If you sell physical products, and sometimes even if you sell services or digital goods, a state will eventually expect you to collect sales tax from your customers and send it in. To do that properly, you register with the state first.
That registration goes by different names depending on where you are, but the idea is the same everywhere. Here is how to tell whether you need one, when to get it, and what you are signing up for once you do.
What a sales tax license actually is
A sales tax license is a registration with a state's tax agency. It authorizes you to collect sales tax on taxable sales and obligates you to file returns and pay over what you collect. Depending on the state, it might be called a seller's permit, sales tax permit, sales and use tax license, certificate of authority or transaction privilege tax license. Same concept, different label.
A few things it is not:
- Not a general business license. Your city or county may require one of those separately.
- Not an income tax. Sales tax is charged to your customer on each sale. You are the collector.
- Not your money. The tax you collect belongs to the state from the moment you collect it. Many owners hold it in a separate account so it never gets spent by accident.
In many states, the same registration is also what lets you buy inventory for resale without paying sales tax on it, using a resale certificate.
Do you need one? Three questions
1. Is what you sell taxable?
Physical goods are generally taxable in states that have a sales tax, though states carve out their own exemptions for things like groceries and prescription drugs.
Services are where states differ most. Many tax only specific services, while others tax a broader list. Digital products such as downloads, e-books, streaming and software vary widely too. Do not assume something is exempt in one state because it is exempt in another. Check the tax agency's guidance for each state where you sell.
2. Do you have nexus with the state?
Nexus is the legal term for a connection strong enough that a state can require you to collect its sales tax. There are two main kinds.
Physical presence. An office, store, warehouse or employees in a state generally creates nexus. So can inventory stored there, including inventory a fulfillment service holds for you. Depending on the state, regular in-person selling at events or trade shows can count as well.
Economic nexus. In 2018, in South Dakota v. Wayfair, the U.S. Supreme Court ruled that states can require out-of-state sellers to collect sales tax even without a physical presence. Since then, every state with a statewide sales tax has adopted an economic nexus rule based on how much you sell into the state. Many set the line at $100,000 in annual sales. Some set it higher, some also count the number of transactions, and states adjust these rules over time, so check the current threshold in each state where you have meaningful sales.
3. Are you selling to the end customer?
If you sell wholesale to retailers who will resell your products, you generally do not charge sales tax on those sales. You usually need to collect a valid resale certificate from the buyer instead, and in many states you still need to be registered to make those sales properly.
The five states with no statewide sales tax
Alaska, Delaware, Montana, New Hampshire and Oregon have no statewide sales tax. Alaska does allow local governments to levy their own sales taxes, and many communities there do.
Two cautions. First, no sales tax does not mean no business taxes; some of these states tax businesses in other ways. Second, if you are based in one of these states and sell to customers elsewhere, you may still need to register in other states once you cross their economic nexus thresholds.
Selling on Amazon, Etsy, eBay and other marketplaces
Every state with a statewide sales tax now has a marketplace facilitator law. These laws require the marketplace to collect and remit sales tax on sales made through its platform. That takes a lot off your plate, but not everything:
- Sales through your own website, social media or in person at markets and pop-ups are still your responsibility.
- Inventory stored in a fulfillment warehouse can create physical nexus in that state, and some states still expect marketplace sellers with nexus to register.
- States differ on whether marketplace sales count toward your economic nexus threshold.
Common situations at a glance
| Your situation | Likely need a sales tax license? |
|---|---|
| Selling goods at markets and events in your home state | Usually yes, in states with a sales tax |
| Online store shipping products nationwide | Yes in your home state; in other states once you have nexus there |
| Selling only through a marketplace like Etsy or Amazon | The marketplace usually collects; you may still need to register, especially if inventory is stored in a state |
| Freelance writing, design or consulting | Often no, but some states tax certain services, so check |
| Selling digital downloads or software | Depends on the state; many tax some digital products |
| Selling wholesale to retailers | In many states, yes, so you can make tax-exempt resale sales properly |
| Based in a no-sales-tax state, selling online | Not at home (local Alaska taxes aside), but possibly in other states |
When to register
Register before you make your first taxable sale in a state. Collecting sales tax without being registered creates its own problems, and so does making taxable sales without collecting. If you cross another state's economic nexus threshold, that state's rules set when registration and collection must begin, so check promptly rather than waiting until year-end.
If you have already been making taxable sales without registering, talk to a tax professional before you file anything. Many states offer voluntary disclosure programs that can reduce penalties for businesses that come forward on their own.
How to apply
Most states let you apply online through the state's department of revenue or equivalent tax agency. Expect to provide:
- Your legal business name and EIN (sole proprietors may use a Social Security number). If you do not have an EIN yet, start with our guide to getting an EIN.
- Your entity type, formation date and state of formation
- Business addresses and any physical locations
- Names and contact details of owners, members or officers
- A description of what you sell, sometimes with an industry code
- Your expected start date and estimated sales
Some states issue the registration for free; others charge a fee, and some can require a security deposit in certain situations. Some issue a number online right away, while others take days or weeks. Your state's page in our state guides is a good place to start.
If you have not formed your company yet, our Advanced plan ($249/yr plus state fees) includes a sales tax license along with your EIN, operating agreement and first-year registered agent. Details are on our pricing page.
After you register: what you are signing up for
- Charge the right rate. Sales tax can include state, county, city and special district rates. Many states base the rate on the customer's ship-to address; some use the seller's location for in-state sales.
- File on schedule. States typically assign a filing frequency (monthly, quarterly or annually), often based on your sales volume.
- File even when you sold nothing. Many states require a return for every period, including periods with zero sales. Missing a "zero return" can still trigger penalties.
- Keep your records. Hold onto invoices, exemption certificates and resale certificates. You will need them if you are audited.
- Watch for use tax. If you buy items for your own business use without paying sales tax, you may owe use tax on them.
- Close accounts you no longer need. If you stop selling in a state, close the registration rather than letting it lapse, so non-filing notices do not pile up.
If you have just formed your company, sales tax registration belongs on your first 30 days checklist alongside your EIN and bank account.
The short version
You generally need a sales tax license in a state when you sell taxable goods or services there and have nexus, either through physical presence or, since Wayfair, through enough sales into the state. Alaska, Delaware, Montana, New Hampshire and Oregon have no statewide sales tax, though Alaska allows local ones. Marketplaces collect tax on their own platforms, but your direct sales and stored inventory are still yours to manage. Register before your first taxable sale, charge the right rate and file every period, even the quiet ones.
This article is general information, not legal or tax advice. For decisions about your situation, talk to an attorney or a tax professional.