How to Register for a Sales Tax Permit in California

Whether you are an aspiring entrepreneur just at the beginning of your career or a seasoned worker, being your own boss is something you probably strive for. However, in spite of all the advantages, running your own business can be a daunting task. You will often see people backing down from it as they are unsure whether they are well equipped for the task.

The truth is, anyone can be their own boss. It is just a matter of having the courage to take the first step. No one has gone into the business knowing it all, succeeding with every step they take. The best businesses are not built on luck but on hard work and long hours at the office. And yes, you would have to do that too, whether it is to learn and acquire required skills or to plan your next steps and develop a business plan or working to secure new deals and get your business off the ground.

But that hard work pays off eventually, as well as being careful and thorough in your preparation. You dream of having financial independence: you can have that. You dream of your business working for you: you can have that too. Or maybe you would like to have more spare time to spend with family and friends or to travel the world. Whatever your dream is, you can have it, if you do your homework.

And if you are based in California, and would like to start your own business, what does that homework entail? Well, this article is conceived as a guide to registering a business in California with the relevant authorities as well as registering for a sales tax permit.

However, before we get into the steps required to set up a business in the state of California, we have to stress that this is not an official document and we urge you to consult an attorney or a business advisor to avoid any potential issues in the registration process.

Preparing to Register a Business in California

So what preparation is necessary for a successful business? There is no strict formula or answer to that question because circumstances could be different for every business and at times even the best preparation may not lead to a successful business. But the steps we will lay before you will increase your chances of making it.

Every business, in order to have the best chance of success, has to be built on strong foundations. This means giving answers to a number of questions and setting the right course for your business. The doubts related to your skills, and whether you are equipped to perform the managing tasks should be overcome as soon as possible by acquiring the necessary skills through education. The experience needed comes from years of working as an employer and will come along the way. Don’t underestimate the hours and years spent in different positions in the companies you have been working for during your career, every job, every task you did counts. You already know the ins and outs of the managing process. You have been in the midst of projects and you know how things function.

What you now need is to find the market you are comfortable in, and to develop your business plan. This plan is important for several reasons, as it will serve as a roadmap in the establishment and registration process, but will also serve as a tool to secure funds from banks or financial institutions, should you need them.

Every business plan starts with a thorough research of a market. Let’s say you already have a preferred target market. The research will have to look into every aspect of that market, the supply and demand dynamics, the potential competitions. Since this can be an extensive process, it is again advisable to consult an attorney or a business advisor to help you with the research. While you could try to do it on your own, having the resources a reputable attorney or a business advisor has at their disposal will not only shorten the process significantly, but it will also deliver better results.

And what do these results show? Well, first of all they show you the state of the market as we said above. But more importantly, it will show you whether the business model you are proposing is actually sustainable and makes any financial sense.

Often people jump into a business without research and find out later that they have entered a very competitive market that is not allowing them much room for profit and as a result they have to close shop soon after opening it. The research will enable you to avoid such a mistake. It will allow you to project your costs, estimate your expenses, project profit and determine whether your business model would be financially viable in the current market conditions. If it is, your job is pretty much complete and you can move onto the next step, but if it turns out your business would face stiff competition it is time to take another approach.

A different approach would either mean looking at a new market or look into a more specific, niche market segments within your target market. The research will allow you to find undersupplied niche markets that are often the best place to start a business. There are several reasons for this. One is the lack of competition, and the other is a healthy demand for a product that outweighs the supply.

This means you can build your company slowly, with less pressure. It allows you to build a name for yourself. If you do provide quality products and services, your customer base would follow you to any market you decide to enter, making that step a lot easier. An additional bonus is that you will be given a chance and more time to gather experience in managing a business on a smaller scale at the beginning and build on it, as your company grows.

Now that you have established what market you are entering, built your business plan, and secured funds for your business, it is time to tackle the next step. This is the legal part of setting up a business, which entails registering your company with the relevant authorities in the state of California.

