Understanding a Certificate of Authority
A certificate of authority is a document issued by a state government, granting permission to a business to collect sales taxes, use sales tax proceeds, and file tax returns according to the guidelines of that state.
A certificate of authority is issued from the office of the state comptroller, making an entity recognized by the state from which it was issued.
In general, businesses that are selling tangible products or services or engaging in retail activities need to obtain a certificate of authority before they start collecting sales tax. It is important to note that a certificate of authority does not grant permission to start transacting and collecting taxes; it simply provides the business with procedural guidelines on how to file returns.
Process for Obtaining a Certificate of Authority
Obtaining a certificate of authority is a two-step process. First, the business must register with their state’s Department of Revenue to obtain a Sales & Use Tax Identification Number. Next, the business must apply for a certificate of authority from the same office. The required documents may vary from state to state, but typically include the business’s legal documents, financial statements, and a list of products and services.
It usually takes 1-2 weeks to process a certificate of authority application. After the application is approved, the state will issue a certificate of authority, and the business can start filing sales & use tax returns.
Importance of a Certificate of Authority
A certificate of authority conveys a sense of legitimacy. Customers perceive businesses with a certificate of authority as reputable and compliant with state laws.
Additionally, the receipt of a certificate of authority generally exempts a business from any sales tax liability that occurred prior to obtaining the certificate. A business is also eligible for voluntary disclosure agreements that can reduce or eliminate any penalties and fines related to unpaid taxes.
