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Sales Tax & Compliance

Sales Tax 101: What’s a Registered Agent, and Does Your Client Need One?

You’re not alone if you’ve never heard of a registered agent. But if your client recently developed a sales tax collection obligation in one or more new states, they probably need to retain one. Read on to learn more about this mandatory point person.

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More than 41 states now have laws requiring out-of-state sellers to collect and remit sales tax. That means more businesses than ever, especially ecommerce businesses, need to register to do business in other states — and may need the services of a registered agent.

You’re not alone if you’ve never heard of a registered agent. But if your client recently developed a sales tax collection obligation in one or more new states, they probably need to retain one. Read on to learn more about this mandatory point person.

What’s a registered agent?

Simply put, a registered agent (RA) is a legal representative and contact in a state for a corporation, limited liability corporation (LLC), or limited partnership (LP). You’re generally required to have a registered agent in your home state and in any other state where you’re registered to do business. Having a registered agent in a state ensures you can be served important business, legal, or tax documents.

Although the Georgia Secretary of State calls the registered agent “the ‘mailbox’ for the corporation,” simply renting a post office box in another state under the name “My Company’s Registered Agent” would not be sufficient. A registered agent must be an individual or business entity that’s in the state and available during normal businesses hours.

Some states use the term commercial registered agent or statutory agent rather than “registered agent.”

Why do you need a registered agent?

States require you to have a registered agent to ensure you can be served papers. While many documents can be sent via mail or email, some documents still need to be served in person.

The larger your business, the more likely you are to be served official documents. These may be correspondences from the state, like annual reports, or something more ominous, like a legal summons.

If you’re required to have a registered agent in a state, you’re required to continually maintain it. Failure to do so in some states can lead to monetary penalties or even revocation of your right to do business in the state.

Can I be my own registered agent?

It’s generally permitted to act as your own RA in your home state and doing so may save you some money. However, there are good reasons not to act as your own registered agent.

For one, it’s hard to go on vacation or stay home sick if you’re the only person who can legal receive certain legal documents during normal work hours.

It’s also hard to keep a summons private: You probably wouldn’t want everyone in your office to know you’ve received a summons from a creditor. Whispers at the water cooler and whatnot.

Finally, it’s impossible to act as your own RA in states where you don’t have a physical presence.

How to choose a registered agent

Once you take yourself out of the equation, you’re left with deciding between an individual or a third-party entity.

Asking an individual

A trusted employee or even friend or family member can serve as your registered agent in your home state. Yet any individual will come with the same challenges you’d face if you acted as your own RA: A registered agent needs to be available every day during normal business hours; no more vacations or staying home when ill.

There’s also the issue of confidentiality. The kind of papers that necessitate the services of an RA are typically sensitive in nature. You want to choose who’s privy to that information wisely.

Finally, since you generally need an RA in all states where you’re registered to do business, you probably won’t be able to rely on just one person. You’ll need to recruit additional individuals as your business expands into other states. Can you imagine having up to 50 different registered agents?

Hiring a third party

There are businesses in every state that provide RA services. If you’re not sure where to start a search for one, Secretary of State or similar websites (links below) generally provide a list of professional registered agents.

Some companies offer registered agent services in multiple states, or even nationwide. The main benefit of working with such an agency is obvious: You only need to establish and maintain one working relationship. When you expand into a new state, you simply let them know.

Hiring a third party will cost you, of course, but perhaps less than you think. Using a registered agent agency may be less expensive than paying your attorney or accountant to be your RA, and an agency may give you a break if you use their services in multiple states.

How a registered agent works with Avalara

The requirement to have a registered agent in a state is separate and distinct from the requirement to register to collect sales and use tax. However, in some states, businesses may have to register with the Secretary of State or another entity before obtaining a sales tax permit or license.

Avalara Licensing can help you register to collect sales and use tax in any state, county, city, or other jurisdiction in the United States. Avalara doesn’t provide registered agent services.

Want to know more about registered agent requirements? It’s not always easy to find information, but the links provided below can help get you started.

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This article first appeared on the Avalara blog. Gail Cole began researching and writing about sales tax for Avalara in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.