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Making Your Online Business Legal: Why and How

Making Your Online Business Legal: Why and How

by Chris Malta
Last updated 7/24/2018

It's not uncommon for new online retailers to be intimidated by the thought of acquiring reseller certificates, EINs, and DBAs. But if you sell physical goods on the internet, you can't afford to let a little paperwork stop you from experiencing the benefits of being a legally recognized business. Because, if you want to buy your inventory from real wholesale suppliers, you must be an official, legal business.

The Taxman Cometh
According to business attorney Cliff Ennico, of, wholesalers require proof that you're a legal business for a very good reason. They keep this proof on file, to protect themselves, should they ever be audited. In the U.S., wholesale transactions aren't taxed. "Wholesalers don't charge taxes to their retailer customers, because those retailers are going to charge taxes to their customers," explains Ennico. "As long as someone is paying taxes on those goods at some point during their journey to market, the IRS is happy."

However, if the IRS were to catch a wholesaler selling tax-free goods to an end consumer, that wholesaler would wind up in a world of legal and financial trouble. So every business they sell to must demonstrate that they're a legally authorized reseller, buying their goods for resale and not for personal enjoyment.

I'll Need to See Some ID, Please...
As an online retailer, you're responsible to collect and pay sales tax on all sales to customers in your own state. Therefore, you're required by law to register for a state sales tax ID (a.k.a. reseller certificate) when you set up your business. Registering is as easy as going to your state tax authority website, clicking on 'Forms and Publications', and filling out the registration form. Typically, you'll use a copy of this document to verify your business' legitimacy.

Not every state imposes sales tax on retail items, however, and that complicates the issue. If you live in a tax-exempt state, you're unable to acquire a reseller certificate. In that case, a wholesaler will need another form of identification proving your business' validity. Some of the most common alternate forms of proof are as follows:

    . If you're operating as a sole proprietor or partnership, you can file a Doing Business As certificate (DBA) at your county clerk's office, and supply your wholesaler with a copy.

    . If you're an LLC or a corporation, you can supply your wholesaler with a copy of your filed certificate of organization or articles of organization. You'll also need to include a copy of the confirmation form you received back in the mail, that lets your supplier see that the document has been filed.

    . If you're operating without a trade name or a DBA, then you'll most likely have to provide a federal tax ID (EIN). Although the law allows you to register your social security number as your EIN, it's a much better idea to let the government issue you one. They're free, and having one to use in your business correspondence means that you aren't sharing your SSN with anyone you don't have to be.

    . Another option is to use your state tax ID number - this is different than your state sales tax ID number. Even in states that don't charge sales tax, there are other state taxes that might apply to your business. Usually, the state will issue a state tax ID number, which you can use as a form of business identification.
The bottom line is, no matter how you structure your online business, you must take steps to make it a legitimate, authorized business before you can work with true wholesale suppliers. The minimal time and effort you'll spend will more than pay for itself in the rewards of being able to set up those wholesale accounts and get a consistent, reliable supply of products at prices that give you room to turn a profit. Says Ennico, "If you're going to sell online, getting your business legal is just something you need to do. It's easy and painless, and the rewards far outweigh the costs."