A reseller license certifies a company doesn’t have to pay sales tax when buying products on a wholesale basis for the purpose of reselling them to customers. In this scenario, the final sale customer pays sales tax when they purchase those products from the reseller, which prevents a double taxation from occurring.
Important nuances to know about reseller permits and licenses:
- In some states, a reseller license might alternately be called a reseller permit, resale license, resale certificate, sales tax exemption certificate, or some other term.
- Sales tax laws vary by state, and each state has its own sales tax rate.
- Statewide sales tax is collected in 45 states and the District of Columbia, while local sales tax is collected in 38 states.
- States without a state-level sales tax include Alaska, Delaware, Montana, New Hampshire, Oregon (though Alaska allows local sales tax).
- In some states, local sales taxes must be collected, too.
- When applicable, a reseller must collect the sales tax from its customers and send it to the state. A state might also require that sales tax is reported and remitted monthly, quarterly, or annually.
Who Needs a Reseller License?
The following types of businesses need a reseller license for official exemption from paying sales tax on goods they purchase for resale.
Retail Businesses:
- Brick-and-mortar stores – Stores that sell tangible goods to customers that shop at their location—such as clothing boutiques, electronics stores, furniture shops, restaurants, etc.
- E-commerce businesses – Online retailers selling through their own websites, including those using tools such as Shopify, WooCommerce, or custom-created e-commerce applications.
- Marketplace sellers – Businesses selling on Amazon, Etsy, eBay or similar platforms (Note: Marketplace facilitator laws, state-level tax laws that shift the responsibility of collecting and remitting sales tax from individual third-party sellers to the marketplace platform where the sale occurs) may affect the seller’s tax collection and reporting obligations).
- Pop-up shops and mobile retailers – Temporary retail operations, such as food trucks, farmers market vendors, and seasonal holiday kiosks that resell products.
Distributors and Wholesalers:
- Businesses that buy in bulk and resell to retailers – Even if a business doesn’t sell to the end consumer, it will need a reseller license (or wholesaler license) to purchase inventory tax-free.
- Importers reselling to domestic businesses – Companies bringing products into the U.S. for distribution.
- B2B sellers – Businesses selling products to other businesses that will resell them.
- Manufacturers that also sell products on a retail basis – If a company makes products and sells directly to consumers, it needs a reseller license for any components or finished goods it purchases for resale purposes.
Specialized Business Models:
- Consignment sellers – Businesses selling goods on behalf of others (depending on the arrangement).
- Drop shippers – Even though they do not physically handle inventory, drop shippers are the seller of record and typically need a reseller license in states where they have nexus.
- Subscription box services – Companies curating products from other companies and reselling those goods in subscription packages.
Businesses That Typically Do Not Need a Reseller License:
- Companies that only provide services. Examples include attorneys, accountants, consultants, web designers.
- Businesses that only sell tax-exempt items.
- Manufacturing companies purchasing raw materials for production. In this case a manufacturing exemption certificate may be needed instead.
- Companies selling products in any of the five states that don’t levy sales tax.
Why Do You Need a Reseller Permit or License?
In most states, a reseller certificate is legally required when buying products for resale. Besides keeping a company in compliance with the law, obtaining a reseller license can help a company:
- Improve profit margin and cash flow – Exemption from sales tax on wholesale purchases can significantly impact a business’s bottom line, especially if it is operating on thin margins. Also, not paying sales tax upfront helps keep more working capital available for inventory, staffing, marketing, and operations. In addition, it can enable a business to price its products more competitively.
- Access to industry events and wholesale marketplaces – Some trade shows and B2B platforms require reseller credentials for registration or admission.
- More potential to build supplier relationships – Many wholesale suppliers require proof of sales tax exemption, and some offer volume discounts or preferred pricing to properly licensed resellers.
How Nexus Influences Sales Tax
When a business is considered to have nexus in a state, it is expected to collect sales tax for that state.
Whether a business has nexus (i.e., a sufficient connection or presence) in a state determines if it must collect sales or use tax on the products it sells. It may be confusing to identify if a reseller has nexus because different states have different rules. In the past, businesses were only subject to sales tax if they had a physical presence in a state.
For example, physical presence is typically established if a business:
- Has an office, retail location, or warehouse in the state
- Stores inventory in the state
- Has an employee in the state
- Has an affiliate in the state
- Temporarily has a physical presence (such as at a trade show or expo) to do business in the state
However, since the 2018 South Dakota v. Wayfair Supreme Court decision, which fundamentally changed nexus rules, many states now require sales tax collection based on meeting a particular economic threshold in their jurisdiction (regardless of whether the business has a physical presence there). In many states, that threshold is $100,000 in sales or 200 sales transactions. In states with marketplace facilitator laws, online marketplaces (like Amazon, eBay and Etsy) may collect sales tax on the seller’s behalf.
Nexus is a big topic, and you can learn more about this in these additional articles:
- When Do You Have Nexus in a State?
