How to get a Resale License --- Sales Tax ID

(Applies to US Sellers Only)

A resellers permit (or resale license) is required in order to avoid paying sales tax on items you are going to resell.To get a resellers license you first have to enroll with your state tax department, which involves getting a Sales Tax ID number.

What is Sales Tax?

Sales tax is different from an EIN/TIN number.

Sales tax is charged on all sales of physical goods to buyers within your state. Some states also charge sales tax for some services.Not all states charge sales tax: if you live in Delaware, Oregon, New Hampshire, Montana, Alaska and Hawaii, then sales tax either does not apply or applies only in certain circumstances.

For all other sellers: sales tax applies to you! Sales tax must be collected by sole proprietors, Schedule C businesses and incorporated businesses alike. In general, you do not need to collect sales tax from buyers who live outside your state.

You can find your state's sales tax rate and tax department website at the link below. It is important that you do this as there are significant variations between states. For instance, some states have one rate that applies state-wide, while in others, the rate varies between counties and cities.

State sales tax rates and websites

Note: In some states you also need to collect sales tax on shipping and handling.

How do I get a Sales Tax ID and Reseller License?

You apply for a sales tax ID and reseller certificate/license with your state tax department.

For instance, if you are in New York, then you would go to the New York State Department of Taxation and Finance (either online, by phone or in person) and fill in the appropriate form.

Once you get your sales tax ID, the state will start sending you monthly/quarterly statements.

Business location

The physical location of your business is what matters to the authorities, not where it is incorporated. So, if you are running your business from New York but have incorporated in Delaware, you will be collecting the New York rate of sales tax from New York buyers.

Buying Wholesale and Reseller Permits

If you are a US citizen purchasing wholesale goods from a wholesaler within the US, then you will probably need a resale certificate or license from the state in which your business is located.

A resale certificate or license enables you to purchase goods wholesale without paying sales tax. It also allows you to collect sales tax from your customers, the end consumer.

Without a resale certificate you will have to pay sales tax on the goods you buy wholesale and then also charge sales tax. In this case you can add the sales tax you paid as a deduction on your return, but it is much less complicated to just present your reseller license when you buy.

Most wholesalers will ask to see a sales tax ID or reseller's license before they will sell you the goods. This is because they are legally obliged to check whether you are able to collect sales tax from the end user.

Use Tax

Another thing you may come across is something called ‘use tax'.This tax is in place to discourage people from shopping in states with lower taxes than their own.

Use tax means that if you purchase goods in another state, you owe tax equal to the amount you would normally have paid in your own state.It will also apply to you if you buy goods intended for resale and then end up keeping them for your own use.

Obviously you could potentially get away without paying Use Tax because it works on an honor basis.However, should you be audited, Use Tax is something auditors like to hone in on and subsequently many new businesses are caught out. Therefore it is wise to make sure that you pay it and keep the appropriate records.

Collecting Sales Tax on eBay or your Website

It's easy to collect sales tax on eBay. When you are setting up your item description, just select the sales tax option. By selecting the state where you business is located, you can ensure that proper tax is calculated for purchasers who also live in your state.

How to Setup Sales Tax on eBay:

1. Go to My eBay
2. Click the Preferences link from the left-hand navigation bar
3. Click Show in the Payments from Buyers section.
4. In the Use Sales Tax Table section click Edit.
5. The Sales Tax Table page appears.
6. Find the state you want to start charging sales tax in (the state where your business is operating) and put in the correct sales tax amount in the Sales Tax Rate field. You can also opt to charge sales tax on shipping and handling too if required.

For your website, there are plenty of tax software that will help you keep track of tax you need to collect and pay such as Avalara and CCH.

Records to Keep

You need to keep your resale certificates or file as part of your business records. You must be able to match your sales records with resale certificates for audit purposes.

Reporting Sales Tax

How often you need to complete Sales and Use Tax reports will depend on your monthly sales turnover and the state you are working from.

It's very important you are sure to collect the correct amount of sales tax as you will be held liable for any owing.

Note: Trading Assistants do not need to collect or remit sales tax.

Useful Links

The Sales Tax Clearing House

eBay Workshop with Diane Kennedy, author of ‘Tax Loopholes for eBay Sellers'