Tax Resale-Everything You Need to Know About Tax Resale Certificates Part 1

As a savvy small business retailer, it is important that you are aware of how to utilize tax resale certificates to your best advantage. 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.

What is A Tax Resale Certificate?

It is critical that you 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 actually call them exemption certificates or reseller’s permits.

Is The Tax Resale Certificate The Same As A Seller’s Permit?

Even though a 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 of 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.

 Do Big Box Stores Usually Accept Tax Resale Certificates?

A retailer should also be aware that many Big Box Stores such as Walmart or Target refuse to honor tax resale certificates to prevent retail arbitrage. Retail arbitrage is buying a rare item from a store and reselling it for a markup.

What Do I Do if I Purchase Goods In Multiple States?

The tax resale certificate can be challenging if you purchase and sell goods in multiple states. It can mean keeping track of many types of certificates for different vendors. The multijurisdiction resale certificate, which is also known as a blanket retail certificate or a uniform sales tax certificate, can help ease this burden.  As its name suggests this document can be used over multiple states. However, the document itself can be confusing and it is not accepted the same way in every state. It is important that the document is filled out correctly and the retailer is aware of the different issues that can arise if it is applied incorrectly.   

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 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. 

What Information Do I Need For The Tax Certificate Registration Form?

You must provide the following information:

  • The name and address of the purchaser
  • The name and address of the seller
  • The registration number of the purchaser
  • An accurate description of property purchased for resale
  • The reason for exemption
  • A statement that if the property is put to use in a taxable manner that the purchaser will remit the consumer use tax
  • Date and Signature and Title of the authorized individual at the purchaser

What Is A Consumer Use Tax?

A consumer has to pay taxes from purchases made from local retailers. This is often called a sales tax and is charged in 45 states. This money is usually collected on behalf of the state by the seller.

Consumer use tax is when the retailer does not charge the appropriate tax and therefore the sales tax is paid directly by the consumer to the state. This usually happens when something is purchased online or from a catalog. In these instances, the vendor does not have a set location in the state, so the sales tax can not be collected from the vendor.

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 out this out and properly run your business. 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.