Doing business in America as a wholesaler or retailer?
Want to make sure you got your ducks in a row?
Let’s discuss a reseller license and what it is.
A Reseller License or Certificate is a document that enables you to buy items in bulk or wholesale without having to pay for the local sales tax. Instead, you resell these items and your customers pay the tax when they buy your products. You collect these taxes and forward it to the state where your company is based.
Generally, states require businesses to submit these collected taxes quarterly or monthly.
A Reseller License is also referred to as: Reseller Permit, Reseller Certificate, Certificate of Authority, Resale Certificate, Seller’s Permit, Sales Tax Vendor ID Number, Reseller Tax ID, State Tax ID Number, Tax Registration Certificate and Sales Tax Exemption Certificate.
This permit can be obtained from the state’s department of revenue or from the state’s Tax Department. Once obtained, you may show or give this document to your vendor or supplier when buying goods or materials for resale so that it won’t have to charge you sales tax.
Why You Need A Reseller License
To avoid local sales tax – basically, the main purpose of the Reseller License is to avoid paying local sales tax when purchasing wholesale items for the purpose of reselling them. Because taxes are only need be paid one time, you resell the items and make the customers pay for it themselves at the time of purchase.
To avoid trademark issues – Technically, when you purchase an item, it is yours to do with as you choose – that includes reselling it. However, if you wish to do this as a business and claim the product as your own – some brands may not like it and may cause you trademark issues.
To help you grow your business – Because you are saving money from avoiding local sales tax, this allows you to buy more merchandise to resell hence growing your business.
How To Get A Reseller License
You can obtain a Reseller License at your respective state’s Tax Department. Note that some states handle the application for Reseller Permit differently. Most states allow you to apply online, some in person. Generally, during application, you may be asked/required of the following:
- Social Security Number or FEIN number
- Business details such as: Business name & address, Incorporation Date, corporate number, business structure, business entity type
- Contact Details such as email address and phone number
- Payment: Some states charge for a resale number, some don’t.
- Products Information
- Certificate of Authority or Certificate of Good Standing issued by the Tax Department
To get your reseller permit, you just need to fill out an application form and submit it to your state’s Department of Taxation and Finance. Some states allow you to apply online or in person – this is the quickest way to get a permit, process takes only a day. If you apply by mail, it may be several weeks to get the permit. Again, the process varies from state to state.
Can I Use My Reseller Permit For Personal Use?
Absolutely not. If you wish to take advantage of the sales tax exempt to get items for
personal use, you are most likely to get criminal penalties. For
example, in New York, misuse of this permit may subject you to criminal felony prosecution, punishable by a substantial fine and a possible jail sentence.
Can I Use My Reseller Permit In Other States?
Yes and no. Some states don’t accept an out-of-state Reseller Permit. For example, you’re from New York and wish to purchase merchandise from Florida – sadly, your Reseller License issued from NY won’t do any good in Florida.
There are 9 states that won’t accept out-of-state Reseller Permits including Alabama, California, Florida, Hawaii, Illinois, Louisiana, Maryland, Massachusetts, Washington & Washington D.C.
Which States Do Not Issue Reseller Permit?
Alaska, Delaware, Montana, New Hampshire and Oregon.
Do I Need To Pay Tax For My Unsold Merchandise?
Generally, yes. The tax you will be paying is called “Use Tax” which compensates sales tax that have not been paid.
In applying for a Reseller License, always remember that you’re only allowed to purchase merchandise tax free if you intend to resell them and charge sales tax to the consumers.
This license opens a great opportunity for sellers to earn more while being able to meet your sales tax compliance requirements.