Seller’s permit vs. business license – what is the difference between them? This guide will teach you the difference between them and whether you need certain permits or licenses to sell online.
E-commerce, particularly dropshipping, is a relatively new addition to the retail scene. With the dropshipping business model, you will do business online.
That is to say, you will run a home-based business. However, you must comply with the laws applicable to your business.
In other words, if your dropshipping business does not comply with the laws applicable to your business, you may be subject to fines.
To start a dropshipping business and stay on the safe side, you should learn more about the following:
But, today, we will focus on the seller’s permit vs. the business license. So, let’s get straight to the point.
What is a seller’s permit?
Any business that sells products that are subject to sales tax online has to obtain a seller’s permit.
Many countries require businesses to obtain this kind of document to legally operate online. Still, the fees, requirements, and other details vary from country to country.
Learn the details: Is Dropshipping Legal?
For example, if you are about to operate your dropshipping business in the United States, you need to understand that a few states do not have a state sales tax.
And these states are as follows:
- New Hampshire
This means that you do not have to worry about obtaining a seller’s permit there. But in most of the other states, any business with taxable sales of at least $100,000 or 200 transactions within the state has to apply for a seller’s permit.
In brief, a seller’s permit gives you, as an online seller, the authority to collect sales tax for the state. You must obtain one in the state where you do business, provided that you sell products online in that state.
It is a permit you apply for from your state to be able to sell online and collect sales tax. And it provides a way for the state to control the process of collecting, reporting, and paying sales tax.
Sometimes, it is called a “sales tax” license or permit. And it is required for sole proprietorships, LLCs, partnerships, and corporations that sell taxable goods to customers as wholesalers or retailers.
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What is a business license?
A business license is a type of license that gives you permission to run your business. Moreover, it enables you to establish your dropshipping business as legitimate and legal.
The specific business license you will have to get in order to sell online varies from country to country. However, the purpose of a business license is the same in each country. In the United States, many online sellers opt to form a Limited Liability Company (LLC) to protect their personal assets and simplify taxes. As such, there is a wide selection of LLC filing services in the United States to choose from.
It is actually some kind of “proof” that shows you have government approval to operate your business in a particular location/area.
Furthermore, in certain locations, you do not have to get a business license until you reach a specific revenue threshold. But in other areas, you have to get one before you start selling.
To determine your local laws and the regulations surrounding this type of license, make sure you visit the official website of your state’s government.
Seller’s permit vs. business license: What is the difference between them?
Oftentimes, the terms a seller’s permit and a business license are used interchangeably.
But, as you may have noticed, there is a difference between them. And learning the difference between them will help you operate legally, avoid fines, and give your dropshipping business credibility.
So, after defining both terms, let’s make a comparison between them – seller’s permit vs. business license.
Again, a seller’s permit is NOT the same thing as a business license. A seller’s permit gives you the authority to sell products, whereas a business license allows you to do business within a certain location.
And as long as you start a dropshipping business and sell products online, you will probably have to obtain both documents. But more about that later.
Is there any difference between a seller’s permit and a reseller’s permit?
You have probably understood what a seller’s permit is by now. However, chances are you do not know if it is the same thing as a reseller’s permit.
You are about to become a dropshipper. And you need to know that.
In certain states, a reseller’s permit is also known as a “resale license”, “resale certificate”, or “exemption certificate”.
No matter what it is called, its main purpose is to identify your business as a reseller and help you avoid sales tax on your business purchases.
With this document, you can buy the products you are going to sell through your dropshipping store without having to pay taxes to your dropshipping suppliers.
Why? Because you are a reseller, and you are buying products for resale purposes. And it is the end consumer’s responsibility to pay the sales tax.
Sure, it is recommended to check with your state’s taxing authority to see if you need this kind of document.
Is taking out a business license the same as registering your business?
Registering your business (no matter if you want to form a sole proprietorship, LLC, partnership, etc.) is NOT the same as obtaining a business license.
Aside from registering your dropshipping business, you should also take out a business license.
On the one hand, registering your business puts your business’ info, such as your business name and tax data in the government’s files. And on the other hand, a business license allows you to start and run your online business.
This means that you should register your dropshipping business for liability protection and tax purposes. And you should get a license so that you are authorized to run your business.
Seller’s permit vs. business license FAQ
People interested in dropshipping tend to do a few things before starting their dropshipping businesses.
One of these things includes getting familiar with the legal requirements to set up and operate a dropshipping business. And they tend to be curious about specific topics regarding permits and licenses.
That’s why we have created the seller’s permit vs. business license FAQ section in this article. Just read on.
How can I sell online legally?
