If you buy products to sell to others and haven’t read up on resale certificates yet, buckle up, because what you’re about to learn might save you some money and sales tax hassle.
A resale certificate is a document that lets retailers purchase goods for resale without having to pay sales tax for those items.
Depending on your state, they will either provide you with a resale certificate number to use with a generic template or they will create a customized certificate for your business. Either way, you’ll need to provide a copy of the certificate for each business where you purchase goods for resale without paying sales tax.
Most of the time, yes. Sometimes the sales tax permit acts as a resale certificate, but some states require a separate resale certificate. To find out the procedures for your state, you should check out TaxJar’s State Resale Certificate blog series or contact your state directly to see their requirements.
You can buy any products that you intend to put up for resale or components to make items you intend to resell. For example, if you are a jewelry designer, you can purchase gem stones tax free to fashion into jewelry for your customers.
Just keep in mind that you can’t purchase items you do not intend to resell—like equipment or office supplies—without paying a sales tax using a resale certificate. In this case, that would be considered tax fraud. (Those items, however, can be income-tax deductions, but that’s a whole different tax matter!)
Many retailers accept resale certificates, but not all—it’s completely up to the business whether they do or don’t accept resale certificates. Retailers are on the hook to pay lost sales tax if it turns out that the resale certificate is expired or false.
You’ll also find situations where retailers choose not to accept resale certificates to discourage retail arbitrage, such as Target trying to discourage people from buying rare items to sell online with a huge markup.
Most of the time you can use your resale certificate in multiple states, but there are 10 states that will not allow retailers to accept out-of-state resale certificates.
If you make a lot of purchases in those states, you may wish to consider registering for a sales tax permit. Keep in mind that if you choose to register for a sales tax permit that you’ll be required to collect sales tax from buyers in that state, so you’ll have to weigh the pros and the cons to figure out if that route works for your business.
If you don’t sell the items or components you purchased without sales tax by the end of your filing period, you’ll generally be required to pay a use tax that corresponds to the same amount as the sales tax you didn’t pay. Basically you’re paying the sales tax when you file a state sales tax return.
As a retailer, you may be presented with a resale certificate from a customer who intends to resell your products. You are responsible for deciding if you do or don’t want to accept the resale certificate.
Keep in mind that if the resale certificate ends up being expired or false, you will be on the hook for paying the sales tax, so if you decide to accept resale certificates, you should definitely learn how to verify those certificates in each state. You’ll also want to keep the resale certificates on file in case there are any issues or in the event of a sales tax audit.
At this point you probably know whether or not obtaining a resale certificate would work for your business. If you’re thirsty for more information, you can drink from the fire hose by visiting the resale certificate section of the TaxJar blog or start the conversation in the comments!