If you want to learn how to become a wholesaler, there is a lot to get acquainted with. First, you need to understand what is wholesale so you’re familiar with the industry as a whole. Next, you should learn how to buy wholesale and research wholesale items to sell.
Then, once you know how to find wholesalers and have identified a wholesale directory or two, you’ll be nearly ready. When you have buying and selling opportunities figured out, it’s time to get documentation like a wholesale license.
Getting a wholesale license is generally a simple procedure. You’ll need personal information, business information, some funding, and a little bit of patience. Let’s look at what a wholesale license (sometimes called a wholesale permit) is, how to get one, and what to expect in the process.
Wholesale Dealer License: What Is a Wholesale License?
A wholesale license is a business document that allows you to legally buy from manufacturers in bulk and resell the goods. It signals to the government, material suppliers, and retailers that you’re a lawful dealer of goods.
Your wholesale license is also a means to reduce taxes over the long haul. Since most wholesalers purchase goods in bulk, this license legally removes sales tax. Without a license, you’d be paying sales tax on each supplier purchase, which adds up quickly. It also legally allows you to make eCommerce sales and take B2B payments.
If you try to start a business without a wholesale dealer license, you’re risking legal action from the government. A wholesale license acts like a tax on manufacturers’ goods. In other words, it’s the government’s way of acknowledging B2B sales and the exchange of goods in an online marketplace or B2B online marketplace.
Starting an eCommerce business requires a lot of forethought, including what wholesale price you'll sell at. The product(s) you sell will determine the wholesale license you’ll need. For example, businesses that sell produce, wine, and beer are subject to regulations that other businesses are not. Consult your state’s tax or business revenue office for details.
Wholesale License vs Seller's Permit
In most cases, a seller’s permit and wholesale license are the same document going by two different names. Sometimes, a state may have been calling it a seller’s permit longer, or perhaps a state’s legislature thinks of it differently. Understanding any differences between wholesale licenses vs. sellers’ permits where you live is crucial.
For example, a wholesale license in your state could be different from a reseller’s permit. In some cases, a reseller’s permit is required for wholesalers to sell to retailers.
It all depends on the laws in your state and what wholesalers are expected to adhere to. No matter your situation, you are obtaining the correct licensure if you’re getting it through your state’s tax office.
Wholesale License Cost: How Much Is a Wholesale License?
While this fee can range from $3,000 to $10,000, the average wholesale license cost is about $6,500.
The reason for such variance can depend on multiple factors. One, different states may charge more or less depending on their tax and revenue laws. Two, the type of eCommerce business you’re starting may be subject to different regulations, thereby warranting higher or lower fees.
Getting a Wholesale License: Apply for Wholesale License
When it’s time to get your wholesale license, the process is pretty straightforward. There are some fees and waiting times involved, so plan your business activities accordingly.
The first step is acquiring your employer identification number (EIN) or your federal tax identification number (FTID). Either one is fine, but you do need one of the two. The government uses your EIN to track all legal business activities and allow business owners to hire employees.
You don’t have to hire employees, but the EIN is still necessary for making wholesale sales. Your EIN ties all transactions to your business, which simplifies taxes and record-keeping.
It takes about two weeks to receive your EIN or FTID after you apply. Without it, you can face severe penalties and legal issues, so acquire this early in your business journey.
The second step is getting your sales tax ID. Though it may seem redundant, this is the document that allows you to collect sales tax on your products. It also simplifies the work you and your state’s tax agency have to complete each year. Each state has different tax laws, so familiarize yourself with what the government expects of your business.
The third step is applying for a wholesale license. Contact your state’s tax or revenue office to acquire the relevant paperwork. This process may look different from state to state, including information required from you and standard waiting times.
To get a wholesale license, you’ll need business information, including:
- Your full name, and the full names of any business partners
- Your EIN or FTID
- Your DBA (doing business as; the public-facing title of your business)
- The nature of your business
- eCommerce business license and/or eCommerce business insurance
When your application is submitted, the hard part is over and waiting begins. Some wholesale licenses are approved in as few as two to five business days; others take as long as two weeks.
Once you’re notified that your application was approved, you’ve obtained your wholesale license! Make a copy of it so you have it ready for tax and reference purposes.
One of the main benefits of getting a wholesale license is it exempts you from paying taxes on bulk orders. This saves money on your upfront costs and allows you to invest more in your eCommerce marketing strategy.
Licensed to Sell
Getting your wholesale license is a major milestone in launching your direct to consumer (see D2C meaning) or B2B business, much like selecting your B2B eCommerce platform. You’ve invested several thousand dollars, acquired the necessary paperwork, and are approved to buy in bulk.
Continue researching what goes into a successful wholesale venture to keep your business profitable, like wholesale marketing strategies. As more customers order your products, your fill rate will increase which will lead to more profit.