These days, you can’t blame anyone for having to find ways to earn extra income outside of their main job – or as the younger people call it, a “side-hustle.” Given that the minimum wage in the United States is no longer enough to support yourself (let alone a family of four), many people do what they can to increase their household income.
But for these side-hustles, the line between acceptable and criminal can be very vague. Freelancing? Yes. Robbery? No. Buying and reselling items? This is where people are torn about whether it is legal to buy items and resell them.
If it’s legal to buy and resell items, is it OK to stockpile and sell? And if it’s not legal to be a reseller, is it our duty as consumers to report and refuse to support these people?
Here’s what you need to know.
Is it Legal to Buy and Resell Items?
It’s not illegal as long as you bought it legally. Once you buy something, it is your property and you can do with it as you choose. When a consumer buys a product from the store, the manufacturer has no control with what that person will do with their product.
Let’s say you went to the supermarket and bought 10 rolls of toilet paper just as the pandemic began and caused a toilet paper shortage. Even if there is a shortage, the manufacturer cannot stop you from wasting nine perfectly good toilet rolls. As the buyer, you have the right to do as you please as long as you don’t use those toilet rolls for crimes (e.g. vandalism).
So if you wanted to sell those toilet paper rolls to your neighbors at cost or for a profit, you are well within your right to do so. As long as you didn’t steal these rolls from the manufacturer, your profiting off them is not a crime.
In a nutshell, reselling is not illegal. But that’s not to say that reselling is legal.
When Reselling Items Becomes Illegal
Simply selling for a profit to someone you know is not illegal. But the act of reselling becomes easier to break some laws the bigger your reselling business becomes.
Here are a few ways they become illegal.
Selling Items with Warranty
If you’re selling items that come with a warranty (e.g. gadgets, appliances, electronics, high-end clothing, high-end bags, etc.), you need to be recognized as an official reseller by the manufacturer in order for your customers to receive a warranty from their products.
By buying the products and then reselling them without the manufacturer’s permission, you cannot give your customers a warranty. So even if it is a brand new product, you cannot provide your customers with a warranty if the it only belongs to you.
To scale your reselling business, you may have to advertise your products. Using the manufacturer’s product photos or logo in your advertisements is a breach of trademark since you are not an authorized seller with their permission to resell. This can result in a trademark infringement lawsuit, depending on how big your business is.
If we’re talking about a small-time sale (e.g. selling your used clothes, selling excess products you have at home and then stopping when you’re out of things to sell), there’s nothing illegal or tax evasive about it.
But if you’re talking about a scaled reselling business, you need to get a reseller’s permit from your state’s tax department, which means registering your business and getting a sales tax ID number. This also means paying income tax from the sales you’ve made. If you’re found to be reselling in large quantities without a sales tax, you could be fined.
This is because your business model involves two instances where sales tax is applicable (when you buy your product and when your customer buys from you). But when you’re reselling without a permit, your customer isn’t paying you sales tax that will go to the government – and that’s illegal.
In short: if you plan on making reselling a staple side-business, you need to get your business registered. You may also need authorization from the manufacturer to become an authorized seller.
That does not mean all forms of reselling are illegal. Here are a few instances where you can resell without any legal repercussions.
- Let’s say you bought two bottles of shampoo when you only needed one. You offer to sell the other bottle to a friend at the cost you paid for that shampoo.
- Your neighbor won’t stop asking to have some sugar from your pantry. Fed up, you start charging fifty cents for every cup of sugar they ask for.
- You go online to sell old clothes you don’t wear anymore to clear your closet. As long as you state that these are old used clothes and do not advertise yourself as an authorized seller for your branded clothes, it’s not illegal.
- You receive 10 rolls of toilet paper for free from a relative who thought you needed it during the shortage, but you already have enough at home. By reselling them to those who need it, you are profiting because you got them at no cost. But once you’ve sold all 10 rolls, you stop selling, so it’s not a business.
You might have heard the news about this one guy in Tennessee who tried to use the fear of the pandemic and panic buying as a source of income. After the first COVID-19 death in the United States, Matt Colvin went state-to-state, visiting major supermarkets, dollar stores and other establishments and buying out all their hand sanitizer and antibacterial wipes. As a result, he bought almost 18,000 bottles of hand sanitizer hoping to resell them on Amazon at a higher price.
However, Amazon took notice of Colvin selling hand sanitizer at $70 per bottle and immediately shut down his listing and suspended his account. He was then investigated by the Tennessee attorney general for price gouging. Eventually, he donated these bottles to charity since there was nothing else he could do with all those bottles.
This incident teachers resellers and would be resellers a valuable lesson on price gouging. Although it may be OK for resellers to put a markup on some types of products, depriving the public of a fairly priced product and then charging an obscene amount for it is not a good idea. It’s even a form of price gouging that will result in negative press on your business as well as the ire of your local government.
What’s the Best Way to Start a Reseller Business?
For starters, don’t begin a commercial venture by exploiting a situation in the market. It rarely pays off as Matt Colvin can attest. If you’re seriously considering entering a business into reselling, keep the following steps in mind:
Pick a product to resell
First, choose an item you’d buy yourself. Second, make sure it has a market, which is usually a niche market. And third, pick an item that isn’t going to be illegal to resell (e.g., products that require licensing from major brands).
Choose a platform to sell it on
Where do you resell the items you choose? Facebook has a marketplace. Amazon is a bigger marketplace. You could also set up a business account on Instagram and resell from that platform. Choose a place where your target buyers frequent and where your items will likely be most appreciated.
Aside from online reselling business, try having your own store. Flea markets also make good places to resell items.
Source your products well
A reselling business will be lucrative if you don’t have too much on sourcing your items. If the products take several weeks and hundreds of dollars to get to you, the profit margin slims down. You’ll also want to make sure your source is reliable.
Track your expenses and sales
Aside from having a complete record for tax concerns, financial management keeps you in business.
Is Reselling a Good Income Venture?
For those willing to follow the existing laws in their area about reselling, it’s still a profitable venture. Buying in bulk from the manufacturer to keep the costs low and then selling a product at a competitive price can result in steady extra income for those looking to earn more.