Playing the evasion game with governments is dangerous, and culprits often end up getting caught. Because of that, you’ll want to play safe and keep everything legal.
If you’re reading this, then you’re starting a resale business but wondering how to get the resell license.
The short story is that you’ll need to apply to the proper state department with the required documentation to obtain a license that wholesalers will ask you for before they sell you anything.
The long story is the series of information and considerations you need to keep in mind throughout the process, and that’s what this article is for.
What Is A Resell License?
A resell license, also known as a resale certificate or sales tax license, is a retail business license that exempts the resellers from paying additional taxes while buying wholesale goods.
However, for this tax exemption certificate to be applicable, merchants should sell their Inventory. If they purchase their supplies with no intention of selling them, or if they fail to sell them for any reason, the sales tax permit won’t save them from paying sales taxes.
The reason behind this is that taxes need to be paid to the government in the end.
Here’s how it works: merchants purchase all their goods from wholesalers without paying extra taxes. However, for that process to happen, the merchant needs proof that they will sell those goods to others who will then handle those taxes.
In other words, resale certificates exempt you from sales tax as long as you have customers who will pay those taxes instead. If you are going to be the final owner of those goods, then you have to pay the sales tax.
Why Should All Vendors Have a Reseller License?
A sales tax exemption certificate is one of the proper documentation required to let the state know that your business is operating on legal terms.
If a wholesaler is selling to a business that doesn’t have the proper documentation, both parties could face serious charges.
How to Use a Reseller License?
You, as a business owner, need to purchase your stock from the wholesaler. The wholesaler would then request to see that resale license to prove that the goods you purchase from them will be sold to other customers.
The wholesaler would acquire a copy of your resale certificate as proof to the government that the sales tax on the items purchased is now your responsibility, not theirs.
How to Get a Resell License?
To get a reseller permit, you have to acquire the proper documentation and follow the required steps for each state.
The problem is that many states have slightly variable requirements. Fortunately, the overall process is more or less the same.
1. Determine How Many Licenses You Need
While this isn’t always the case, you may need more than one license depending on the number of states your business operates in.
For your business to be considered “operational” in a certain state, it needs to meet one of the following requirements:
- It has warehouses or inventory stores in the state
- There is an affiliate within the state
- It has at least one active employee in the state
- It has an office or a retail location in the state
- If there’s any temporary physical presence in the state, like an exhibition or a trade show.
If you have any of the mentioned scenarios in any state(s), then you’ll need to acquire a sales tax license in each of them.
2. Obtain the Application From the Proper Department
There’s always an application to fill out, but how you get that application is different in each state.
For example, California issues that application through the State Board of Equalization, while Florida issues it from the Department of Revenue.
Your best bet would be to visit the official government website of each state to know where you need to go.
3. Acquire the Proper Documentation
You’ll need to supplement your application with multiple documents for it to be accepted.
These documents often include:
- Sales tax ID number
- Driver’s license
- Articles of incorporation
- Supplier’s names and addresses
- Bank account information
- Anticipated monthly sales figures
In some states, you’ll also need to provide the structure of your business and its ownership (is it a general partnership, non-profit, sole proprietor, etc.)
If your business is an LLC or a corporation, you’ll also need to provide the FEIN and corporation numbers, as well as the incorporation date.
4. Pay the Required Fee if Applicable
Should your application get accepted, some states will issue the resale certificate free of charge, while others will require a fee.
The fee isn’t substantial by any means. For example, South Carolina charges $50 for the reseller permit.
Other Considerations to Keep In Mind
Here are a few extra things to consider before applying for a resell license:
You’ll Need Extra Documentation if You’re Applying From Outside the US
If you own a business in the US but aren’t currently living in the country, some states will require extra information and/or personal references.
Your local county’s clerk office should have the required extra information you’d need if you’re licensing your business while being outside the US.
You Will Mostly Still Pay Local and Statewide Sales Tax
38 out of the 50 states will still require you to pay local sales tax even after acquiring the resale certificate. Also, 45 states out of the 50 will also require statewide sales tax to be paid.
You Won’t Always Need a Reseller Permit
5 out of the 50 states – Alaska, Montana, New Hampshire, Delaware, and Oregon – don’t charge sales taxes and, therefore, won’t require a resale certificate if your business is in any of them.
One thing to keep in mind, though. Alaska and Oregon allow local municipalities to charge sales tax within the state, so you might end up paying a little extra after all.
Renew the License if Needed
Some states will issue the license one time for you to use as long as your business is standing, while others issue licenses with expiry dates.
Do take notice of this, as operating with an expired resale certificate is almost as bad as operating without one.
Your Registration Method Decides How Long You’ll Wait For
Registering in person or online will give you your resale number instantly. However, if you register through the mail, you’ll wait a few weeks before you’re issued a tax number.
Either way, you’re safe to start your business as long as you’ve already applied with proper documentation.
Frequently Asked Questions
What Do I Do if My Resale Certificate Is Damaged/Lost?
If you accidentally damage or lose your resale certificate, you may request another one.
Contact the department that originally issued the license for you and report the damaged/missing license. They’ll ask you to provide your name, business name, sales tax number, email address, and phone number.
Who Qualifies as a Reseller?
A reseller is a person who purchases wholesale goods and sells them later for an additional cost. Since that reseller would buy goods in bulk from the manufacturers, they often get discounted prices.
Think of resellers as people who connect the manufacturers to their customers.
Will I Need a Reseller’s Permit if I Sell My Goods Online?
If you’re a reseller who purchases goods in bulk from wholesalers, you will need a permit to sell online.
However, if you don’t own a registered business and are purchasing goods from other resellers at their full price + taxes, then you don’t need the reseller’s permit.
The Verdict
Getting a resell license not only keeps your retail business running safely, but it’s also required by most, if not all, wholesalers to provide you with any stock.
The process may seem daunting at first because of all the required information, especially if you own a nexus over multiple states that all require licenses.
However, by following this guide, you’ll take the quickest possible route to acquiring that resale certificate.
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