Once a business establishes nexus in a state, registration for sales tax is usually required. This applies whether nexus arises from physical presence, economic activity, affiliate ties, or other triggers. Registration may also be needed for resale purposes or to meet use tax obligations, even if no taxable sales are made. After registering, businesses must collect the correct tax, file returns on time, remit payments, and maintain accurate records – including exemption and resale certificates. Use tax adds another layer, requiring purchasers to self-assess and pay tax when sellers don’t collect it, such as on out-of-state or online purchases. Many audits uncover liabilities here. Non-compliance carries serious consequences: interest, penalties, and in some cases, indefinite audit exposure if returns aren’t filed. By registering appropriately, managing filings, and monitoring deadlines, businesses can minimize risk and build a reliable compliance framework across multiple states.
When to Register
A business must register for sales tax in a state once it establishes nexus, whether through physical presence or economic activity. But registration may also be necessary even when no taxable sales are made in a particular state.
Key reasons to register include:
- Triggering nexus (physical, economic, affiliate, etc.)
- Purchasing goods for resale — A business intending to resell tangible personal property (e.g., wholesalers) must provide a resale exemption certificate to avoid paying sales tax on purchases. To do so, a sales tax license may be required, even if the business has not met economic nexus thresholds.
- In some states like New York, a seller must be registered to accept a resale or exemption certificate from a purchaser.
- Businesses may also be required to register in order to file use tax returns and fulfill their use tax liabilities.
Understanding each state’s registration rules ensures businesses don’t miss a mandatory filing requirement — even in cases where they aren’t directly collecting tax from customers.
Sales Tax Compliances
Once a business is registered and receives its sales tax license or permit, a set of responsibilities follows:
- Collecting the correct tax rate from customers on taxable sales.
- Filing tax returns — This may be monthly, quarterly, or annually, depending on the volume of taxable sales in the state.
- Remitting the collected tax to the relevant state or local tax authority.
- Keeping records — This includes transaction data, sales tax collected, exemption certificates, and resale documentation.
- Filing for refunds — If the business has overpaid sales tax, it may file a claim with the state for a refund.
Failing to follow these steps can result in filing errors, missed payments, and audit issues. Maintaining clean, well-organized records is essential for smooth audits and ongoing compliance.
Use Tax Compliances
In addition to sales tax, businesses — and in some cases individuals — may also be responsible for use tax, which applies when purchases are made without sales tax being collected.
Use tax compliance varies by state:
- Some states require individuals to report use tax directly on their state income tax return.
- Others mandate the filing of separate consumer use tax returns.
- In either case, use tax must be self-assessed and paid by the purchaser — not the seller.
Certain purchases may be exempt from use tax, such as those used directly in manufacturing processes. However, exemptions must be backed up by valid exemption certificates, which businesses are responsible for maintaining.
Use tax is often overlooked, but many audits uncover liabilities here — especially for businesses making out-of-state or online purchases where no sales tax was charged.
Consequences of Non-Compliances
The consequences of failing to register, file, or pay sales or use tax correctly can be significant.
Most states enforce a statute of limitation of 3 years for sales and use tax assessments. However, this period may be longer in certain situations:
- When taxable sales are underreported by more than a state-specified threshold
- When no return has been filed, allowing states to assess tax indefinitely
Additional consequences include:
- Interest on unpaid taxes, calculated from the due date of the payment
- Late filing or payment penalties, which can be substantial — often around 25% of the tax liability
- Suspension of the sales tax license, which could prevent the business from legally operating in the state
To avoid these issues, businesses must actively manage their tax obligations and stay on top of registration and filing deadlines.
Stay Tuned for More
This alert is part of the ongoing M2K US Sales Tax Series, created to help businesses navigate one of the most complex tax systems in the world. By understanding when to register and how to stay compliant, businesses can reduce audit risks and build a strong foundation for multistate operations.
Upcoming topics in the series will cover:
- Voluntary disclosure agreements
- Tax treatment of software and SaaS
To access previous and future alerts, visit www.m2kadvisors.com and subscribe.
