Resale Certificate – All you need to know
At Startxpress, we frequently receive questions about resale certificates (also known as reseller’s permits). To help, we’ve compiled a list of the most commonly asked questions and their answers here.
Important to Note: As with most aspects of sales tax, the laws, rules, and regulations regarding resale certificates vary from state to state. This post provides general guidelines, but for specific questions, we recommend contacting your state’s tax authority or consulting a vetted sales tax expert.
What is a resale certificate?
A resale certificate is a document that permits registered retailers to purchase items for resale without paying sales tax on those items. Some states provide official resale certificates specifically tailored to your business, which you can print and give to your suppliers. Other states offer a template for you to complete with your resale certificate number. In either case, you need to present a resale certificate document to your supplier if you wish to buy items for resale without incurring sales tax.
Is a resale certificate the same as a sales tax permit?
In most states, your sales tax registration number also serves as your sales tax permit number. However, this is not always the case. In some states, you must request a separate resale certificate. Before attempting to use a resale certificate, contact your state’s tax authority to determine the necessary documentation for purchasing items tax-free for resale.
What can I buy with a resale certificate?
Resale certificates are strictly for purchasing items you intend to resell or for component parts of items you plan to resell (e.g., the wood used to make a table for sale). Using a resale certificate to buy items tax-free that you do not intend to sell at retail is considered fraud, and that’s a situation best avoided!
Can I buy office or shipping supplies with a resale certificate?
No. You can only use a resale certificate to purchase items you intend to sell. Items like packing materials or office supplies, which are used to run your business, are not eligible. These items can be income tax deductions, but that’s a topic for a different post.
Will all retailers accept a resale certificate?
No. Retailers have the discretion to decide whether or not to accept resale certificates. It is not illegal for a retailer to refuse to accept a resale certificate.
Why won’t some retailers accept my resale certificate?
Retailers who accept false or expired resale certificates often find themselves responsible for the sales tax they failed to collect. This potential liability can make some retailers cautious about accepting such certificates. Fortunately, in most states, retailers can verify the validity of a resale certificate online.
What should I do if a retailer or wholesaler refuses to accept my resale certificate when I purchase items for resale?
If you are obligated to pay sales tax on items that you subsequently sell at retail, there are options available to potentially reclaim the sales tax you initially paid.Learn more about how resellers can recover sales tax charged by vendors in our article titled “Resellers: How to Recover Sales Tax Charged by Vendors“
Can I use my resale certificate from State A to buy something for resale in State B?
In most cases, retailers cannot accept out-of-state resale certificates in some states. If you still want to use a resale certificate in these states, you can choose to register for a sales tax permit there. However, registering for a sales tax permit in a state also means you must collect sales tax from buyers in that state.
What if I buy something for resale but don’t end up being able to sell it?
Typically, you are obligated to pay use tax on an item if you do not resell it. Use tax represents the sales tax amount that would have been paid if you had purchased the item at retail. Usually, you remit use tax through your state income tax return.
What do I do when I receive a resale certificate?
As a retailer, when a customer presents you with a resale certificate, it’s your responsibility to verify if the items are genuinely intended for resale. (You can find out how to verify resale certificates in each state online here.) For instance, if a customer claims to own a furniture store but is purchasing household supplies, you may choose not to accept the resale certificate for that sale. Accepting a resale certificate that later proves to be false could result in you being liable for the unpaid sales tax.
Do you have any other questions?
If you’re still unsure about resale certificates or need further clarification, we’re here to help! Navigating the rules and regulations can be tricky, especially since they vary by state. Feel free to reach out to your state’s tax authority or consult a sales tax expert for more specific guidance.
For further insights, explore the Startxpress Help Center and Blog. If you have questions or need support, reach out anytime at support@startxpress.io! We’re ready to assist you with all aspects of resale certificates, sales tax permits, and ensuring your business stays compliant.
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