If you want to learn how to become a wholesaler and how to run a wholesale business, there is a lot to get acquainted with. First, you need to understand the wholesale definition and how to run a wholesale distribution business 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. But how to get 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: How to Get a 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.
Other Things Needed to Become a Successful Wholesaler
Getting a wholesale license is not the only thing needed to become a successful distributor. Like every other business, there are multiple other factors that contribute to the prosperity or failure of a company. Let’s see what else is needed to run a profitable wholesale business.
- Properly research the niche you operate in. As innovations constantly hit the market, wholesalers need to stay on track with the trends in their field. Whether you’re a supplier who sells household products or a dairy distributor, make sure you constantly research the market and adapt to the demand.
- Invest in relationships with customers. In the B2B field, relationships are an important key to success. Make sure you understand the struggles of your customers and aim to solve their problems as much as you can. Winning the loyalty of clients can be the difference between prosperity and failure.
- Be creative with prices. Don’t be afraid to offer discounts, especially for products that take up a lot of storage space or have a short shelf life. Sometimes selling products with minimum profit or even at a small loss can be better compared to waiting a long time to sell them or if they turn into idle stock. On the other hand, make sure you benefit from things like supply chain disruptions or other economic turmoil. At times when the supply is limited and the demand grows, a wholesale business can maximize profits.
- Expand your products and audience. Focusing on just one category of products can cause problems for businesses in the wholesale sector. It is recommended that these companies add new products to their catalogs and expand their target audience. As that often leads to an increase in operating work and costs, it should be combined with automation of tasks and processes.
Frequently Asked Questions About How to Get a Wholesale License
Getting your wholesale license is a pivotal part of launching a wholesale business. If you’re serious about making this decision, you probably have more questions. Check out these commonly asked questions and our answers below:
Can I buy wholesale with a seller permit?
It depends on what kind of licensing is required where you do business, and also the type of business you run. In most cases, a wholesale license is a seller’s permit, but check with your state’s tax or revenue office to be sure.
A wholesale license is required in order to purchase wholesale goods and resell them. Review the wholesale business requirements on your state’s website to see if any other licensure is needed, such as a retail license or eCommerce business license.
How do you qualify to buy wholesale?
You can buy wholesale goods from any legal entity as long as you have an employer identification number (EIN) and a wholesale license. The government requires businesses to complete these forms to track sales tax, income, and other business activity to the respective sources.
Once the above paperwork is completed, you can browse a wholesale directory and find products to purchase. It may include wholesale meat, wholesale seafood, wholesale produce, or other high demand products. Once you’ve found the wholesale items you want to buy, you can sell the items to a distributor, retail store, or consumers.
Can anyone buy from a wholesaler?
Any consumer can purchase from a licensed wholesaler who sells to the public. Consumers who are interested in wholesale products have to contact the wholesaler directly, rather than finding their products in a retail store or a marketplace.
Only a fraction of wholesalers sell goods to the public, which is for several reasons. One, wholesaling is usually done by selling in bulk, because wholesale vendors usually have to buy in bulk. Two, selling smaller quantities for consumers requires a different marketing approach, which not every wholesaler is interested in.
Wholesalers who sell direct to consumers are out there, but it requires some research and consistency in following up with them. You may also need to visit a factory or warehouse yourself, which is a time investment not every consumer wants to make.
Does the process of obtaining a wholesale license vary based on state?
Although the application fees may vary based on the state you are in, the process itself is the same. How to get a wholesale license is a question we answer in depth in this current article. In any case, the first step to take it registering your business.
After the registration is done, contact the IRS to apply for an EIN, which is also called a Federal Tax Identification Number. Until you get an EIN, you can't hire employees or conduct business.
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.