AW Daily - Tips & Tactics - Before the Auction: Obtaining Seller Licenses

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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.

Reporting Auction Income
Starting an Auction Business
Creating a Sales Policy