic nexus threshold.

Is a 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 lets a business sell taxable goods and services and collect sales tax. In contrast, a business license gives general permission to operate in a specific area.

Many businesses need both a seller’s permit and a business license. For instance, a retail business in Los Angeles needs a Seller's Permit from the California Department of Tax and Fee Administration (CDTFA), a Business Tax Registration Certificate from the City of Los Angeles, and any other necessary licenses and permits.

When do I need to get a seller’s permit?

The rules for obtaining a seller’s permit depend on your business and vary by state.

If you have a physical presence in a state, such as an office, store, or employees, you need to obtain a seller’s permit before starting your business there.

If you sell online and don’t have a physical presence, you must get a seller’s permit once you exceed the state’s economic nexus threshold.

How do I get a seller's permit?

To obtain a seller's permit, you will need to go through a state-level tax authority, typically the Department of Revenue or the Department of Taxation. Some states have different names for this agency, such as the CDTFA in California or the Comptroller of Public Accounts in Texas.

Before applying for a seller's permit, there are a few important steps to take:

1. If you are forming a business entity, such as an LLC or corporation, you should first file the necessary formation documents with the state and obtain an Employer Identification Number (EIN) from the IRS.
2. If you plan to use a business name that differs from your legal name (known as a "DBA" or "doing business as" name), make sure to register it prior to applying for your seller's permit. You will likely need to provide this information during the application process.
3. Remember that additional licensing and registration requirements may apply at the federal, state, and local levels. These requirements will depend on your industry, business activities, location, and whether or not you have employees.

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Navigate seller’s permits, sales tax, and use tax with ease. Explore how CT Corporation can help you figure out your requirements to avoid common tax penalties and fees.