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It
might seem odd, but if you are buying items wholesale to resell
them on an online auction site you might need to obtain a
"resale license" or "seller's permit,"
depending on your home state. Happily, this won't just add more
red tape--going legit does have real benefits. Find out how to
obtain a seller permit and what you have to gain.
Semantics
Though commonly used interchangeably, a "resale
license" and "business license" are not the same.
Home entrepreneurs, such as online auction sellers, are required
to obtain a resale permit/license in most states so that their
state's Board of Equalization can collect sales tax on their
in-state sales. (Depending on your state, you even might have to
collect sales tax on your out-of-state sales.) In some states,
seller permits are referred to as state tax registration
licenses.
Business licenses are totally
separate, though obtaining one might be necessary to apply for a
seller's permit. There are two types of business licenses: a
city license and a state license. City business licenses allow
you to conduct general business within a city. Sometimes, they
are referred to as "privilege" licenses. A state
business license permits you to conduct a specific enterprise
within a given state. For instance, if you want to be a
chiropractor in California, you'll need to obtain a state
chiropractic license. Logically, before you receive a state
business license, you will have to meet specific requirements.
For your home auction business, it's not likely you will need a
state license. However, it's quite possible that you will need
both a city business license and a state seller's permit.
Exceptions
to the Rule
Not every home entrepreneur has to obtain a seller license and
local business license to resale goods. Different states,
counties, and cities have individual regulations and laws on the
books, pertaining to this issue. After consulting your state's
Department of Revenue or Board of Equalization and your local
city hall, you might find that a seller's license is not
required.
Call your local City Hall and state
Board of Equalization to see what regulations pertain to you.
The Small
Business Administration, funded by the federal government,
is another excellent source of free advice and information on
state's seller permits and general small business issues.
Finally, it's wise to talk to a lawyer or accountant about
compliance within your city and state.
The
Mechanics
Though exact instructions on how to obtain a seller permit can
vary from state to state and city to city, here's how you would
go about obtaining a seller permit in San Francisco. Depending
on where you live, some, if not all, of these steps might not
apply. Just the same, it's a good road map.
First, call the IRS (800/829-1040) and
obtain a self-employed tax ID. This will register you as a
self-employed person on the federal and state levels.
Apply for a city business license at the your local city hall.
It is likely you'll be charged a nominal fee for this license.
Apply for a fictitious business name at the county clerk's
office. Have the office perform a search to make sure your name
is not in use. This costs $35 in San Francisco
Download an application for a seller's permit from the
California Board of Equalization's Web site. Once you obtain
your permit, the board will send you forms so you can report the
sales tax you've collected.
The
Bonuses
There are several good reasons for obtaining a seller's permit.
No. 1, if you report your auction income on form Schedule
C, Profit (or Loss) from Business or Profession, with your
Form 1040, your state's Franchise Tax Board might contact the
Department of Revenue or Board of Equalization. These sales tax
agencies will realize you are not collecting sales tax and
possibly audit you. Another good reason: you can file via
Schedule C and deduct home business expenses. (For more
information on deductions, see Reporting
Auction Income.)
With the appropriate licenses, you
also will be eligible for a more useful business account at your
bank. Better still, you will be eligible for a merchant account
so you can accept credit cards from your buyers. Finally, as a
licensed, self-employed individual, there's a good chance you
can obtain discounts on health insurance through business
associations.
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tactics
by Vendio Services
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