If you purchase goods from suppliers in the USA for the purpose of reselling the goods to your customers – you need to know what a reseller / resale certificate is. A reseller certificate serves as proof that you are purchasing products with the intention of reselling them at retail. It is closely tied to your sales tax permit, but exactly the same thing.
Basically, if you are buying wholesale or using a drop-shipping model to fulfil your orders, your suppliers will have to charge you sales tax unless you can prove that you are a reseller. This is done by sharing your reseller certificate information.
This is problematic, because technically you will need to prove that you are a reseller in the state of delivery. Not all states accept out-of-state resale certificates. This means that if you plan to make purchases for resale in certain states, you may encounter obstacles.
Purchasing products in a state does not create any sales tax obligations. (Even if you take ownership of the goods in the state of purchase), storing goods in a state does create nexus.
When you buy from a supplier, they will charge you sales tax unless you can provide an acceptable reseller certificate. If you don’t have nexus in the ship-to state, your supplier should accept a certificate that is “acceptable” to that state.
There are over 35 states that will accept some form of documentation without a sales tax registration in that state. (There are various documents that could be acceptable, including sales tax permits from other states or written statements). Unfortunately, there are about 10 states where the only way to avoid paying sales tax on purchase is to register for sales tax in that state.
In these cases, even if you don’t have nexus, your supplier will charge sales tax unless you can show a sales tax permit in that state (and the only way to avoid paying it is to voluntarily register for sales tax)
The states that do not accept out-of-state resale certificates are:
- Washington D.C.
These ten states have stricter regulations when it comes to accepting resale certificates. It’s also worth noting that certain vendors may decide not to sell to resellers and therefore won’t accept resale certificates regardless.
If you want to make a purchase for resale in one of these ten states the only way to avoid paying the sales tax is to register for a sales tax permit in that state. (This involves obtaining a valid resale certificate, which allows you to bypass paying sales tax on your items). However, remember that once you have an active sales tax permit in a state, you are required to collect sales tax from all your buyers in that state. This means setting up sales tax collection on the platforms where you sell, collecting sales tax, and periodically filing and remitting sales tax to the state.