One of the ways retail businesses increase their profits is to buy items wholesale from bulk manufacturers. Buying from wholesalers helps retailers build healthier margins, thanks in part because when doing so they aren’t charged sales tax. However, the Internal Revenue Service (IRS) has rules and regulations that must be followed in order for businesses to buy wholesale. To make sure you conform to local, state and national tax laws, read on to see what is required for you to be able to buy from wholesalers for your business.
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What Is a Tax ID Number?
The first thing any business interested in buying wholesale needs to do is get a tax identification (ID) number. A tax ID, also known as an Employer Identification Number (EIN), is a unique nine-digit number that identifies your business to the IRS. A tax ID or EIN is required on your tax return and is also used to make business purchases and set up business accounts with wholesalers and other businesses, retailers and suppliers. To get a tax ID number, your business must be located in the United States or a US territory. The person applying for the tax ID must already possess a Social Security number or other EIN.
Is a Tax ID Number the Same as a Sales Tax Number?
In most states in the US, a tax ID number is not the same as a sales tax number. While tax IDs are issued by the IRS at a national level, sales tax ID numbers are assigned by states to businesses, allowing them to charge sales tax on their products or services. The department of revenue, or a similar agency in the state where the business resides, issues the sales tax ID number, certifying that your business is allowed to collect sales tax. If your company moves from one state to another, they will keep their same tax ID number, but will have to register for a new sales tax number in the new state.
Keep in mind, however, that some states use a company’s tax ID number as their sales tax number. You still have to register with the state agency, but might not get a new number to use for your sales tax number. Make sure to check with your state’s revenue agencies, since this varies from state to state.
Do You Have to Have a Tax ID to Buy Wholesale?
Businesses that buy wholesale do need to have a tax ID. Legally, you must provide this number when you buy from a wholesale manufacturer or distributor. The IRS issues your tax ID number to you after verifying that you are a legitimate business that qualifies for tax exemptions. To purchase wholesale, and be exempt from tax on your purchases, wholesalers will ask for your tax ID when you place an order. The wholesale businesses have to keep these tax ID numbers on file to prove they have only been selling to certified exempt customers.
Related: Do I Need a License to Buy Wholesale?
How to Get a Tax ID Number to Buy Wholesale
Now that you know you need to get a tax ID number or EIN for you business, you’ll need to apply. The IRS has made it very easy to apply for and obtain a tax ID. See the following instructions for completing a tax ID/EIN application:
- Go to http://www.irs.gov and complete the short application on the “EIN Assistant” page. You can also apply via phone, fax or email, but if you apply online, you will receive your EIN as soon as you finish your application.
- Decide what type of EIN for which you want to apply. It can be for a sole proprietorship, LLC, partnership, estate or corporation. The online application will also ask for your name and Social Security number in order to complete your request.
- After you have completed your application, you will receive an official IRS document that confirms you applied successfully and gives you your new tax ID/EIN. Save this document so you have it for your records (and in case you ever forget your tax ID).
Related: How to Buy Wholesale Products [Guide to Resale Business]
Every day, businesses buy from wholesale distributors with the intent to resell the products they are purchasing. To ensure that they are running their companies legally, these businesses make certain they have a tax ID/EIN before they attempt to buy wholesale. So if you are considering getting into the wholesale market, complete the short online application with the IRS and you will be on the road to properly navigating wholesale buying and reselling.
