The sale of tangible goods in the state of California isn’t legal without a California seller’s permit, but many entrepreneurs looking to start an online business here wonder if this permit is a requirement for virtual storefronts. We take a look at the rules surrounding seller permits for online companies.
What Is a Seller’s Permit and Who Needs One?
A seller’s permit allows a business to sell its products or services and collect sales tax on those items. In the state of California, a seller’s permit allows business owners to sell tangible goods. Tangible goods are physically movable and touchable items. Examples of tangible goods would be clothing, flowers, tools, or office furniture.
Any individual, limited liability, or other entity that is engaged in business in the state of California, and which plans to either sell or lease tangible personal property typically subject to sales tax if sold at the retail level, needs a CA seller’s permit.
What About Online Businesses?
Yes, online businesses must now hold a seller’s permit if doing business in California. This is due to a 2018 ruling by the Supreme Court that internet retailers would have to pay sales tax in their state, even if they didn’t have a physical location there. Just as with physical businesses, any online business making three or more sales in a 12-month period must apply for a seller’s permit.
What Kinds of Online Businesses Need a Seller’s Permit?
Just as with physical business, any online business selling tangible personal property typically subject to sales tax if sold at retail needs a seller’s permit.
This includes businesses selling tangible goods from their own online storefront, and anyone who has made three or more sales in a 12-month period at online classified sites and internet auction sites or houses. A permit is also needed for any online business selling tangible goods via a third-party website like Shopify or ArtFire.
Seller’s Permits, Business Licenses, and Resale Licenses
Many who are looking to start an online business assume they don’t need a seller’s permit due to already possessing a business license. The reality is that both a seller’s permit and a business license are necessary in order to conduct business online in California.
It’s often assumed that “seller’s permit” and “resale license” mean the same thing. However, they are two different things. While a seller’s permit allows business owners to collect sales tax, a resale license exempts a business from paying additional tax when they purchase goods they plan to sell.
Your Responsibilities as a Seller
Once you’ve received your permit, you’re bound by law to file sales and use tax returns, as well as pay any use or sales taxes that are due. Sales tax on every taxable sale must be reported and paid. You’ll also be required to keep adequate records of your purchases and sales.
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