Seller’s Permit vs Business License: How To Get Them For Dropshipping?

Are you wondering about the difference between a seller’s permit vs business license?

Discover the crucial difference between Seller’s Permit vs. Business License and learn how to get them for dropshipping.

Unearth the secrets to navigating legal requirements and ensure your dropshipping business runs smoothly.

Ready to unlock the knowledge that could save you from costly mistakes? Dive in and find out!

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What Is A Seller’s Permit?

Seller’s Permit, also known as a Sales Tax Permit or Resale Permit, allows businesses to collect sales tax from customers and report it to the state. It is essential for businesses that sell tangible goods.

Any business that sells products that are subject to sales tax online has to obtain a seller’s permit.

Also, 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 must understand that a few states do not have a state sales tax.

These states are as follows:

• Alaska;
• Oregon;
• Delaware;
• New Hampshire
• Montana.

This means that you do not have to worry about obtaining a seller’s permit there. However, 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 sell online and collect sales tax. 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. 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 gives you permission to run your business and enables you to establish your dropshipping business as legitimate and legal.

It is issued by a local government that allows a business to operate within a specific jurisdiction.

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.

Moreover, 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 from which to choose.

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.

Visit the official website of your state’s government to determine your local laws and regulations regarding this type of license.

👉 Read about Do I Need an LLC For Dropshipping? The Sellers Guide.

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 compare 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.

Key Differences Of Seller’s Permit vs Business License For Dropshipping

➡ Purpose

The primary purpose of a Seller’s Permit is to enable businesses to legally collect sales tax on taxable goods and services. Additionally, it allows businesses to purchase products wholesale without paying sales tax, provided the items are for resale.

A Business License, on the other hand, grants permission to conduct business activities legally within a city, county, or state. It ensures businesses comply with local regulations and local and state regulations, including zoning, health, and safety standards.

➡ Who Needs It?

Businesses selling physical products, either in a brick-and-mortar store or online, need a seller’s permit. Service providers in some states may also need it if their services are taxable.

This permit is crucial for dropshipping businesses that sell products directly to consumers.

Almost all businesses, including home-based businesses, service providers, and physical stores, need a business license. This includes obtaining appropriate business licenses specific to the business type and location.

➡ Application Process

To apply for a Seller’s Permit, you must go through your state’s tax department or equivalent agency.

The application typically requires details about your legal business structure, business name, owner information, and anticipated sales. This is essential for businesses to meet their sales tax obligations.

The application process for a Business License involves applying through the local city or county government office.

You will need to provide information about the business type, location, and ownership. The business license application may also require a tax identification number and compliance with specific local regulations.

➡ Compliance

Once a Seller’s Permit is obtained, you must file regular sales tax returns and remit the sales tax collected. It is crucial to keep accurate records of all transactions and sales tax collected for tax purposes.

Compliance for a Business License includes renewing the license periodically, usually annually. Businesses must adhere to local business licensing requirements, ensuring they meet all necessary licenses and permits.

This includes a local business license and possibly a home occupation permit for home-based businesses.

➡ The Scope

The scope of a Seller’s Permit is specific to collecting sales tax on goods sold, while a Business License is a general requirement for operating any business.

Seller’s Permits are issued by state tax agencies, whereas Business Licenses are issued by local governments.

Seller’s Permits also relate to tax collection and resale privileges, while Business Licenses ensure legal compliance with local business regulations and legal business name registration.

If you start a dropshipping business and sell products online, you will probably have to obtain both documents. But more about that later.

How to Obtain a Business License for Your Dropshipping Business

Getting a business license is crucial for running a legitimate dropshipping business. Here’s a straightforward guide to help you through the process.

Step 1: Register Your Business

To start, you need to register your business and make it official. Begin by choosing a business structure that aligns with your goals. If you prefer simplicity, operating as a sole proprietor might be the way to go.

This means you and your business are legally the same, requiring no special paperwork to establish.

However, if you want liability protection, consider forming an LLC (Limited Liability Company), which is a separate legal entity that shields your personal assets.

For instance, an LLC would be beneficial if you run a dropshipping store from home and want to separate your personal and business finances.

Another option is an S Corporation, which isn’t subject to corporate income tax and allows profits to pass to shareholders, who then pay personal income tax.

For larger setups, a C Corporation can accommodate an unlimited number of shareholders but requires more complex tax filings.

If you are in a profession like law or accounting, an LLP (Limited Liability Partnership) offers personal liability protection from the actions of your partners. Your structure choice affects your taxes and personal liability, so choose wisely.

Step 2: Check Business Name Availability and Registration

Before you register your business, you should check if your desired business name is available and register it with the appropriate state or local agencies.

This ensures no one else in your state is using the same name.

For instance, there are several name-generator tools. I prefer the Shopify Name Generator for this purpose.

All you need to do is type in a keyword related to your dropshipping business, and Shopify will give you a list of ideas.

That’s how I came up with the name for my plant dropshipping business. In just a second, it gave me 100 results.

You can also use AI tools like ChatGPT to help generate business name ideas. Simply write a prompt, and the tool will provide you with several options.

Step 3: File for an Employer Identification Number (EIN)

Next, you’ll need to apply for an EIN (Employer Identification Number), which is essential for tax purposes and various licensing procedures.

This number identifies your business for federal tax purposes.

To get an EIN, provide basic details about your business, such as its legal structure, purpose, and ownership information.

This step simplifies tax reporting and is often required for opening a business bank account and other administrative tasks.

