This is the fourth post in a series about how to get all the proper licenses and permissions for your home business.  To read the previous posts click the links:

Get Legit ! #1 Get your EIN#
Get Legit ! #2 Your neighborhood
Get Legit ! #3 Do your research

Remember, we are taking baby steps.


Don't panic at the length of this post. Most of it is what you need to know AFTER you are set up with your state. It's not long because you need to know a lot to fill out the forms.

To review

If you've been following along and doing the baby steps you now have your forms and are ready to fill out the paperwork for your state. If you are in the U.S. you will have to do this step even if your state does not have a state sales tax. If your state does have a state sales tax you will be filling out paperwork for both the business license office and the sales and use tax office. Sometimes the application is combined and sometimes you will have separate applications. You may also have a separate application for your Fictitious Name Statement if that is filed at the State level in your state. If you don't know what I'm talking about, I refer you back to part #3. Most states will now have an on-line application process, or at least forms to print off on-line and mail in. You should not have to make a trip in person to your state offices.

Before we get started let me remind you that your state wants you to file an application. They want your application fee if there is one and they want you to collect sales tax and remit it to them. They won't make it difficult. They are there to help you along the way. You should also consult with your attorney or accountant to make sure you file appropriately.


Securing your business name

Part of the application process is always a search to make sure the business name you choose is not currently in use by someone else in your state. This is a quick check. Consider your business name carefully. If you decide to change it later there will be a fee. This name does not really have to match with your Etsy user name, but it's nice if you can get all your sales venues and accounts to have the same name. It can also save you some fees because you may have to fill out a Fictitious Name Statement for every name that you do business under.

Type of business

A very important part of your application will be filling out the type of business you will have. Main types are:

Sole Proprietor
Partnership
Corporation
Limited Liability Corporation

Most of us do business as Sole Proprietors. A sole proprietorship is the simplest business to set up. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts (that's why you would need a Fictitious Name Statement or Doing Business As statement to link you personally to your business name legally). This is where you should have the advice of your attorney and/or accountant to decide. This is why you want to have that EIN# we discussed in part #1 so that you don't have to use your personal Social Security Number for your applications.

I will not give you any advice on how to fill this part of the form out because I don't know your business situation. If you have a partner, if you will have employees, even if it's a family member, if you sell, food, cosmetics, candles and some other items that could have associations with allergies or dangers of some sort, there could be very good protections and tax benefits for you to file under something other than a Sole Proprietorship. Ask professional advice.


Other permissions

Other permissions may be needed for your type of business at the state level. Find out if you need any other certification or licenses. For instance, if you sell food you may need a license for doing so in your state.

I don't know what your state form(s) will look like or how you should answer the questions on it, but this should help you know what to expect. Don't be afraid to ask questions. State employees are there to help.

After you file

Once your form is submitted it will probably be at least 24 hours until you are set up and you may not get notice for a week or more if working through the mail.


Also, it is important to note that your actual business license may not be coming from your state at all. You may be getting that from your city. Your city will most likely require that you file for your state license first because they will be using your state ID# on their forms for consistency.


Sales and Use Tax reporting:

You may not get any information from the State Sales Tax office until they send you your first tax reporting form. Make sure you find out when your first sales tax form is due. Some states are switching over to on-line reporting--find out about that. You will have to file it on time even if you didn't make any in state sales that required you to collect sales tax during the reporting period. It's especially important to understand how your state sales tax system works because it can be very different in different states. State employees are happy to help talk you through it and answer your questions. You will want to ask how to collect sales tax if you are selling at a show in a different city or county in your state. You will want to ask if you need to collect sales tax at a different rate if your buyer is in a different sales tax district within your state than you are (some states go by where the buyer is rather than where the seller is).

What is Use Tax?

Use tax applies when sales tax has not been charged. Purchases made over the internet and out-of-state are  transactions subject to a use tax. If you purchased goods from a supplier located in another state, whether by mail order or by taking delivery in that state in person, use tax applies if the goods are brought to your state for use. A resident or business does not escape sales tax by purchasing out-of-state or over the internet. Use tax is based on the purchase price of the item. Use tax purchases are usually reported and paid on the same form as your state sales tax.



Using your Tax ID#

OK, you've done all this work have your business license and TAX ID# and are committed to collecting sales tax and all that comes with that. But how do you get any benefit from all this?

TAX EXEMPT

Ah Ha!  Here's the good part. Your TAX ID# is also your Sales Tax Exemption #. Certain supplies you purchase for your business can be purchased sales tax free by supplying the seller with a copy of your certificate. CAREFULLY check your state laws about how to do this properly. I frankly don't do enough business with local vendors to bother with this as it is a total pain at check out. But I do use my tax ID# for . . . .

WHOLESALE!

Yay! The best way to increase your profits for your business is to decrease the cost of your supplies. Ordering from wholesalers can be a big help with this. Most wholesalers will not do business with you unless you provide them with your TAX ID# to show you are a legitimate business. Most of the time you cannot even find out wholesale pricing until you provide them with your information. I require anyone who purchases my jewelry at wholesale to supply me with their TAX ID# (aka resale certificate) as well. Most wholesalers will also require a minimum purchase and other information about your business. And be sure and take lots of copies of these if you are going to a trade show.

SHOWS

Another benefit is the ability to become a vendor at various shows. Most larger shows will insist on a copy of your TAX ID# with your application.



Comments (3)

On October 5, 2010 at 11:15 AM , MYSAVIOR said...

eeeeek! Sue! LOL

what if you don't sell much?

♥♥♥
Sue

 
On October 5, 2010 at 1:53 PM , watercolors said...

Sue R
Your information is priceless for someone starting out.

I am established but still excellent blog.

Thanks for sharing.
Roxanne
Watercolorsnmore

 
On November 23, 2015 at 3:57 PM , Anonymous said...

Valuable commentary . I was fascinated by the analysis , Does someone know if my company can get ahold of a template CA Form 275-321 form to use ?