Why You Need a Resale License We take a close look at the benefits of having a resale license -- and tell you how to obtain one!
By Pete Silver •
Opinions expressed by Entrepreneur contributors are their own.
At a recent marketing seminar I led for owners of homebasedbusinesses, a woman who wants to start making jewelry told me shediscovered some suppliers offer discounts to people with wholesaleor resale licenses. As a small-business owner, she wanted to knowhow to get one.
There's a lot of confusion about this subject, and a lotdepends on the state or county where you do business. States havedifferent names for the same permits or licenses: ResalePermit/License, Sellers Permit, Certificate of Authority, Use andSales Tax License/Permit Sales and Use Tax, Application toCollect/Report Tax, Transaction Privilege (Sales) Tax, ResaleCertificate-all adding up to much the same thing.
Beyond the wholesale vs. retail concerns, the other aspect ofthese names is focused on the sales tax angle. The states, countiesor other governing bodies want to be sure that anyone sellinganything taxable is first licensed to collect the tax and thenrenders the tax afterward.
Generally, manufacturers who sell wholesale want to be suretheir customers are not buying for their own consumption, thuscutting out the wholesaler's true customers. So when they askfor a wholesale or resale license, it allows them to be sure theyare dealing with a business that will truly resell their goods,either "as is" or as part of a product they'remaking. Often when I visit a trade show, similar rules apply-theywant to be sure the general public isn't allowed in so thevendors can focus on the needs of the businesses that visit.
Since the rest of my seminar attendee's questions were morelegally oriented, I contacted my friend Cynthia McKay, founder ofLe Gourmet GiftBaskets Inc. in Castle Rock, Colorado. A former attorney, shebegan Le Gourmet in 1992 and has now set up 510 domestic andinternational franchises. She helps her franchisees get all theirpaperwork in order so they can focus on the most important work:getting and satisfying customers!
"When a new business registers for a license, they completepaperwork with their state or local entity," says McKay."It is then they are given a license to commence with theirbusiness. Generally, on that license is a resale number thatpermits the business to buy wholesale."
"The purpose of the resale number allows you to buywholesale [for the purpose of reselling only-no personal usepermitted] and pay no tax," McKay continues. "The itemsare then resold, and tax is paid by the consumer at the time ofpurchase. Taxes only need be paid one time. If your homebasedbusiness is a corporation, you can also use a federal tax ID topurchase for resale or wholesale."
To begin, McKay recommends starting with your local phonedirectory. "When you register your business with your localstate and city entities, check the blue government pages in yourphone book for homebased or small-business registration," shesays. "If you're going to incorporate or make an LLC, you,your accountant or lawyer will contact your secretary of state andthe Department of Revenue. This puts the entrepreneur/owner in aposition to register to pay taxes [most likely] quarterly, andyou'll be issued your business license, which will have yourtax number or resale number on the paperwork."
McKay also points out: "Some local governments do notrequire 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 anoften-overlooked resource is the local Chamber of Commerce. Itoften has free lists of local resources and can save entrepreneurscountless hours of hunting around for the right contacts and phonenumbers. For more ways your local Chamber of Commerce can help you,visit www.chamberbenefits.biz, a site I created to give moreresources.
Pete Silver is a homebased entrepreneur who's launchedseveral successful businesses from his home over the past 20 years.He's also a creative marketing specialist and author whotravels widely as a speaker and seminar leader. To find out moreabout 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 innature, without regard to specific geographical areas orcircumstances, and should only be relied upon after consulting anappropriate expert, such as an attorney or accountant.