- A State-by-State Guide to Economic Nexus
- Nexus FAQs for Accountants and CPAs
How to Determine Which State You Owe Sales Tax When Selling Out of State
Does a business collect sales tax for the state where it’s selling from or the state where its customers are? It depends on the state; some have an origin-based approach while others have a destination-based approach.Â
- Origin-Sourced Sales Tax States – If a business has a nexus in an origin-based state, it will collect and remit sales tax (and local sales tax, if applicable) in the state where its office or warehouse is located. In other words, the reseller will collect and submit sales tax where its sales originate from.
- Destination-Sourced Sales Tax States – If a business has a nexus in a destination-based state, it will collect and remit sales tax (and local sales tax, if applicable) where its buying customers are located. In other words, the retailer will collect and submit sales tax where it has sold its products.
In a scenario where a business ships its products from an origin-sourced sales tax state and the customer is located in a destination-sourced sales tax state, the company must likely collect sales tax for both states. For example, if a Halloween costume retailer has its inventory in Texas (an origin-based state) and sends a costume to a buyer in Florida (a destination-based state), the company must collect the Texas sales tax, and, if it reaches Florida’s nexus threshold, it must also collect the Florida sales tax. Â
Also important to note is that with the growth of e-commerce, states have been initiating laws to make sure out-of-state businesses that are selling online to customers within their jurisdictions pay applicable sales tax. Click-through nexus legislation and affiliate nexus laws are examples of this.
Required Information for Reseller Permit
Below, I’ve listed some of the information a reseller license might include:
- Reseller name and address
- Reseller license number
- State of Issue
- Type of business activities the reseller conducts
- What the license may and may not be used to purchase
Other information might also appear on a reseller permit. The documents issued are slightly different in each state.
How to Apply for a Reseller License
A retailer needs a sales tax ID for every state where it needs to collect sales tax. Some states will issue a resale certificate when applying for a sales tax ID, while others require a separate application.
The basic steps for applying for a reseller permit include:
- Obtain the application from the appropriate state department. This may be different from one state to the next. For example, in Florida, the state’s Department of Revenue issues reseller licenses, whereas, in California, the California Department of Tax and Fee Administration (CDTFA) issues them.
- Organize the information and documents you need to complete the application. This might include your tax ID number, articles of incorporation or articles of organization, driver’s license, bank account information, names and addresses of suppliers, estimated monthly sales revenue, and other details.
- Submit the fee for obtaining your reseller certificate. Some states don’t charge anything for a reseller permit while others require a nominal fee.
- Find out if and when you need to renew your reseller permit. In some states, resale permits expire after a certain period of time.
One of the requirements a business must meet before getting a resale license from a state is that it’s qualified to do business in the state. In states outside of where a business is registered, the reseller will need to have Foreign Qualification.
It’s critical for business owners to make sure they understand their compliance and tax obligations when applying for reseller licenses.
FAQs
How do you use a reseller license?
When a business purchases from a wholesaler, that company will request to see the resale license as proof that the goods being bought are for resale. Some states have a tax exemption certificate that the reseller must complete and submit to the wholesale vendor when purchasing goods.
How long does my business need to retain documentation of reseller certificates?
State requirements vary, but generally three to seven years is the typical guideline for how long records should be kept.
What’s the difference between a reseller license and a sales tax license?
The terms are often used interchangeably. Generally speaking, a reseller license is the certification required to be exempt from sales tax when buying products on a wholesale basis. A sales tax license is the permit or certificate issued to authorize a company to collect sales tax from its customers at the point of sale.
What’s the difference between a reseller license and a business license?
A business license permits a company to operate legally in a city/county. A reseller license specifically exempts the company from paying sales tax on wholesale purchases. Often, a company will need both documents to conduct business legitimately.
How long does it take to obtain a reseller permit?
The timeline varies by state. It may take one to six weeks. In some states, you may be able to expedite the process.
How can I simplify the process of applying for one?
Applying for state sales tax IDs and reseller licenses, submitting foreign qualification forms, and tracking renewal dates can demand a lot of time as you wrangle all the details and complete the necessary paperwork. Fortunately, CorpNet’s business documentation filing experts are here to help with all of it—in all 50 states. We will take care of ensuring your applications are completed correctly and submitted efficiently so that you can get down to the business of building your business.
How to Simplify the Process
Applying for state sales tax IDs and reseller licenses, submitting foreign qualification forms, and tracking renewal dates can demand a lot of time as you wrangle all the details and complete the necessary paperwork. Fortunately, CorpNet’s business documentation filing experts are here to help with all of it—in all 50 states.
We will take care of ensuring your applications are completed correctly and submitted efficiently so that you can get down to the business of building your business.
Request Your Reseller License
Our specialists manage the process of sales and use tax registration so that virtually no work is required on your part. We will complete the state filings so you can worry about running and growing your business.
