A resale certificate – or exemption certificate – proves that a buyer intends to resell products rather than use them. Buyers must provide one to suppliers, wholesalers and manufacturers. Gathering the correct certificates is crucial for companies managing sales tax compliance or seeking exemptions.
Businesses need to consider resale certificates from two perspectives:
- Buyer: As a buyer, you do not have to pay sales tax if you buy goods that you intend to resell. However, your supplier will only agree not to charge you tax if you can provide a valid resale certificate.
- Seller: As a supplier, you should collect sales tax when selling to end consumers, but if you sell to customers who resell your products and present a valid resale certificate, you do not have to charge tax.
In this article, we’ll explain whether you can use a resale certificate as a buyer/reseller and if you should accept one as a supplier. Find out what certificate you need, how to obtain one and how to make the whole process as easy as possible.
Who Can Use a Certificate of Resale?
Do Sellers Have to Accept Resale Certifcates
State-Specific vs. Multijurisdiction Resale Certificate
How to Get a Resale Certificate
Can You Use an Out-of-State Resale Certificate?
Find out When You’re Exempt From Sales and Use Tax
Navigating Sales Tax as a Supplier or Wholesaler
Get Expert Help With Your Sales Tax
Do Sellers Have to Accept Resale Certificates?
Who Can Use a Certificate of Resale?
Companies that resell products bought at a wholesaler rely on resale certificates to exempt them from paying excess sales tax. If the end user will be taxed, you aren’t required to pay sales tax to the wholesale company – phew.
The certificate must be filled in by the buyer/reseller and provided to the supplier.
It’s important to note that you can only use a resale certificate for items and components of items that you intend to sell. Using the certificate to purchase items for general business use is considered fraudulent.
- A wholesale dealer can accept a certificate of resale from a retailer.
- Manufacturers can accept a resale certificate signed by a supplier who will use the product as a material.
- In some states, retailers can use an exemption certificate for services that feed into a product they will sell, but they must meet certain requirements.
Do Sellers Have to Accept Resale Certificates?
No, many companies decline certificates of resale. This might be because they don’t want their products to be resold or because they fear becoming liable if the certificate is fraudulent or the products are not resold.
If you decide to go ahead with the purchase as a reseller, you may be able to reclaim the sales tax you paid at a later date.
State-Specific vs. Multi-jurisdiction Resale Certificate
Resale tax certificate requirements vary from one state to another. Some states issue their own resale certificates, but others participate in multi-jurisdictional programs. That means you can use the same certificate across multiple states.
At the time of writing, 38 states accepted the Uniform Sales & Use Tax Resale Certificate Multijurisdiction Form. Only some of these accept the form for sales tax exemption purposes, so you should check the requirements of each state you operate in on the MTC website.
Alaska (AK)
Alabama (AL)
Arkansas (AR)
Arizona (AZ)
California (CA)
Colorado (CO)
Connecticut (CT)
Florida (FL)
Georgia (GA)
Hawaii (HI)
Idaho (ID)
Illinois (IL)
Iowa (IA)
Kansas (KS)
Kentucky (KY)
Maine (ME)
Maryland (MD)
Michigan (MI)
Minnesota (MN)
Missouri (MO)
Mississippi (MS)
North Carolina (NC)
North Dakota (ND)
Nebraska (NE)
New Jersey (NJ)
New Mexico (NM)
Nevada (NV)
Ohio (OH)
Oklahoma (OK)
Pennsylvania (PA)
Rhode Island (RI)
South Carolina (SC)
South Dakota (SD)
Tennessee (TN)
Texas (TX)
Utah (UT)
Vermont (VT)
Washington (WA)
Wisconsin (WI)
24 states recognize the Streamlined Sales Tax™ Certificate of Exemption. Again, though, it’s crucial to check your specific requirements with a tax professional.
Arkansas (AR)
Georgia (GA)
Indiana (IN)
Iowa (IA)
Kansas (KS)
Kentucky (KY)
Michigan (MI)
Minnesota (MN)
Nebraska (NE)
Nevada (NV)
New Jersey (NJ)
North Carolina (NC)
North Dakota (ND)
Ohio (OH)
Oklahoma (OK)
Rhode Island (RI)
South Dakota (SD)
Tennessee (TN) (Associate Member)
Utah (UT)
Vermont (VT)
Washington (WA)
West Virginia (WV)
Wisconsin (WI)
Wyoming (WY)
If your state is not on either list, you need to use a state-specific certificate.
How to Get a Resale Certificate
There are specific steps for how to obtain a resale certificate depending on the state or jurisdiction in which your business operates.
Generally, you first need to register your business with the appropriate tax authority. You may need to provide certain documents to prove your eligibility for the certificate.
In most states, either the seller or buyer/reseller can download the form online for the buyer to complete and sign. In some states, you simply need to provide your local tax authority with the necessary information and they will issue a resale certificate number.
Can You Use an Out-of-State Resale Certificate?
Suppliers in most states accept resale certificates from other states. In the following 10 states, though, you will need to obtain a sales tax permit in that state:
Alabama
California
Florida
Hawaii
Illinois
Louisiana
Maryland
Massachusetts
Washington
Washington, D.C.
Find out When You’re Exempt From Sales and Use Tax
You need to understand the circumstances under which you are exempt from sales and use tax to guarantee compliance and avoid unnecessary tax liabilities.
If you purchase items using an exemption certificate and do not go on to sell them, you might be subject to paying consumer use tax. Not ideal.
Consult with a tax expert to determine your eligibility for exemptions and successfully navigate the complexities of sales tax laws!
Navigating Sales Tax as a Supplier or Wholesaler
Staying sales tax compliant as a supplier or wholesaler can be daunting, especially if you’re operating in multiple jurisdictions.
Avoid getting in hot water for not collecting sales tax on a deal. Follow these four steps:
- Check that every resale certificate is authentic.
- Ensure certificates are fully and accurately filled out.
- Ask yourself if it makes sense for the business to resell the specific products.
- Keep resale certificates on file for at least five years.
You may be presented with a resale certificate even if you don’t consider yourself a wholesaler. In this case, it’s especially important to do your due diligence.
Finance Process to Manage Resale Certificates
If you are a reseller, you simply need a process to ensure you provide the resale certificate details to your supplier upon request. As a supplier (selling to resellers), a more robust process is required:
- A process to collect, validate and store the actual certificates. This can be done manually, or if your volume of tax-exempt customers is very large or growing, software can help you manage this.
- A process at the point of invoice/payment to ensure you don’t charge tax to your tax-exempt sellers. You can classify customers as tax-exempt in your billing system or on your website.
- The final piece is to ensure that you can identify the tax-exempt sales when you prepare and file sales tax returns. This is usually done by having a reference in your systems that label all tax-exempt sales as such.
Get Expert Help With Your Sales Tax
Resale certificates are vital for businesses engaged in the resale of goods, but you must follow each state’s regulations to avoid double taxation on items intended for resale.
A managed service like Yonda Tax makes understanding your obligations easy. We can manage your resale and exemption certificates, prove your compliance with your state’s sales tax regulations and automate your filings so you’re ready for an audit.
Get in touch, hand the pressure over, and take a deep breath!