How to Register for a Sales Tax Permit in Washington, D.C.

How many times have you thought about quitting your job and starting your own business? Have you ever thought that you can do better than your current job position or that you can run a better company that the one you are currently working for? If you have, you might need to seriously look into starting your own business. If there is a spark that tells you that you can do better, than you should. The potential benefits of starting your own business are many if you put in the work to prepare everything, research everything you need to and put in the hours at work to get your business off the ground and running properly.

There are some questions you have to ask yourself in this situation. If you decided to take this step, make sure you do it for the right reasons and that there are no doubts about it in your mind. Cover all your bases. No matter where you start your business, make sure you have the right skills needed for the job. Don’t let your idea stay a mere idea and work it over into a business plan.

Make sure the business model you are eyeing is actually feasible and sustainable. If you haven’t had any work experience and are jumping into the entrepreneurial waters right away, make sure you understand the industry. But if you spent years working as an employee, use the experience to your advantage. You have essentially been in the engine room of a company and should know how everything functions; use that to your advantage and keep working on your skills as you go along.

Let’s say you would like to open a business in Washington, D.C. and you are not sure how to do it and where to start. This guide will provide you with directions to where things are done and who to contact if you run into obstacles, but the major part of running a successful business is doing the preparatory work properly and following along the regulatory guidelines.

Preparing to Start a Business in Washington, D.C.

Before we look into the regulatory process of registering a business, we should look into more general steps of running a business. We noted that the benefits of running your own business are many. This is generally true if you allow yourself some time to research the market, the competition, the suppliers, build your plan from the ground up and secure financing. All this will significantly increase your chances of running a successful business. If you do the preparation right, you will then reap the rewards of the fact that you are your own boss, you’ll be able to work flexible hours, or when you want, you’ll be able to enjoy more free time, have a larger financial freedom and you’ll have the pleasure of following your passion and building something from the ground up.

The first step, once you answer the questions we mentioned above, is to spend some time building a business plan. This is essentially the roadmap to your business. Start by researching the market and your preferences. You might have a market you are familiar with and you think you could benefit from. Look into it in more detail and see whether you can find any market gaps that would allow you to start building your company without too much pressure from the competition. Niche markets are often regarded as best places to start a business. These often have a healthy demand but the supply is lacking. As a result, the pressure on the profit margin is lower as well as that from potential competitors which are not as aggressive as you’d have it in a competitive market.

So if your desired market is competitive, maybe look for an alternative where you’d be able to build a name for yourself, gather experience and build a customer base, before branching into a new market and upscaling your operation. A well-thought and well-constructed business plan should also look into the products you plan on working with. You should also take into consideration what the competition is doing, where the supply is to come from, whether the demand is stagnating, booming, or fading. You also need to make revenue and profit predictions and go over your expenses and expected costs. Doing all this will allow you to have a clearer picture of what you need to remain in profit. But these are also aspects of the business plan that will be of interest to any bank or financial institution you turn to when seeking additional funding or investment in your business.

If any of these steps sound unfamiliar to you, it might be better to hire an attorney or a business advisor to help you go over these issues and build a solid business plan before moving on to the next step: registering your business with the D.C. regulatory bodies.

Registering a New Business in Washington, D.C.

When starting a business in Washington, D.C. you have several legal steps to complete. The first step is very significant as it defines a number of relationships in the company and determines your liabilities and tax obligations.

According to the District of Columbia’s Department of Small and Local Business Development, you have several choices when it comes to this first step, which is the choice of a legal structure of your business. If you plan on being the only owner and employee you could opt for the simplest legal structure: sole proprietorship. Not only is this the simplest form and the fastest to set up, but it also allows you to have full control of the business. The downside, however, is that there is no legal distinction between the business and the owner, which means you would be personally liable for all the debts of the business. The next option is similar to the sole proprietorship in terms of its setup procedure, but it allows for two or more owners to join in cooperation in a business. This form is known as a general partnership.

Your next option is to register a Limited Liability Company (LLC), which combines the benefits of partnerships and corporations (which will be discussed shortly). A significant advantage of this legal structure is the fact that the owners are protected from personal liability. The next type in the list is the corporation. A corporation operates as a legal entity independent of its owner. It does not cease to exist if an owner sells its shares or leaves the company for whatever reason. There are also limited liability partnerships (LLP), nonprofit organizations and limited partnerships, which you can read more about here.

