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 Are The Different Methods In Which The States Establish Sales Tax Nexus?
The definition of sales nexus can vary greatly from state to state. Here is a list of the different ways in which states can determine sales tax nexus:
- Click-Through Nexus legislation
- Affiliate Nexus legislation
- Marketplace Nexus legislation
- Notice and Reporting Requirements
- Economic Nexus
Is The Tax Resale Certificate The Same As A Seller’s Permit?
Even though tax resale certificates are called reseller’s permits in some states, it is important not to confuse them with seller’s permits. A seller’s permit allows a retailer to charge tax on items that they are going to sell to a customer. A tax resale certificate allows you to buy items that are intended for resale without paying a sales tax on those items.
Does A Vendor Have To Accept My Tax Resale Certificate?
It is extremely important to a retailer’s bottom line that they do not pay sales taxes on goods if there is a possibility that the tax can be exempted on a state level. However, it is also crucial to understand that a wholesaler is not required to accept your tax resale certificate in some states.
What If A Customer Presents Me With A Tax Resale Certificate?
A customer can also present a tax resale certificate to you as a retailer and it is your discretion whether or not you want to exempt them from the required sales tax. It is always a good idea to check on the certificate because you will be held responsible, if the certificate is expired or fraudulent, for the unpaid state sales tax. Verification is key in making sure that the correct due diligence has been completed to authenticate the tax resale certificate.
The Various State Tax Laws Can Be Confusing
Dropshippers must understand that each state has its 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?
Some states 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 concerning 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 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.
Do Not Get Frustrated.
We understand that this is a whirlwind of information that can be very frustrating. There are great differences between states and you do not have the time to sort this out and properly run your business.
Tax Resale Certificate Is Here To Help
Not correctly understanding sales tax and the benefits of a tax resale certificate can lead to a great deal of trouble. A retailer could lose out on extremely beneficial sales tax exemption status. A savvy business owner will understand that having a tax resale certificate will save them a good deal of money but leave the actual headache of registration to someone else.
On the other hand, misunderstanding and not paying the correct sales tax to a state government could very much hurt a business’s standing and reputation. At Tax Resale Certificate, we make the process as easy as possible. Just take advantage of our user-friendly interface to help take the headache of applying for a tax resale certificate off your plate. This way you can completely focus on the great opportunities presented by your Print on Demand business.