Step 4: Obtain a Federal Business License for Dropshipping or Permit

Depending on your business activities, you might need a federal business license for dropshipping. Certain industries like broadcasting, transportation, and alcohol sales require federal permits.

For instance, if you’re dealing with alcohol, you’ll need to contact the Alcohol and Tobacco Tax and Trade Bureau.

Also, the US Department of Agriculture is the go-to agency for businesses involved in agriculture.

Other industries with specific federal requirements include aviation (FAA), firearms (ATF), and nuclear energy (US NRC). So, I advise you to check with the relevant federal agency to ensure you comply with all necessary regulations.

Step 5: Acquire State and Municipal Licenses

After securing any needed federal licenses, turn your attention to state and local requirements. Each state and locality has its own regulations.

Typically, you must provide personal and business details, pay the necessary fees, and submit the appropriate forms.

For example, if your business will collect sales tax, you’ll need a sales tax permit. Additionally, most places require a general business license or a seller’s permit to operate legally.

In California, you might need to obtain a home occupation permit if you’re running your dropshipping business from home. However, it costs $100 and takes two weeks to obtain.

So, accurately keeping track of your income and expenses is essential for knowing your business’s financial health.

I suggest using accounting software or tools to log and categorize each transaction correctly.

For instance, QuickBooks connects with a wide range of tools, making it very convenient to manage your online store.

By linking Shopify with QuickBooks, you can automatically update your orders, inventory, customer details, and shipping information, ensuring everything is accurate.

Step 6: Understand Business License Costs

Business license costs can vary depending on your location and type of business. So, make sure to budget for these expenses when planning your business.

Thus, I provided you with information about the costs of business licenses in different states. Check it out.

Step 7: Open a Business Bank Account

Next, you must open a business bank account. In fact, I do this in order to keep my personal and business finances separate.

This helps maintain clear financial records and protects your personal assets.

Step 7: Renew Your Business License

Business licenses often require renewal, whether annual or every few years, depending on your location.

Renewal processes and fees vary. However, it’s crucial to stay on top of them to avoid fines and ensure your business remains compliant.

Also, an expired license can lead to violations and disrupt your business operations, so mark your calendar and renew on time.

Is There Any Difference Between a Seller’s Permit and a Reseller’s Permit?

You probably understand 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.

Moreover, you are about to become a dropshipper. Also, you need to know that.

In certain states, a reseller’s permit is also known as a “resale license”, “resale certificate”, or “exemption certificate”.

So, 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 (whether 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 information, such as your business name and tax data, in the government’s files. 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. You should also get a license so that you are authorized to run your business.

What Are Some Common Licenses And Permits I Might Need To Sell Online?

It is clear that different countries have different requirements and laws regarding 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.

1. Business License (General License)

Again, you need a business license to run a dropshipping business.

If your business is based in the United States, remember that a business license is issued by all levels of government.

Also, depending on the products you are about to dropship, you may need a business license at the local, state, and federal levels.

Moreover, some US states issue statewide general business licenses, including 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.

2. Seller’s Permit

As I have already said, businesses that sell products subject to sales tax should have this document.

As dropshipping suppliers do not charge you tax on the items they sell to you, you, as a dropshipping store owner, are likely to sell taxable products to your customers.

Therefore, you are obliged to collect sales tax from your customers and report and remit it to your state tax authorities.

So, 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.

However, this chart from the Sales Tax Institute shows the most recent online sales tax situation in 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, most 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, visiting your state’s Department of Revenue website is important to see if you can apply online.

3. 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 allow you to do that online. You can also visit the website of your state’s Department of Revenue to determine whether you can apply online.

4. 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 yours.

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.

For those who do not know, the Internal Revenue Service (IRS) issues this number. And you can apply for one online. You can do that here

Seller’s Permit Vs Business License FAQs

1. What are the benefits of having a seller’s permit?

A seller’s permit allows you to legally collect sales tax, purchase products wholesale without paying sales tax, and comply with state tax laws.

2. Do you need a seller permit to sell on Etsy?

Yes, if you are selling taxable goods on Etsy, you need a seller’s permit to collect sales tax from customers.

💡 Must-read: Dropshipping on Shopify vs Amazon FBA

💡 Tip: Read Shopify vs. Custom Store for Dropshipping – What’s Better & Why?

3. Does a seller’s permit expire?

Yes, seller’s permits must be renewed periodically, often annually.

4. How much does it cost to get a business license in California?

The cost varies by location and business type, but it generally ranges from $50 to $100.

5. How fast can you get a seller’s permit in California?

You can typically get a seller’s permit within a few days if you apply online.

6. Is an LLC a business license in California?

No, an LLC is a type of business structure, while a business license is a permit to operate.

7. What is a licensed seller?

A licensed seller has obtained the necessary permits and licenses to legally operate and sell products or services.

8. Do I need a seller’s permit and a business license in California?

Yes, you need both to legally operate and sell taxable goods in California.

9. How much does an Alabama business license cost?

The cost varies, but it generally ranges from $15 to $50, depending on the business type and location.

10. Is a seller’s permit the same as a wholesale license in California?

Yes, in California, a seller’s permit allows you to buy products wholesale and sell at retail.

11. Is a seller’s permit the same as a tax ID in California?

No, a seller’s permit allows you to collect sales tax, while a tax ID is used for federal tax purposes.

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.

Your business’s licenses and permits might need to vary from country to country and between industries. So, I tried to provide detailed information about what your dropshipping business might need.

Also, I hope that this article can serve as a useful guide to get you started.