Why Register For A Tax Resale Certificate In Tennessee?

Doing Business In Tennessee

Entrepreneurs in Tennessee can enjoy great benefits like a low cost of living and stable economy. The fact that this state can boast of a solid quality of life at a fraction of the cost of many other places makes it attractive to small businesses.

However, the amount of construction in the bigger cities like Nashville, speak to a thriving economy that is growing at a sustainable rate. This means that the economy is relatively stable which should make entrepreneurs feel more secure about their investments. Tennessee can also boast of bustling urban centers that still retain a small hometown feel.

All this being said, one of the drawbacks of doing business in Tennessee is the high rate of taxation on sales. That is why it is smart for a business to get a tax resale certificate as soon as possible. 

Tax Resale Certificates

A tax resale certificate allows you to not pay sales tax on items that you simply decide to resell. This will also apply to supplies that are getting to be utilized in products that you simply will resell, like wood for a cupboard.

It is critical that you simply understand that tax resale certificates also can only be used on items that will be resold. Office supplies, like new computers for your employees, wouldn’t fall into the category of retail. It can be considered fraud to not pay sales tax on these things.

If this is confusing for you, just consider tax resale certificates as state tax exemption certificates. Some states actually call them exemption certificates or reseller’s permits. In Tennessee this is called a Use Tax Certificate of Resale.

Tennessee Sales Tax Nexus

Tennessee requires the following:

  • Economic Nexus– An out-of-state retailer generally is required to collect and remit sales tax once the retailer meets a set level of sales transactions or gross receipts activity (a threshold) within the state. No physical presence is required.

You have economic nexus in Tennessee if you have made at least a half million dollars of sales into Tennessee in the previous 12 month period. This means that you are required to collect and pay sales tax in the state regardless of whether or not you have a physical presence in Tennessee. If you need more information than look to Tenn. Comp. R. & Regs. R. 1320-05-01-.129.

Tennessee Use Tax Certificate of Resale

Generally, resale certificates are used:

  • When purchasing finished items that are for resale.
  • When buying materials which will become a physical part of an item that will be held for resale.
  • When purchasing items which will be solely for demonstration or display while holding them for sale in the regular course of business operations.

Purchasers can not use a resale certificate when buying a product they will:

  • Use rather than sell
  • Use in their business before they sell it
  • Use for a personal purpose
  • Hold as an investment for appreciation in value and for sale in the future.

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.

Remember To Verify Any Tax Resale Certificate Presented To You

In the first part of our series, we mentioned that a vendor can refuse a tax resale certificate. This is because the vendor will be the one liable to the state government should anything be remiss. That is why you should always take the following steps to assure that anything presented to you is valid.

  • Make certain that the certificate is properly filled out and signed by the business owner-Make sure the form is filled out accurately and completely 
  • Be award of purchase that seem suspicious and do not relate to the customer’s business in a logical manner
  • It is important that you keep the certificate on file for at least 5 years in case of a tax audit.

 The Various State Tax Laws Can Be Confusing

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.

Make Sure You Understand The Specific Guidelines Of Your State

A tax resale certificate is a wonderful way a business can avoid unnecessary taxes. However, we understand that there are a lot of rules and regulations, which can be very confusing to any business owner.

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. 

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 ease into our user-friendly interface to help take the headache of applying for a tax resale certificate off your plate.  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.