To dropship or sell products online legally in the United States, you should apply for an Employer Identification Number or a sales tax ID. (We will cover this in more depth later.)
Plus, you need to make sure that you are collecting as well as reporting all applicable local- and state-level sales taxes.
Also, you may have to apply for certain permits and licenses. (But more about that later, too.)
What’s more, as a dropshipper, you will have customers who are going to buy from your dropshipping store and share their personal information and credit card details.
And you must keep consumer data safe. This means that you must comply with digital business laws and regulations, especially digital customer data protection acts.
Do I need a business license to sell online?
A business license is not necessary just for those operating brick-and-mortar stores. You may have to take out a business license even if you are running a dropshipping store.
Still wondering “Do I need a business license to sell online?” Well, it depends on your location, where you sell, what you sell, and your business needs.
For example, you can set up a store on Shopify and start dropshipping without having a business license. Although Shopify does not require you to obtain such a license to use the platform for dropshipping, it is advisable to get one.
💡 Must-read: Dropshipping on Shopify vs Amazon FBA.
If you get a business license, you will be able to establish your dropshipping business as legitimate and legal.
Plus, different countries have different requirements and laws for business licenses.
So, you must inform yourself of what applies to your dropshipping business. And it is a good idea to consult a lawyer or tax professional.
What are some common licenses and permits I might need to sell online? And how to obtain them?
It is as clear as day that different countries have different requirements and laws for permits and licenses for dropshipping and online selling.
But the USA is, without a doubt, the biggest market for dropshippers.
Learn how you can start your own dropshipping business in the USA.
So, now, we will mainly focus on the licenses and permits you will need if you target the American market.
• Business license (general license)
Again, you need a business license to run a dropshipping business.
If your business is based in the United States, keep in mind that a business license is issued by all levels of government.
Also, depending on what kind of products you are about to dropship, you may have to get a business license on local, state, and federal levels.
Some US states issue statewide general business licenses. And they include Washington, Alaska, Tennessee, Delaware, and Nevada. Others require you to obtain a license for a specific type of business.
Therefore, it is recommended to check with state, county, and local officials to determine the requirements for your e-commerce business and find out how to apply for a license. Or simply, visit the SBA.
• Seller’s permit
As we have already said, businesses that sell products that are subject to sales tax should have this kind of document.
As dropshipping suppliers do not charge you tax on the items they sell to you, then, you, as a dropshipping store owner, are likely to sell taxable products to your customers.
And you are obliged to collect sales tax from your customers and report and remit it to your state tax authorities.
This means that as a dropshipper, you are going to be a collector of sales tax and that you need a seller’s permit to operate legally. The sales tax laws in many states change from time to time.
But this chart from the Sales Tax Institute shows the most recent online sales tax situation for all US states.
Needless to say, you should also consult a tax professional about what your sales tax obligations will be as a dropshipper.
When it comes to applying for a seller’s permit, the majority of US states let you file your application for the document completely online. For example, if you want to do business in California, you can register online for a permit.
So, it is important to visit the website of your state’s Department of Revenue to see if you can apply online.
• Reseller’s permit
You are going to buy products from your dropshipping suppliers and then resell them to your customers, right?
Therefore, you will also need a resale license to avoid paying sales tax on your purchases. States issue such licenses to avoid taxing the same products twice.
And when buying products for resale, you will probably need to present your resale license to your dropshipping supplier so that they can allow a tax-free sale.
To get your resale license, you should simply fill out an application form and submit it to your state’s Department of Revenue.
Again, some states let you do that online. Also, feel free to visit the website of your state’s Department of Revenue to determine whether you can apply online or not.
• Employer licenses & permits
If you intend to start a sole proprietorship without employees and operate under your own name, you can use your Social Security number for tax identification purposes.
However, as long as you like to operate your dropshipping business under a name other than your own, then you need to get a Doing Business As (DBA) License.
This kind of document allows you to do business under a name other than your own.
Just to give you an idea, let’s say, you have a dropshipping jewelry business and your name is “George Adams”. But you want to operate your business under a name like, “Cool Jewels”. If this is the case, you need to obtain the above-mentioned license.
All other businesses, including LLCs, partnerships, etc., must get an Employer Identification Number (EIN) to pay taxes, hire employees, etc.
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Seller’s permit vs. business license: The bottom line
Seller’s permit vs. business license – the distinction between these two documents is subtle but important.
And, as you can see, when you want to set up a dropshipping business, you cannot start selling your products online right away.
To start dropshipping, you must also understand which seller’s permits and licenses your online business might need.
The licenses and permits your business might need to vary from country to country, and between industries. So, we tried to provide detailed information about what your dropshipping business might need.
And we hope that this article can serve as a useful guide to get you started.