Once you have chosen your business structure, it is time to register your business. The Department of Small and Local Business Development notes that all business operating in the District have to be registered with the D.C. Department of Consumer and Regulatory Affairs (DCRA). This department is in charge of issuing permits and recognizing the ownership types. Depending on your line of business, you might need to contact the Business and Professional Licensing Administration, which issues business licenses while any occupational and construction permits are issued by the Permit Center. If you are unsure about your business license requirements, you can contact D.C. Small Business Resource Center to receive free one-on-one counseling session with a D.C. business licensing or permitting professional.

In short, to register and run a business in the District of Columbia, you must provide your Federal Employer Identification Number (EIN) or social security number (SSN), the legal structure of the business, the address and details of business partners, if there are any. In case you already have a business registered in D.C., you will have to provide Former Entity Information as well as all the addresses where you will collect sales tax in Washington, D.C.  

The process seems fairly streamlined and can be completed online through the FR-500 New Business Registration form at the Office of Tax and Revenue. While the process might have been expedited through the online form, there are still some things you should know about the next step that follows, which is usually the most complicated one: tax requirements. This is why we are going to have a look at it in more detail.

Washington, D.C. Sales Tax Permits

Once you have completed the D.C. Combined Business Tax Registration document, or the FR-500, you will be notified of your tax obligations and the schedule for your tax filing. But in order to complete the FR-500 in the first place, you are required to provide your Federal Employer Identification Number (EIN), also known as Tax Identification Number (TIN). This process is done through the Internal Revenue Service (IRS) and can be completed online or by downloading and filling out the IRS Form SS-4. You can also apply by phone, mail or fax. The D.C. Department of Consumer and Regulatory Affairs notes that the Form SS-4 can be delivered to the service center for the District of Columbia at the address provided in the Contact Details section below. Once you have the EIN, you can complete the FR-500, the D.C. Combined Business Tax Registration document

Now, as this guide is mostly aimed at the business owners who plan on buying merchandise by the pallet to sell online, we have to take a closer look at sales tax permit requirements and obligations. The first step is to determine whether you have a D.C sales tax nexus, which means that you either have an office, distribution center, a storefront or any other place of business, or that you have a representative, be it an agent or a salesman or a person who will make retail sales or take order for such sales. The next step is to determine whether the services you will be providing or the products you will be selling are taxable. In general, services are not taxable in Washington, D.C. while selling tangible products is. There are some exceptions in both categories.

If you do determine that you have a sales tax nexus and that the services you provide or the products you sell are taxable in the District of Columbia, you will have to apply for a sales tax permit. Above we have already mentioned what information you will have to provide when registering for a sales tax permit. The registration process is free of charge, although the DCRA does not provide a specific timeline within which you can expect to have your permit.

Sales Tax Exemptions in Washington, D.C.

Like any state, the District of Columbia also has certain tax exemptions, enabling businesses to make sales or purchases without paying tax. Sales to any government organization, foreign embassies or diplomats are tax exempt. The full list of exempt sales can be viewed here, but we are mostly interested in the sale of property with the aim of reselling it, granted the buyer provides the seller with the District of Columbia Certificate of Resale (Form OTR-368).

When purchasing the items you plan on reselling, you should always fill out and sign the certificate of resale before providing it to the seller. This is very important because you might find yourself in the seller’s position with your customer providing you the certificate, in which case you have to look if it has been filled properly, signed and dated. As a seller, you are also required to keep all the received certificates of exemption on file, in case of an audit.

While this guide walks you through the process of preparing for and registering your own business in  Washington, D.C., it is not an official document. This is why we urge you to consult an attorney or a business counselor or use the D.C. Small Business Resource Center services for assistance.

Contact Details

IRS Service Center for the District of Columbia

IRS 1040
ATTN: FEIN Operations
Waverly Avenue
Holtsville, New York 11742

Department of Consumer and Regulatory Affairs

1100 4th Street, SW, Washington, D.C. 20024
Phone: (202) 442-4400
Fax: (202) 442-9445
TTY: (202) 123-4567
Email: [email protected]

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