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How to Pay Sales Tax for LLC

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Published on January 17, 2022

Updated on August 1, 2022

How to Pay Sales Tax for LLC

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How to Pay Sales Tax for LLC

When you have a small business, there is much to do. One of the responsibilities is to collect and pay sales tax, which can be a hassle, but it’s absolutely necessary if you want to avoid penalties.

Sales tax, or sales and use tax, is simply a tax on taxable goods and services. The tax is levied by states, and sometimes counties and municipalities. 

Get a Sales Tax Permit

A sales tax permit, sometimes called a seller’s permit, is issued by the state to track where tax revenue comes from within the state. You can get a seller’s permit online, usually on the website of your state’s department of revenue. You’ll need information about your business to apply, including your Employer Identification Number, or EIN. Sometimes there is a small fee to apply for the sales tax permit.

Collect Sales Tax

Once you have your sales tax permit, you must collect the sales tax from customers. Almost all tangible property your business sells is subject to sales tax. This could be anything from cars to candy. Some states do not require sales tax on things considered necessities, such as groceries and gas. 

Some services are also subject to sales tax, but it varies by state. Services to someone’s personal property, such as home repairs, are often considered taxable. Even lawn mowing or snow removal may be taxable as well. 

Business services such as marketing or management consulting may also be subject to sales tax, as are personal services such as hair or skin services, or pet services. You need to check with your state, county, and municipality for requirements. Rates vary by state. Not all states collect sales tax, but most do. 

To find out the sales tax rate for your state, choose your state from the list below. The following five states currently have no statewide sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon.

How to Pay Sales Tax

You will have to file a sales tax return on a periodic basis, which depends on your state. It can be monthly, quarterly, or semi-annually, and sometimes the requirements will vary based on your sales volume. You can usually file and pay online with your state’s department of revenue. 

You have to file your sales tax return as required even if you didn’t collect any sales tax during the reporting period. 

If you fail to pay sales tax to the state, you can be subject to fines and penalties, and if the state determines that you were defrauding the state out of sales tax revenue, you could face criminal penalties.

Resale Certificates

If you sell tangible goods that you buy from a wholesaler, you should get a resale certificate so that taxes are not paid twice on the goods.

With a valid resale certificate, you can buy goods from a wholesaler without paying sales tax, though you may pay a use tax. You need a separate state resale certificate, which is sometimes known as a resale license, for every seller you purchase goods from.

In some states, a sales tax permit is the same as a resale certificate, while in other states you’ll need both. 

Keep in mind, you cannot use a resale certificate to buy items you do not intend to resell, such as a new computer for your business. Doing so would be tax fraud, a felony offense. You’re only able to buy items tax-exempt if you’re going to collect sales tax on them later.

Not all wholesalers will accept resale certificates, nor do they have to. They may choose not to because of the risk of expired or false certificates, which would put the wholesaler on the hook for the sales tax.

You can apply for a resale certificate through your state’s tax department. This must be the state where you do business, even if you formed your business entity in another state. If you sell products in more than one state, you will also need to apply for a resale certificate in those other states.

If you do business with multiple sellers in multiple states, you need resale certificates for all of them. Also, you can only get a resale certificate if you have a sales tax permit, if your state requires both. Some states will not accept resale certificates issued in other states.

In Closing

Paying sales tax can be a bit of a hassle, but it’s necessary, and not terribly difficult. It’s crucial that you do it, and do it correctly. You can face penalties and fines, or even criminal charges, if you don’t pay sales tax when required. If you need further assistance, consult a tax advisor.