If you own a business through which you purchase goods or products and resale them, then you should have a reseller’s license. This license is also known as resale number, resellers permit, or sales tax identification number. With this permit, you can collect and remit sales tax to your state Department of Revenue. A resale license will also allow you to purchase items from wholesalers and distributors without paying sales tax. If you completely fabricate and manufacture the items you sell, then you most likely will not be needing a resale license.
How to Determine If You Need a Resale License
If your business involves selling goods, then you will have to collect sales tax on those goods in most states in America. Some states like Oregon, Montana et al. do not charge sales tax, however, they have a Business License that functions in a similar manner to sales tax. As a seller, you’ll be responsible for paying sales tax on each transaction regardless of whether or not you pass along this cost to the consumer.
If you sell goods on online stores like eBay and amazon to a buyer in the same state, then it will be up to you to collect sales tax. If you live in Illinois, for instance, and sell to another resident of Illinois, you’ll be responsible for paying sales tax on that item.
If you sell less than $4,000,000 in annual sales, you are exempt from paying sales tax to buyers who live in other states. For example, if you live in Virginia, and sell to a buyer in Florida, you are exempt from collecting (and paying) sales tax on that transaction.
How to Get a Resale License
Find out how to apply in your state
The process of applying for a resale license can differ from state to state. Different states handle the application for resale numbers through different departments. For instance, in California, you’ll need to apply through the California State Board of Equalization. In New Jersey on the other hand, you’ll need to apply through the Department of Treasury.
You can search the internet for information on which specific office you are to apply to in other to get a resale license. In a lot of states, you can make your application online as well as in person.
2. Get the necessary documents for application
Your business is a partnership, then your partner needs to be on board too and be ready to provide information as required for the application procedure. You will need to provide personal identification (social security number, date of birth, driver’s license or state-issued identification number) as well as information about your business, such as your bank account information, names and locations of your suppliers, and average anticipated monthly sales figures.
On the other hand, if your business is a corporation or an LLC, you’ll need to provide incorporation date, corporate number, and FEIN number. You’ll need to also provide information regarding the structure of your business and its ownership (sole proprietor, general partnership, LLC, nonprofit, et al.)
There may also be a need for Personal references and additional information may be requested.
3. Apply for an Employer Identification Number, also known as a Federal Tax ID
An EIN may be required to have employees and to collect sales tax in your state. Apply for an EIN through the U.S. Internal Revenue Service website. Applicants will submit IRS form SS-4. There are no fees associated with this submission request. Your EIN is provided in three to five weeks.
4. Pay all the required fees
Most states will charge a fee in order to give you a resale license. If there is a fixed charge for the resale number application, you should pay it to the state department in charge of issuing resale numbers. For instance, in the state of South Carolina, you will need to pay $50 to the South Carolina Department of Revenue.
If you register online or in-person, you’ll receive your resale license right away after the payment has been confirmed. However, if you register via mail, it may take a couple of weeks before you get the resale license. You are free to start doing business right away. As long as you’ve applied for your resale license, you can start to charge sales tax.
5. Request a replacement resale number if yours is lost
If your resale license is ever lost, damaged, or destroyed, you may request a replacement copy. Providing your business name, original sales tax number, your name, your 10-digit phone number, and your email address with your request will speed up your results.
You’ll need to contact the same department from which you originally applied for a resale number. For example, if your resale license was issued through the state Department of Revenue, contact this office for a replacement copy. You can still make sales and collect sales tax as long as your request has been issued. You don’t have to wait until your physical copy of your license is restored.
6. Keep current status updated with the state
If you make any substantial changes in your business, you’ll need to update your information on your resale number. For example, if you are in a partnership and you add or drop a partner, you’ll need to make sure the state is aware of the change in your legal status. If you change your business address or your legal address, you’ll need to update this information on your resale number application.
If you decide to dissolve the business, you’ll need to let the state know that you’re no longer in operation. If you sell your business or purchase another business, you’ll need to let the state know of these changes.
You should consider how many locations your business has. If your business operates in more than one locations, you must request and display a resale number for each location. In some cases, it may be possible to file for consolidated permit for multiple business locations.
Benefits of Getting a Resale License
- If you have a resale license, you will not be required to pay sales tax on items purchased for the purpose of resale. For example, if you purchase a new chair, you’ll have to pay sales tax on it. But if you buy a warehouse full of chairs for the purposes of resale, you won’t have to pay sales tax if you provide your resale license.
- Many wholesale and distribution companies will require a copy of your reseller’s license or your Sales Tax ID number to make sure you are a legitimate business that will be reselling the products you purchase.
- Most states also require you to provide your resale license in order to open a commercial checking account.
Some Additional Facts About Resale License
Resale licenses are related to your sales tax permit
Unless you are living in a state that has no state tax, then you will need to hold a sales tax permit in order to use a resale license. Sometimes, states will either issue you a separate document or ID number to use as a resale license, or you will just print or fill out a resale license using your sales tax ID number.
2. Resale license are governed at the state level
Just like with sales tax permits, resale license are governed at state level. This is why the rule and regulations that govern resale licenses differ from state to state. As such if for some reason you are using a resale license in another state, be sure you know your state’s rules and regulations when it comes to using resale license.
3. Resale licenses can only be used for very specific purchases
Even though different states have different rules and regulations for resale license, the general rule of thumb is that you can only use resale license to buy either:
- Items you intend to resell
- Component parts you plan to use directly in items you intend to resell
For instance, you can use a resale license to buy luxury chairs you intend to resell or the fabric you intend to use to make the luxury chair you intend to sell. However, you do not need a resale resale license to buy a luxury chair you intend to buy for personal use or the tool you plan to use to create the luxury chair you want to sell. (These items can be written off on your business income taxes)
4. Some states will not allow sellers to accept out-of-state resale license
In most states, as long as you have a valid resale license in one state, you can use that license to make purchases tax free for resale. But nine states—Alabama, California, Florida, Hawaii, Illinois, Louisiana, Maryland, Massachusetts, and Washington—along with Washington D.C. do not allow out of state resale license.
So in those states, if you want to use a resale license, you need to be registered to collect sales tax in that state. The advantage of this is that you can use your resale license for tax free inventory purchasing. On the flip side, you will also be required to collect sales tax from buyers in that state, and file periodic sales tax returns.
In conclusion, failure to obtain a reseller license may result in fines and penalties and prevent the business from purchasing wholesale goods, as such, the importance of a resale license to a business that purchases goods in bulk for the purpose of reselling them cannot be overemphasized. The state will sometimes audit wholesale and retail businesses to ensure compliance with tax and business mandates, and tax records must be maintained for four years.