5 Steps To Get a Wholesale License: Unlock the Benefits & Scale Your Business
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Starting a business can be an exciting and rewarding experience, but it's not without its challenges. One of the most important steps to take when starting a business is acquiring the proper license and permits for your particular industry. For those looking to start a wholesale or retail-based business, obtaining a wholesale license is essential for success.
This guide will explain what a wholesale license entails, how to obtain one, and some tips that can help along the way. With a wholesale license in hand, you can jumpstart your business, increase your profit margin, and take your business to the next level.
Contents
What Exactly Is a Wholesale License?
A wholesale license is a legal document that allows businesses to eliminate sales tax when buying products in bulk. Without a wholesale license, a business is expected to pay tax at every transaction, significantly increasing costs and lowering profit.
Wholesalers are the middleman between manufacturers and retailers. You can buy wholesale items to sell from home in bulk from a wholesaler at a lower price per piece. Then you can resell them at a higher price, contributing to increased profit margins.
Every state and county has tax and license regulations a business should adhere to. Complying with these legal rules strengthens your business's image as a trustworthy and reliable supplier. It indicates to the relevant parties that you are the legal reseller of goods. Hence, this license is also known as a reseller permit or a reseller license.
How Do I Qualify for a Wholesale License?
Any seller intending to resell goods for business purposes is applicable for a wholesale license. This includes dropshipping as well as other forms of commerce. You also need to meet certain conditions to apply for this license. First and foremost, you need to have a registered business with the IRS. This means deciding on a name and legal structure for your business.
Secondly, you need to apply for a sales tax license. This permit allows you to charge sales tax on the products you sell. The percentage of tax charged is different for every state and is also affected by the type of products you sell.
If you meet these requirements you can apply for a wholesale license and save costs on bulk buying.
How to Get a Wholesale License in 5 Steps:
Now that you know the numerous benefits of a wholesale license let's look at ways to obtain it.
1. Register Your Business
Start by registering your business as a separate legal entity. This involves choosing a unique name for your business, a business address, and a legal structure - sole proprietorship, partnership agreement, or limited liability company.
A great and affordable service to accomplish this is Northwest Registered Agent. You can set up your business for only $39, and they handle the paperwork for you!
The type of legal structure within which your business operates is essential to determine the amount of taxes and other laws your business will need to follow.
Customers prefer to buy from registered businesses as they are less likely to get involved in fraudulent activities. They assume that these businesses will act in the interests of the consumers and prioritize their sales and marketing strategies to fulfill consumer needs.
2. Get an EIN Number
Once your business is registered, you should apply for an employer identification number (EIN) or a federal tax identification number (FTID) with the IRS.
The employer identification number is like your personal ledger that records all your business transactions in one place. Once you have your EIN, you can hire employees and apply for loans under your business name.
The process of applying for an EIN is free. Customers that apply online receive an EIN immediately, while the processing time through the mail is around 4 weeks.
3. Obtain your Sales Tax ID
A sales tax ID, also known as a sales tax permit or sales tax license, is a document that facilitates the collection of sales tax on the products sold by your business.
Generally, every product incurs a sales tax which has to be paid by the final buyer in the sale chain. Obtaining a sales tax license helps businesses generate the yearly tax amount to be paid to the state's tax office.
4. Organize All Necessary Documents
A wholesale license is a crucial step toward the progress and sustainability of your business. Therefore, it is advisable to plan and gather all necessary documents in one place so you can fill in the application smoothly.
Apart from your EIN and sales tax permit, you will need the following to apply for your wholesale license,
- Your full name and the name of your partners - in case of a partnership agreement
- The legal structure of your company (DBA or LLC)
- The nature of your business i.e. the type of industry your business operates in
- Your business license - an authorization by the government to run and operate a business
5. Apply for Your Wholesale License
Once you have collected all the documents, you can visit your relevant state's tax and revenue office to fill out the application.
It is important to remember that every state has different names for a wholesale license. It is also known as a seller's permit, wholesale ID, and retail ID. They all essentially mean the same thing. So don't get confused when applying for the license.
The waiting times for an application differ for every state hence it is better to visit your state's website for further information. It may take as quick as 2-5 business days or a maximum of 2 weeks for you to receive your wholesale license.
Upon confirmation of the application, it is recommended to make a copy of the license to have it handy for tax and reference purposes.
How Much is a Wholesale License?
In general, an average wholesale license costs around $6500. However, it can range from anywhere between $3000 to $10,000.
The cost of the wholesale license is dependent on two factors:
- State's tax and revenue laws. Each state has its tax laws, and this cost may differ, with one charging more than the other.
- The business industry. Every business is subjected to different regulations. Specifically, businesses dealing with the sale of Alcohol and Tobacco have to comply with various state laws.
Benefits of Getting a Wholesale License
1. You Can Buy in Bulk
Wholesalers stock a wide variety of goods they buy from manufacturers at a significantly low price. They transfer this cost benefit to small or large-scale companies. This helps them to increase profit margins by selling wholesale products at a higher price.
Businesses also save transport and delivery costs by purchasing units in bulk. Stocking up inventory in one go rather than undergoing multiple visits saves time which can be utilized for other productive measures.
2. You Won't Have to Pay Sales Tax
Generally, every transaction requires the buyer to pay a sales tax charge. This charge accumulates to the cost of the product, and you have to sell it at a fairly high price to make a profit.
One of the most lucrative benefits businesses achieve by having a wholesale license is to avoid paying sales tax on each transaction. Buying goods in bulk legally eliminates the need to pay sales tax and allows businesses to charge sales tax from the final buyer in the chain.
Businesses use this license to collect sales tax on the goods they sell and pay a yearly tax to the state.
3. Easier Access to Wholesale Prices
The general public, in most cases, can not buy goods from wholesalers. Selling small quantities of a product requires a different pricing and marketing strategy (learn about the good, better, best pricing strategy here). Only businesses that possess a wholesale license or seller's permit are authorized to buy from a wholesaler. These businesses buy products in bulk at a lower price and then use this advantage to charge a competitive price to customers.
This competitive pricing helps businesses attract more customers, generate increased sales revenue, and lower costs.
The Bottom Line: How to Get a Wholesale License
If you're wondering how to start a business that can scale over time, a wholesale license may be right for you. It is a crucial requirement for getting their business up and running. It can be a game changer for your business as it will help you expand your customer base and gain access to new markets.
So, follow the steps outlined above and apply for your wholesale license. With a little bit of effort and planning, you will be able to jumpstart your business and scale through wholesaling in no time.
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