When to Cancel a Sales Tax Permit and Why Ecommerce Businesses Should

When a business closes, changes ownership, or no longer has a tax obligation in a state, it’s important to cancel the sales tax permit to avoid unnecessary filings and potential penalties. Failing to close an account properly can result in continued tax responsibilities, even if the business is no longer operating. This guide will explain when and how to cancel a sales tax permit, ensuring a smooth and compliant process.

When You Should Deregister for Sales Tax

Deregistering a sales tax permit or a seller's permit is essential when a business no longer has a tax obligation in a state. Keeping an active permit unnecessarily can lead to compliance burdens, required tax filings, and potential penalties, even if no sales tax is being collected.

E-commerce and online businesses should consider deregistering for sales tax as this is part of their obligation when they permanently close, restructure, or no longer meet nexus requirements in a state. Here are the different instances when you should cancel your sales tax permit.

1. Business Closure: If a business permanently shuts down, the sales tax permit should be canceled to avoid unnecessary tax filings and compliance requirements.

2. Change in Business Ownership: When a business is sold or transferred, the new owner must apply for a new permit, and the previous owner should cancel the existing one to prevent tax liability issues.

3. No Longer Meeting Economic Nexus Thresholds: If a business previously exceeded sales tax nexus thresholds in a state but now falls below them, it may no longer be required to collect and remit sales tax, making permit cancellation necessary.

4. Relocation to a Different State: If a business moves operations out of a state where it previously held a permit, it should cancel the existing permit and register in the new state if required.

5. No More Sales of Taxable Goods or Services: If a business changes its model and stops selling taxable products or services, it may not need a sales tax permit anymore.

6. Business Mergers or Restructuring: If a business merges with another or undergoes restructuring that changes its legal status, the previous entity’s sales tax permit may need to be canceled.

Why You Should Cancel Your Sales Tax Permit When Closing Your Business

When closing a business, it is critical to cancel all sales tax permits, seller’s permits, and business licenses to avoid unexpected tax obligations and maintain compliance with state and federal tax authorities. If a business fails to properly deregister with the Department of Revenue, it may continue to receive tax notices and be required to file unnecessary sales tax returns. Many states, including North Carolina, require businesses to formally notify the tax agency and file a final sales tax return before their certificate of registration can be canceled.

Failing to cancel a seller’s permit or sales tax permit can also lead to potential penalties if the state believes a business is still operating and expects continued sales tax filings. Some states may even charge late fees or interest on unfiled tax returns if the business remains active in the state’s system.

Online businesses that sell in multiple states must also ensure they close their accounts in every state where they had economic nexus or physical presence to prevent unnecessary filings. Proper deregistration ensures that businesses do not face unnecessary tax audits or financial liabilities after closing.

How to Cancel Your Seller’s Permit

To cancel your seller’s permit, follow these steps:

1. Notify the Department of Revenue: Contact the appropriate state Department of Revenue to request cancellation. In California, this involves submitting a Notice of Closeout to the CDTFA.
2. File Final Sales Tax Returns: Mark the return as “final” to officially record the business’s sales tax account closure. Many states, including New York’s Department of Taxation, require businesses to file a final sales tax return before inactivating their sales tax permit.
3. Return the Seller’s Permit: Some states require businesses to physically return the permit or sign an official document confirming its cancellation.
4. Settle All Tax Obligations: Pay any outstanding sales tax, sales and use tax, or penalties before closing the certificate of registration.

Each state has different compliance requirements for closing a sales tax permit, so businesses should check with their local Department of Revenue for specific instructions.

How to Cancel Your Business Tax Account?

Canceling a business tax account requires more than just deactivating a sales tax permit.

Businesses should:

1. Notify Federal and State Agencies: The IRS advises businesses to close their employer identification number (EIN) and file final federal tax returns.
2. Cancel State Tax Registrations: Businesses must notify state tax authorities, especially the North Carolina Department of Revenue, to deactivate their sales and use tax account.
3. Settle Employment Taxes: Employers must file final payroll tax forms and remit any withheld employee taxes.
4. Maintain Records for Audits: The IRS recommends keeping sales tax and business registration records for at least three years in case of audits.

Properly canceling tax accounts helps businesses avoid future penalties or additional tax assessments.

Leave No Sales Tax Loose Ends with Kintsugi

Closing a business and ensuring full compliance with tax regulations can be overwhelming, especially when handling multiple sales tax permits, seller’s permits, and certificates of registration across different states. Many online businesses must manage their obligations with various Departments of Revenue to close their tax accounts properly.

Kintsugi provides a streamlined approach to deregistration by helping businesses cancel their sales tax permits, file final sales tax returns, and avoid unnecessary penalties. By automating the deregistration process, Kintsugi ensures that businesses close their accounts correctly while maintaining proper documentation for audits or future tax inquiries.

Kintsugi’s advanced tools help businesses determine if they still meet economic nexus or physical presence requirements before canceling their sales tax permit. Additionally, Kintsugi assists businesses in managing resale certificates and ensuring all required tax documents are submitted before the business’s closure is finalized.

Whether an online business is shutting down entirely or restructuring, Kintsugi provides a hassle-free way to manage tax deregistration, helping business owners avoid financial liabilities and leave no loose ends. Book a demo or sign up with Kintsugi to guarantee your sales tax compliance.