How to Use and Accept a Resale Certificate
In brief:
A retailer must provide a resale certificate in order to buy products tax free for resale
- Retailers can only buy items tax free if they will 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 intend to resell, such as 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 didn’t collect
- Ten states do not allow vendors to accept out-of-state resale certificates. Before accepting a one, be sure your buyer’s documentation is valid in your state
In most cases in the US, sellers selling tangible personal property are required to charge sales tax to buyers.
But one of those exceptions is when the buyer is purchasing the item for resale.
So if Tess is buying a toothbrush from Dottie’s Dental Supplies to take it home and use it to brush her teeth, then Dottie should charge Tess sales tax.
But if Tess is buying 100 cases of toothbrushes from Dottie’s Dental Supplies to sell via her online store, then Tess can provide Dottie with a resale certificate and request that Dottie doesn’t charge her sales tax.
What is a resale certificate?
A resale certificate, also sometimes called a tax exemption certificate, resale license or reseller’s permit, is the government-issued document that allows you, a retailer, to avoid paying sales tax when buying items for resale.
Since sales tax is governed at the state level, the rules and regulations surrounding buying items tax free for resale in the US vary from state to state.
In most cases, a retailer’s sales tax permit doubles as a resale certificate. Though some states require you to file for a separate resale certificate.
Some states issue you an actual paper or 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.
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. But ten states only allow retailers to accept in-state resale certificates.
For example, if you are a seller based in Florida and make a purchase from a wholesaler in Georgia, that Georgia vendor is allowed to accept your out-of-state Florida resale certificate.
But 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 that item themselves without paying “use tax” on those items.
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 resale, 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 resale, 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 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.
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.
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 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 your buyer has a 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. But ten states 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.
States that Only Allow Vendors to Accept In-State Resale Certificates
These ten states 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.
