Being An Entrepreneur Is Hard Work
There is no doubt that being a successful entrepreneur will require hard work and dedication. However, the younger generations are no strangers to working several jobs and/or side hustles and still barely making enough money to pay the bills. This is not a comfortable life and will quickly wear anyone down. Comparatively, you will be working hard in your own business, but it will feel much more worthwhile. The money will be much more satisfying, and you will be motivated and challenged in a new way.
What is A Tax Resale Certificate?
You must understand that tax resale certificates can also be used on items that will be resold. Office supplies, such as new computers for your employees, would not fall under the category of retail. It would be considered fraud not to pay sales tax on these items.
If this is confusing for you, just think of tax resale certificates as state tax exemption certificates. Some states call them exemption certificates or reseller’s permits.
How Do I Know If I Need To Pay Sales Tax In A Given State?
To establish whether or not a state can impose a sales tax upon your business there first needs to be nexus. Nexus relating to state sales tax is established by a connection between the state and your business. How this connection is defined has been subject to fairly recent changes that reflect changes in the way business is conducted in modern times.
Traditionally, the nexus has been established by the business having a physical presence in the state. However, due to the explosion of e-commerce, physical presence within a state is no longer a requirement for sales tax nexus. In the case of South Dakota v. Wayfair, the courts eliminated physical presence as the major requirement for creating nexus. It still should be noted that physical presence is considered an important requirement to allow a state to collect sales tax and is still one of the first considerations for sales tax.
What Happens If I Do Most Of My Business In A State That I Am Not Incorporated?
If you primarily do business in a state that you are not incorporated in, make sure you apply for a Foreign Qualification (also known in some states as a Certificate of Registration or Certificate of Authority). This is the process of registering your company, which is considered domestic to the state in which it was originally formed and foreign to all other states, as a foreign entity in the states in which it operates. The retailer is then able to legally conduct business outside the state in which the company was originally formed and, therefore should be able to apply for a tax resale certificate.
Remember To Verify Any Tax Resale Certificate Presented To You
In the first part of our series, we mentioned that a vendor could refuse a tax resale certificate. This is because the vendor will be liable to the state government should anything be remiss. That is why you should always take the following steps to ensure that anything presented to you is valid.
- Make certain that the certificate is properly filled out and signed by the business owner
- You should be able to verify the certificate online by using the certificate
- You should also be able to verify online if the certificate has expired
- Be aware of purchase that seems suspicious and does not relate to the customer’s business in a logical manner
- You must keep the certificate on file for at least five years in case o
The Various State Tax Laws Can Be Confusing
Dropshippers must understand that each state has its own unique tax laws related to retail sales tax that are constantly changing. There are many different definitions of what is nexus and what manner of tax resale certificates are acceptable. Some states accept resale documentation from other states, while many do not.
Third-party fulfillment companies make this even more difficult to comprehend. A large company like Amazon can have one shipment travel through a dozen states, which can often trigger nexus.
Do All States Accept The Multijurisdictional Resale Certificates?
One should also recognize that the following states do not accept the multijurisdictional resale certificate:
- California
- Florida
- Hawaii
- Illinois
- Louisiana
- Maryland
- Massachusetts
- Washington
Do All States Charge Sales tax?
There are also states that do not charge sales tax. Alaska, Delaware, Montana, New Hampshire, and Oregon do not charge sales tax on a state level. Alaska and Montana do allow municipalities to charge sales tax on retail goods at a local level. A tax retail certificate is not needed in these places with regard to a state sales tax.
What Happens If I Do Most Of My Business In A State That I Am Not Incorporated?
If you primarily do business in a state you are not incorporated in, make sure you apply for a Foreign Qualification (also known in some states as a Certificate of Registration or Certificate of Authority). This is the process of registering your company, which is considered domestic to the state in which it was originally formed and foreign to all other states, as a foreign entity in the states in which it operates. The retailer can then legally conduct business outside the state in which the company was originally formed and, therefore, should be able to apply for a tax resale certificate.
Getting A Tax Resale Certification Is One Of The Best Things You Can Do As An Entrepreneur
If you decide to start a business, a tax resale certificate can really save you money on taxes.
In short, a tax retail certificate allows you not to pay sales tax on items that you plan to resell. This can also apply to supplies that are going to be used in products that you will resell, such as wood for a cabinet.
However, the process can be difficult and the rules are different for each state. That is why TaxResaleCertificate should do all the hard work for you. We can make sure that you get all the advantages of a tax resale certificate without having to deal with the hassle of government red tape. Let us handle the hard stuff so you can proceed to run your business with confidence. Make sure you check out our second blog in this series so you can learn even more valuable information about tax resale certificates.