Why You Need a Resale License
At a recent marketing seminar I led for owners of homebased businesses, a woman who wants to start making jewelry told me she discovered some suppliers offer discounts to people with wholesale or resale licenses. As a small-business owner, she wanted to know how to get one.
There's a lot of confusion about this subject, and a lot depends on the state or county where you do business. States have different names for the same permits or licenses: Resale Permit/License, Sellers Permit, Certificate of Authority, Use and Sales Tax License/Permit Sales and Use Tax, Application to Collect/Report Tax, Transaction Privilege (Sales) Tax, Resale Certificate-all adding up to much the same thing.
Beyond the wholesale vs. retail concerns, the other aspect of these names is focused on the sales tax angle. The states, counties or other governing bodies want to be sure that anyone selling anything taxable is first licensed to collect the tax and then renders the tax afterward.
Generally, manufacturers who sell wholesale want to be sure their customers are not buying for their own consumption, thus cutting out the wholesaler's true customers. So when they ask for a wholesale or resale license, it allows them to be sure they are dealing with a business that will truly resell their goods, either "as is" or as part of a product they're making. Often when I visit a trade show, similar rules apply-they want to be sure the general public isn't allowed in so the vendors can focus on the needs of the businesses that visit.
Since the rest of my seminar attendee's questions were more legally oriented, I contacted my friend Cynthia McKay, founder of Le Gourmet Gift Baskets Inc. in Castle Rock, Colorado. A former attorney, she began Le Gourmet in 1992 and has now set up 510 domestic and international franchises. She helps her franchisees get all their paperwork in order so they can focus on the most important work: getting and satisfying customers!
"When a new business registers for a license, they complete paperwork with their state or local entity," says McKay. "It is then they are given a license to commence with their business. Generally, on that license is a resale number that permits the business to buy wholesale."
"The purpose of the resale number allows you to buy wholesale [for the purpose of reselling only-no personal use permitted] and pay no tax," McKay continues. "The items are then resold, and tax is paid by the consumer at the time of purchase. Taxes only need be paid one time. If your homebased business is a corporation, you can also use a federal tax ID to purchase for resale or wholesale."
To begin, McKay recommends starting with your local phone directory. "When you register your business with your local state and city entities, check the blue government pages in your phone book for homebased or small-business registration," she says. "If you're going to incorporate or make an LLC, you, your accountant or lawyer will contact your secretary of state and the Department of Revenue. This puts the entrepreneur/owner in a position to register to pay taxes [most likely] quarterly, and you'll be issued your business license, which will have your tax number or resale number on the paperwork."
McKay also points out: "Some local governments do not require such a license, and because these regulations vary widely, it's best to check your local sources first."
My experience in working with entrepreneurs is that an often-overlooked resource is the local Chamber of Commerce. It often has free lists of local resources and can save entrepreneurs countless hours of hunting around for the right contacts and phone numbers. For more ways your local Chamber of Commerce can help you, visit www.chamberbenefits.biz, a site I created to give more resources.
Pete Silver is a homebased entrepreneur who's launched several successful businesses from his home over the past 20 years. He's also a creative marketing specialist and author who travels widely as a speaker and seminar leader. To find out more about Pete or his coaching service, log on to www.MarketYourBusiness.com.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.