In recent years, gross profits in the wholesale business have ranged between 15-25%. If you want to enter this profitable industry, you’ll need a wholesale license — but what is a wholesale license? It’s an official permit that lets you avoid paying unnecessary sales taxes. Your region might call it a resale license or a seller’s permit.
What Is a Wholesale License?
A wholesale license is an official permit for your business. It allows you to buy goods without paying sales tax.
Wholesale License vs. Seller’s Permit
You might be weighing a wholesale license vs. a seller’s permit for your business. If you look into the issue more, you’ll likely find that these are the same documents going by different names in different places.
A seller’s permit might also be for businesses that intend to collect sales tax on sales, which wholesalers typically don’t do. Don’t go by the name; choose the permits relevant to where and how you do business.
Why Wholesalers Are Exempt From Taxation
Wholesalers don’t usually have to pay or charge sales tax when doing business. That’s because governments typically only want to charge sales tax once: on the final retail cost of the merchandise when the end consumer purchases it.
As a wholesaler, you’re not the final user of your merchandise. Your customers, retailers or other businesses, are also not the final users.
Remember not to use general information like this article as legal or tax advice. Check your jurisdiction’s wholesale license and taxation rules. That way, you’ll have all the business licenses and permits you need for your location and situation.
Do You Need a Wholesale License To Buy and Sell in Bulk?
If you sell wholesale exclusively, you need to know what is a wholesale license because you need one to avoid paying unnecessary taxes. This is important because:
- It helps you comply with the law, if applicable
- It keeps your costs down
- It allows you to offer competitive prices and maximize your profits
Some places require wholesale licenses to buy and sell large quantities. On the other hand, if your region doesn’t charge sales tax, you might not need a seller’s license at all.
This is another question that requires some situation-specific thinking. Consider the exact buying and selling functions you intend to do, then research what your state requires for those functions.
Do You Need a License To Sell Wholesale Online?
If your region requires wholesale licenses, you may need one for an online business. Even if a license isn’t mandatory, you will still want to get one.
Remember that a great price is one of the biggest values you offer your clients as a wholesaler. If you’re paying or charging unnecessary taxes, you must add that cost to your price. Another wholesaler who has gone through the simple process of obtaining a license will be able to outcompete you.
Again, you’ll want to double-check the rules relevant to your country, state, and local authority. Most jurisdictions will have specific instructions for online sellers — some places even have mentors available via phone calls, email, or chat.
How Else Can You Increase Profitability?
Getting up to that industry average of 15-25% profit can be a challenge. It’s important to know the answer to what is a wholesale license, and you also need to compare business to other wholesalers in your niche; some specialties are more profitable than others.
Make sure you have the right tools for the job. Power up your Shopify store with our bulk discount and wholesale pricing apps — contact us today.