Registering a New Business in California

According to the California Secretary of State, after completing the first two steps, your focus has to turn to select the legal entity type for your business. This will determine your tax obligations, the ability to transfer assets or ownership, the ownership and management structure as well as your business or personal liability. It will also determine whether you need to file registration documents with the Secretary of State. The business entity types that do require registration are corporations, Limited Liability Companies (LLCs), Limited Partnerships, and Limited Liability Partnerships. However, you can also register a general partnership, although that is not required of you.

Sole proprietorships do not need a registration. These are the simplest business entity types to set up, as well as the most common. However, you have to consider the fact that you will be personally liable for all the business debts. If you are interested in liability protection, you can look into registering an LLC or corporation. Whatever the case, it is again advisable to consult with an attorney in order to determine which entity type would suit your business and your goals. Filing documentation for the entity types that need registration with the Secretary of State can be downloaded at the SoS website and the fees range from $50 to $120.

Sole proprietorships, as you are not required to register with the Secretary of State, can operate under the name of the business owner. However, in case you would like to operate under a name other than yours, you should file a fictitious name. If you do decide to use a fictitious business name, you will have to file with the county clerk/recorder where the business is located. In addition, depending on the location of your business, you have to pay close attention to local zoning regulations, as well as potential special licenses and permits you might need to apply for if your line of business requires any.

With all that done and completed, it is time to turn to the most complex segment of the registration process, the tax, and the sales tax permit. We will see what it is, who needs it and how to register for it.

California Sales Tax Permit

The tax requirements should always be looked at closely as you would not want to run into any issues there. The first step to take is to secure your Federal Employer Identification Number (EIN) with the Internal Revenue Service (IRS). Once that is in place, you have to look into the state-specific requirements.

One of these requirements in the state of California is the sales tax permit. However, you only need to obtain this permit if you have a sales tax nexus in the state. According to the California State Board of Equalization, any retailer engaged in business in the state has a substantial nexus, and “engaged in business” means the retailer has a physical office, place of business, place of distribution, a representative, is engaged in leasing business, or is a member of a commonly controlled group. In short, if you have an affiliate, you have a sales tax nexus, as well as if you manage to derive over $100,000 in net income in trade shows over a year.

If you do have a sales tax nexus, your next step is to check whether the merchandise you plan on selling is taxable in the state. If what you are selling are tangible products, the chances are they are taxable. On the other hand, services are generally tax-free, although there are exemptions in both cases.

In order to obtain a sales tax permit in California, you should visit the California Department of Tax and Fee Administration’s website and complete the registration online. You could also visit one of the local offices and file your application in person.

The information you will be required to provide includes personal identification information such as Social Security Number (SSN), a driver license number, an email address, your Federal Employer Identification Number (EIN). If you are operating a larger company like a corporation, you will be required to provide corporate name, number, and state the company was incorporated as well as information about your partners and corporate offices, addresses of your supplier as well as their names and a lot more. There is no application fee in California and you will receive your permit immediately if you file online. In addition, once received, you don’t need to renew your permit.

Sales Tax Exemptions in California

As the majority of other US states, California provides certain exemptions under which a buyer is not required to pay and the retailer is not required to collect sales tax.

For example, if you are buying merchandise with the sole intention to resell it you are not required to pay sales tax. As a buyer, you can avoid paying tax by providing the California Resale Certificate at the time of the purchase. According to the California Tax Service Center, exemption certificates are accepted in good faith.

However, as well as using it while purchasing merchandise, you might be on the receiving end of an exemption certificate. In that case, you have to make sure that the required information is filled in properly and that the document is signed by the buyer. The required information includes the buyer’s name and address, the permit number, the description of the items purchased as well as a statement that the items are being purchased for resale.

Contact Details

California Secretary of State

1500 11th Street
Sacramento, CA 95814
Phone: 916 653 6814

State Board of Equalization

450 N St
Sacramento, CA 94279
Toll-free: 1-800 400 7115
Outside the US: 1-916 445 6362

The address is the same for the California Department of Tax and Fee Administration.

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