RESALE CERTIFICATE FOR SALES TAX EXEMPTION
WHAT IS A RESALE CERTIFICATE?
A resale certificate (also commonly known as a resale license, reseller permit, reseller license and tax exemption certificate) is a tax-exempt form that permits a business to purchase goods from a supplier, that are intended to be resold without the reseller having to pay sales tax on them. It allows suppliers to know that you are legally allowed to purchase the goods without them having to charge you sales tax, since you will be reselling the goods and collecting sales tax from the consumer (end user). There is no limitation on where a reseller permit can be used as long as the seller accepts it. Also, any items can be purchased using the permit assuming that the items will be resold.
IS A SALES TAX PERMIT THE SAME AS A RESALE CERTIFICATE?
A sales tax permit is not the same as a resale certificate. The former allows a company to make sales inside a state and collect/remit sales tax for those sales. Conversely, a resale certificate allows a buyer (such as a retailer) to purchase goods from a supplier (such as a wholesaler) without having to pay sales tax on the goods that would otherwise be taxable. It is the responsibility of the supplier to keep a copy of the resale certificate for compliance purposes and the responsibility of the retailer to collect sales tax when the goods are sold. In order to have a resale certificate, you must first apply for a sales tax permit. This permit will provide you with a Tax ID number (sales tax number) which will be a necessary field on the resale certificate.
HOW TO GET A RESALE CERTIFICATE
DO I NEED A RESALE CERTIFICATE?
If your business is a retail or wholesale operation that does not want to be responsible for collecting sales tax on resold items and does not want to have any exposure to any future tax liability, then a resale certificate will be required. Since sales tax is only supposed to be paid one time on a taxable good or service, then you want to make sure you are compliant at your phase of the products sales life. Even though sales tax is usually paid by the end user, the only way to ensure this is with a resale certificate that is properly filled out.
HOW TO USE OR ACCEPT A RESALE CERTIFICATE
There are reciprocity laws in place governing the use of resale certificates interchangeably between states. So, if you are located in one state and need to purchase items (from a supplier or vendor) for resale from another state then you can do so. If you are a supplier and need to accept resale certificates from your buyers, it would behoove you to follow some best practice guidelines. Make sure that the certificate falls within a valid reciprocity agreement. If you are a supplier located in one state and your buyer is located in the same state, then there is no problem. If, however your buyer is from a non reciprocating out of state, you would not be able to accept their out of state resale certificate. As previously stated, make sure the resale certificate is filled out properly with all the buyers’ correct information. The last and ostensibly most important thing is to make sure the resale certificate is valid and not expired. As the burden of proof may fall upon you, thoroughly checking and verifying that you are presented with a legitimate resale certificate is paramount. Almost all states in one form or another have a way for you to check the validity of a resale certificate presented to you.
WHAT INFORMATION IS ON A RESALE CERTIFICATE?
Common details listed on the resale certificate include the name (company or individual) and address of the buyer, a descriptive detail of the goods being purchased, a reference that this merchandise is intended to be resold and the accurate state sales tax number. It is important that you follow the correct procedure and protocol involved in the resale certificate process. Any errors occurring during this process could cause delays or penalties to be incurred by either party.