The purpose of a business license is to allow you to engage in business activities. Selling goods or other property requires a seller’s permit. Both documents are usually required if you are considering starting a business to sell goods. What are the other differences? Want to know more? Read on to learn more about the differences between a business license and a sellers permit.
Understanding of Business and Sellers Licenses
Business license and sellers permit are two distinctly separate forms of certification usually issued on state and local levels.
When a company seeks to get authorization to conduct commercial operations in a specific jurisdiction, it usually applies for a business license, though often, it might require more than one depending on the scope of the venture.
Also known as a sales tax permit or license, a seller’s permit is a document that gives an entity the power to sell goods and/or services in a specific area of authority, meaning the authorization is only valid within the legal limits of the jurisdiction where the permit was issued. Just as with operational licenses, an entity might need multiple permits for conducting sales in different jurisdictions.
Who Needs a License?
Although the types of business licenses vary by locale, essentially, all commercial entities need some form of authorization to operate legally. Licensing occurs on federal, state, and local levels.
Some of the more specialized types of business permits are implemented on a local level, i.e. city or county, due to area-specific regulations that require businesses to get licensed in every jurisdiction where they wish to conduct commercial transactions.
As for seller permits, each state imposes its own regulations for products and services on which a tax is levied, whether it’s wholesale, retail, or self-manufactured goods. This typically includes drugs, alcohol, appliances, furniture, electronics, clothing, toys, etc. Aside from products, consumption tax may extend to certain service providers like catering, repair shops, beauty salons, or restaurants.
Note that even if a specific product is listed as tax-exempt, it’s still mandatory to have a permit in order to sell it. While the permit is a hard requirement in most jurisdictions, there are five states that do not mandate or levy a sales tax:
- New Hampshire;
That said, local authorities in Alaska and Montana have the power to set their own taxation rules for sales on county and city levels. State websites usually provide all necessary information about taxable goods and where to obtain them, plus you can contact your county clerk if you have further questions.
Difference Between a Reseller’s Permit and a Business License
As mentioned before, business licenses tend to be imposed on almost all commercial entities, typically on state, county, and municipal levels. By registering for this type of certification, a company is able to get full permission for conducting business in the jurisdiction where the license is issued.
What makes licensing more complex than other forms of business maintenance is the sheer variety of them and the difference in regulations imposed by different jurisdictions, from the city to federal levels.
Some of the most widespread types of business licenses are:
- General licenses for commercial operation issued by local agencies such as the city of registration or home county, should the entity venture outside its municipal jurisdiction;
- Health department licenses for entities working in food service;
- Building permits for renovating existing property or construction of a new one;
- Zoning permits for authorizing business activities in a specific area;
- Fire department permits for public venues and businesses using flammable materials;
- DBA permits for entities using fictitious names;
- Federal tax registration aka EIN;
- Occupational licenses (healthcare professionals, legal services, accounting, etc);
- Industry-specific licenses (agricultural sector, broadcasting, transportation, commercial fishing, alcohol or drug production, firearms, etc).
A reseller’s permit, on the other hand, is a form of special authorization issued by government agencies to companies that wish to be exempt from sales tax when buying specific goods and inventory with the intention to resell them. This certificate is often associated with the purchase of parts or ingredients that will then be used in the manufacturing process for other products. When the newly manufactured goods are then sold, they are legally exempt from sales tax.
Similar to industry-specific business licenses, a resellers permit is only required when a company has full intentions to sell products or purchase goods/components. They must also be obtained for each jurisdiction of the intended operation. A company registered in one state that plans to resell goods in other states must get a reseller’s certificate for all jurisdictions where it conducts its business.
Although sometimes used interchangeably, a reseller’s permit and seller’s permit are not identical. While the former is basically a certificate that lets you avoid sales tax, the latter allows you to levy sales tax on your goods and services when you sell them to customers. This is why a seller’s permit is often referred to as a sales tax permit or license.
That said, certain state authorities use the two terms to define the same concept, while others even merge them in the license or tax application paperwork. Note that registering for a sales tax permit is not the same as obtaining a federal tax ID or EIN—the latter is an entirely separate concept.
How to Apply for a Seller’s Permit
Considering how many permits you might have to obtain depending on the regional scope of your business, it could be a little difficult to keep track of all of them. This is because so many of them are controlled by different agencies, which can get needlessly complicated when you go more and more local, for example when it comes to street vendors.
Fortunately, it’s possible to apply for them online in most jurisdictions, although you can also use the post. An impressive number of states choose to process this type of application for free. The only states that charge for this service are:
- Arizona: $12
- Arkansas: $50
- Colorado: $16
- Connecticut: $100
- Hawaii: $20
- Indiana: $25
- Nevada: $15+
- Ohio: $25
- Oklahoma: $20
- Rhode Island: $10
- South Carolina: $50
- West Virginia: $30
- Wisconsin: $20
- Wyoming: $60
Washington fees vary based on the specificity of each business. Although Missouri technically doesn’t have a service fee, entities that yield a profit off retail within the state are required to pay a bond calculated based on the monthly taxable sales.
Like with most state-specific licenses, application guidelines could be very different depending on the area of registration. However, you will likely be asked to submit the documents listed below:
- Name and principal address of the entity;
- Entity’s business structure (corporation, LLC, partnership, etc);
- Formation documents (articles of organization/incorporation);
- Owners’ names, addresses, and SSNs;
- Description of entity’s purpose, goals, activities, etc;
- EIN (issued by the IRS upon or after formation);
- Entity’s bank account details;
- NAICS codes for the type of products/services the entity sells;
- Business license numbers for specific products such as tobacco or alcohol;
- Start of the tax collection window;
- Estimated revenue in annual sales or sales taxes.
The application for the permit can be processed in a single day or take up to several weeks depending on location. Permits can be perpetual or issued for a limited amount of time.
How Do I Get a Business License?
You might already know that almost all for-profits require some form of business licensing. On a federal level, it’s largely determined by the industry you operate in. State licenses range greatly in number and specification, so it’s hardly possible to create a single all-encompassing list that could be applied to every state and remain valid.
Moreover, not a lot of states have centralized agencies that issue and control all licensing within their borders. While some local governments do have a licensing board or DBPR, in most cases, you will have to contact each regulating agency separately. The same goes for the application process.
If you don’t know where to begin, try researching the SBA website first and reaching out to the reps in your municipality, county, and state, though it might be easier to work with a business attorney.
Once again, the types of permits, as well as their number, vary based on your primary industry and location. Federal, state, and local fees are adjusted accordingly. Similar to sale tax permits, business licenses may only be valid for a specific period and must be regularly renewed—for a fee, of course.