1. What Is a Wholesale License?
A wholesale license is a commercial document that grants retailers the right to legally purchase products or items in bulk from suppliers or manufacturers. Products are purchased at much lower prices and then resold at higher prices.
The wholesale license is an indication to the government, material suppliers, and retailers that you are a legal reseller of goods. This also proves that you are a business that complies with local and federal laws and follows the appropriate standards for reselling products wholesale.
The added benefit of your wholesaler’s license is that it reduces your taxes in the long term. Since most wholesalers buy goods in bulk, your license legally eliminates sales tax. Without a license, you are forced to pay sales tax on every purchase from the supplier, which adds up quickly.
Not having a wholesale license may cost you much more money and time than it would have cost you to get it in the first place. Depending on the nature and size of your business, you and the staff involved (most notably, the accounting staff) could cost your business thousands of dollars, not to mention the money you would have to pay for legal representation in the event of a legal issue. Also, note that the type of wholesale license you will be issued depends in part upon the products or items you plan to sell.
2. Wholesale License vs. Seller’s Permit
In most cases, a seller’s permit and a wholesale license are the same documents under two different names. Based on the state in which your business is located, it may also be called a vendor permit, resale card, wholesale card, retailer card, or reseller license.
Understanding the differences between wholesaler licenses and seller’s permits is crucial. For example, California does not require any business to take out a wholesale license. It is simply a misnamed California seller’s permit. Wholesale vendors need a seller’s permit to buy and sell goods that incur sales tax when sold at retail. Stores and other retail vendors are required to obtain the same permit.
It is important to remember that you will need additional licenses and documents besides the permit as a merchant. Basically, the need for any additional licenses boils down to the laws in your state. No matter what state or city your business is in, you need to get all appropriate licenses through your state’s tax office.
3. Steps to Getting Your Wholesale License
The procedure for obtaining your wholesale license is quite simple. Although wholesale license applications and fees may differ from one state to another, the basic procedures for getting a wholesale license are as follows:
Step 1: Register your business and apply for an EIN
The first step in obtaining a wholesale license is registering your business legally. Registering your business includes choosing a name and a legal structure. You must choose a name that another company hasn’t chosen to avoid legal disputes down the line.
Learn more: How to trademark your business name.
Registering a business also means determining the legal structure under which you will operate (sole proprietorship, partnership, corporation, or limited liability company). Your legal structure or type of business will determine the amount of taxes you will have to pay and the laws that apply to your business. Contact a lawyer to discuss which legal structure is most appropriate for your needs.
Once you have set up your business as a legal entity, apply for a federal employer identification number (EIN), also known as a federal tax identification number. It allows you to hire employees, apply for bank loans, and other licenses necessary to maintain your business. Obtaining an EIN is free, and the process is done online. It usually takes four to five weeks to get an EIN.
Step 2: Getting a sales tax permit or ID
The second step is to obtain a sales tax permit or sales tax license. The sales tax permit or ID allows you to collect sales tax on your goods.
Most goods require sales tax, but it is only required once by the final buyer in the chain. The process and cost of obtaining a sales tax permit vary by state. It is essential to check with your state tax office to apply for a sales tax permit.
You may have to put down a deposit to obtain this permit. For example, a wholesale license requires a bond in the state of Texas. However, in California, only a deposit is needed.
Step 3: Apply for a wholesale license
This is the final step in the process. After obtaining your EIN and sales tax license, you are ready to apply for a wholesale license. Since application fees and procedures vary from state to state, it is essential to contact your tax office or taxing authority for additional information. Always consult your attorney and accountant to determine what exemptions you are entitled to. Again, remember that wholesale licenses go by many different names depending on your current state.
In addition to the EIN and sales taxes, you will need to know other information:
- Your full name and those of your partners in case you are not operating as a sole proprietorship
- Your DBA
- The name and nature of your business
Some wholesale licenses can be ready in as little as two to five business days. Other licenses can take up to two weeks to be approved. Once you have your wholesaler’s license, it is advisable to make a copy to have on hand for tax and reference purposes.
4. How Much Does a Wholesale License Cost?
The cost of a wholesale license can range from $3,000 to $10,000. However, the average cost is about $6,500. This variation is due to the fact that each state may charge more or less money depending on its tax laws.