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According to TaxJar.com, they receive tons of questions regarding reseller certificates (AKA reseller’s permits) every week. Here are the most commonly asked questions and answers here in our Resale Certificate FAQ list.
Important to Note: Like just about every aspect of sales tax, laws, rules and regulations regarding resale certificates vary from state to state. This post will offer up general guidelines, but if you have specific questions - Please contact your state or getting in touch with a vetted sales tax expert.
What is a resale certificate?
A resale certificate is a document that allows registered retailers to buy items for resale without paying sales tax on those items. Some states issue official resale certificates tailored to your business that can you print and give to your suppliers. Other states offer a template for you to fill out with your resale certificate number. Either way, you’ll need to present some form of a resale certificate document to a supplier should you want to buy items for resale without paying sales tax on those items.
Is a resale certificate the same as a sales tax permit?
In most states, your sales tax registration number also doubles as your sales tax permit number. But not always. In some states, you are required to request a separate resale certificate. Before you try to use a resale certificate, check either TaxJar’s State Resale Certificate blog posts or contact your state to determine what you need to present to buy items tax-free for resale.
What can I buy with a resale certificate?
Resale certificates are only to be used to buy items you intend to resale or component parts of items you intend to resale (Example: the wood used to make a table to sell.) Using a resale certificate to buy items tax free when you do not intend to sell them at retail is considered fraud – and nobody wants to deal with that!
Can I buy office or shipping supplies with a resale certificate?
No. You can only buy items that you intend to sell. Items like packing or office supplies that you will use to run your business are not considered items you intend to resale. (They can, however, be income tax deductions – but that’s a topic for a different post on a different blog!)
Will all retailers accept a resale certificate?
No. Retailers may use their discretion when deciding 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 (like Target) accept my resale certificate?
Famously, Target generally doesn’t accept resale certificates from suspected resellers. This is thought to discourage retail arbitrage, and keep retail sales of in-demand products in Target stores.
Also, in many cases, retailers who accept false or expired resale certificates are on the hook for the sales tax they erroneously did not collect. This can make some retailers wary of being stuck with an extra sales tax bill. Fortunately, retailers can verify the validity of a resale certificate online in most states.
What can I do if I buy items for resale from a retailer/wholesaler who does NOT accept my resale certificate?
If you are required to pay sales tax on items that you turn around and sell at retail, you have options. You can sometimes reclaim the sales tax you paid. Read more in TaxJar's “Resellers: How to Recover Sales Tax Charged by Vendors” blog post.
Can I use my resale certificate from State A to buy something for resale in State B?
Most of the time. But nine states will not allow retailers to accept out-of-state resale certificates. If you still wish to use a resale certificate in one of these states, one option is to register for a sales tax permit in that state. However, if you register for a sales tax permit in a state, you are also required to collect sales tax from buyer’s in that state.
What if I buy something for resale but don’t end up being able to sell it?
Generally, you will be required to pay use tax on an item if you do not resell it. Use tax is the amount of sales tax you would have paid on the item if you had bought it at retail. You generally remit use tax on your state income tax return.
What do I do when I receive a resale certificate?
As a retailer, a customer may present you with a resale certificate. In this case, you as the retailer are responsible for deciding whether or not the customer presenting you with the resale certificate is truly buying items for resale. (You can find out how to verify resale certificates in each state online here.) For example, if the customer’s resale certificate says they own a furniture store, but they are buying household supplies, you may decide not to honor the sale. If you do accept a resale certificate that later turns out to be false, you may find yourself on the hook for paying the sales tax you didn’t collect. Ouch!
You can read a whole lot more about this in our “What to Do if You Receive a Resale Certificate” blog post, and you can read a whole lot more about resale certificates by state here.
Source: TaxJar.com, Resale Certificate FAQ for Online Sellers