The Zamp Team
Internal Team
In this article
In most cases, US sellers selling tangible personal property must charge sales tax to buyers. However, there are exceptions, such as when a buyer purchases an item for resale.
This article will explore the ins and outs of resale certificates, specifically discussing what they are, when to use them, and how to accept a resale certificate.
Zamp Learnings:
- A retailer must provide a resale certificate to buy products tax-free for resale.
- Retailers can only buy items tax-free if they resell those items and/or use those items to create or manufacture products they will then resell. States consider it fraudulent if you do not pay sales tax on items you don’t intent to resell, such a office supplies.
- As a vendor, be careful when accepting resale certificates. Accepting bad faith or fraudulent documents can leave you responsible for paying the sales tax you did not collect.
- Nine states and the District of Columbia do not allow vendors to accept out-of-state resale certificates. Before accepting one, be sure your buyer’s documentation is valid in your state.
What Is a Resale Certificate?
A resale certificate, also sometimes called a tax exemption certificate, resale license, or reseller’s permit, is a government-issued document that allows you, a retailer, to avoid paying sales tax when buying items for resale. Each state has different guidelines and regulations on whether a resale certificate is required or not.
The above is an example of a Nevada resale certificate. What these look like varies from state to state. In some states, your sales tax permit will double as your resale certificate.
Some states issue you an actual paper or an electronic document called a resale certificate to present to your vendor. But in most cases, you can simply fill out a generic state resale certificate and use that as proof that you are a reseller.
Zamp Tip
It’s important to note that most states allow resellers to present a resale certificate from their home state when making purchases to sell at retail. However, nine states and Washington DC only allow retailers to accept in-state resale certificates.
For example, if you are a seller based in Florida and purchase from a wholesaler in Georgia, that Georgia vendor can accept your out-of-state Florida resale certificate.
However, Florida does not allow vendors to accept non-Florida resale certificates. So if the transaction were reversed and you are based in Georgia and only have a Georgia resale certificate, then your Florida vendor isn’t allowed to accept your Georgia document.
To get around this, you can register for a Florida sales tax permit, but of course, this means that you are also now required to collect and remit sales tax from Florida buyers. You can read more about registering for a sales tax permit here.
Where Do I Get a Resale Certificate?
Some states provide registered sellers with a paper or electronic certificate to present to vendors. But in most cases, it is enough to simply provide your vendor with the relevant information they need, including:
- Your name, business name, and title
- Your taxpayer identification number (received when you register for a sales tax permit)
- Your business’s activity
- A description of the item(s) you are purchasing for resale
- Your signature
In many cases, your vendor will provide you with a form to fill out before making a purchase for resale. You can also present the Multijurisdictional Uniform Sales & Use Tax Resale Certificate in the 36 states that currently accept this form.
When to Use a Resale Certificate
Retailers are allowed to buy items tax-free when doing the following:
- Reselling the items (and collecting sales tax on that transaction)
- Using the items to create or manufacture products that will then be resold
The important thing to remember here is that the state eventually does want someone to pay sales tax when these items are sold to the end user.
When Not to Use a Resale Certificate
States consider it fraudulent if a buyer uses a resale certificate to buy items tax-free but then uses the item themselves without paying “use tax” on it.
Don’t attempt a tax-free purchase if you are buying business purchases, such as office supplies, to use during the course of your business. Resale certificates are only to be used to buy items that you intend to resell or use to manufacture a product for resale.
Of course, things can change over the course of a business. If, for some reason, you purchase items without paying sales tax but do not end up reselling them or using them to manufacture goods for resale, you should pay the use tax on those items when you file your sales tax return.
What If My Vendor Doesn’t Accept My Resale Certificate?
Vendors are not required to accept a resale certificate and may refuse to honor your resale certificate for any number of reasons.
This could be anything from not wanting to provide their products to a potential competitor to not believing that you are using the resale certificate in good faith to simply not having a system in place to accept and manage these certificates.
In the case that you end up paying sales tax on items that you plan to resell, you can request a refund of sales tax paid on your next sales tax return. To do this, be sure to keep track of the sales tax you paid on items that you later resold.
How to Accept a Resale Certificate
As a retailer, a customer might, from time to time, present you with a valid resale certificate and request to buy products without paying sales tax.
In this case, it’s up to you to determine whether you can accept the document in good faith. You can also simply refuse to accept resale certificates, though in that case a buyer wishing to resell items might turn to a competitor to make their purchase.
Zamp Tip
Unfortunately, if you do happen to accept a resale certificate on a sale that turns out to be fraudulent, you’re often on the hook to pay back the sales tax your business failed to collect. That’s why it’s important to carefully consider each sale for resale
Accepting a Resale Certificate
If presented with a resale certificate, you should ensure the following:
- Determine if the resale certificate is completely and accurately filled out. A resale certificate should include the vendor’s name and address, taxpayer identification number, the purchaser’s business type, a description of the goods being purchased, and the customer’s signature and title.
- Make sure the reseller is presenting the resale certificate in good faith. If your buyer owns a toy store, but are attempting to purchase a big screen TV from you tax-free, you likely want to ask more questions before accepting their documentation that they can truly make this purchase tax-free. It seems unlikely they’ll be selling that fancy TV in their toy store.
- Check with the state to ensure that the customer’s resale certificate is valid. Each state has a mechanism (usually a simple online search) to allow you to verify that a resale certificate is valid. Do this with each document you receive to ensure that your buyer has valid and up-to-date documentation. Here’s how to verify a resale certificate in every state.
- Determine if the seller’s resale certificate is valid in your state. Most states allow vendors to accept a resale certificate from an out-of-state buyer. However, nine states and Washington, DC only allow you to accept in-state resale certificates. If you run your business in one of these states, ensure that your business only accepts valid in-state resale certificates.
What States Only Allow Vendors to Accept In-State Resale Certificates?
These nine states and the District of Columbia only allow vendors to accept in-state resale certificates.
- Alabama
- California
- Florida
- Hawaii
- Illinois
- Louisiana
- Maryland
- Massachusetts
- Washington
- Washington DC
As a vendor operating in one of these states, ensure that your buyer’s resale certificate is from your state before accepting it.
As a buyer for resale making a purchase in one of these states, understand that you are required to hold a valid in-state sales tax permit before purchasing items for resale from a vendor in one of these states.
How to Get a Resale Certificate: Conclusion
The concept of a resale certificate and when to use one can be confusing, as each state and Department of Revenue has its own rules and regulations. If you’re a seller accepting resale certificates, ensure you always check the validity of the resale certificate at the time of purchase. Or, if you are unsure of tax laws and how to handle resale certificates, speak with a sales tax expert to learn more.
