A resale certificate is a document that allows businesses to purchase merchandise without paying sales tax. The certificate is issued by the state where the business is located and it must be presented to the seller at the time of purchase.
The purpose of the certificate is to allow businesses to buy merchandise for resale without paying sales tax. This type of certificate is also known as a “streamlined sales tax certificate” or a “reseller’s permit.” The process for obtaining this type of certificate varies from state to state, but generally, businesses will need to fill out an application and submit it to the state’s tax department.
Businesses that have a resale certificate are not exempt from paying taxes, but they can avoid paying taxes on merchandise that will be resold. When businesses resell merchandise, they charge their customers sales tax, which they then remit to the state. This type of system ensures that businesses only pay taxes on net profits and not on the gross sales of merchandise.
These types of certificates are commonly used by businesses such as retailers, wholesalers, and manufacturers. These types of businesses usually purchase large quantities of merchandise and need a way to avoid paying taxes on those purchases. For instance, if you own a liquidation store and want to buy Target liquidation pallets, having this certificate will allow you to not have to pay sales tax on the purchase.
In some cases, businesses may use reseller’s certificates to purchase supplies that will be used in the production of their products. An example of this would be if you are a clothing manufacturer, you would not pay sales tax on the fabric used to make the clothing.
Remember, it’s the buyer’s responsibility to fully research and comply with federal and state laws. For more information on resale certificates, we recommend checking out your individual state’s Department of Revenue website. They usually have clear instructions on how to acquire a sales tax number for your area.
Resale Certificate FAQs
Here are some frequently asked questions.
What is the purpose of a resale certificate?
The purpose is to allow businesses to purchase merchandise for resale without paying sales tax.
How do businesses use resale certificates?
Businesses use these certificates to purchase supplies that will be used in the production of their products.
What are the benefits of having a resale certificate?
The benefits are that businesses can avoid paying taxes on merchandise that will be resold. When businesses resell merchandise, they charge their customers sales tax, which they then remit to the state. This type of system ensures that businesses only pay taxes on net profits and not on the gross sales of merchandise.
What can I buy with a resale certificate?
In general, businesses can use these certificates to purchase any type of merchandise that will be resold. This includes items like clothing, furniture, electronics, and more. Some businesses may use these certificates to purchase supplies that will be used in the production of their products.
When utilizing this certificate, understand that you cannot buy things that you do not intend to resell—such as office equipment or cleaning supplies—without first paying the sales tax.
How do I get a resale certificate?
The process for obtaining this certificate varies from state to state, but generally, businesses will need to fill out an application and submit it to the state’s tax department.
Does a resale certificate expire?
The expiration date of the certificate will be listed on the certificate itself.
How do I renew my resale certificate?
The process for renewing a certificate varies from state to state, but generally, businesses will need to fill out an application and submit it to the state’s tax department.
What if I move to a new state?
If you move your business to a new state, you will need to obtain a new resale certificate from the state where your business is now located.
What is a multi-jurisdictional resale certificate?
A multi-jurisdictional resale certificate is a certificate that allows businesses to purchase merchandise for resale without paying sales tax in multiple states. This type of certificate is typically used by businesses that have locations in multiple states.
What if I close my business?
If you close your business, you will need to surrender your certificate to the state’s tax department.
Can I use a resale certificate for business expenses?
In some cases, businesses may use these certificates to purchase raw materials and other supplies necessary for product production.
Is a resale certificate the same as a reseller’s permit?
Yes, a resale certificate is also known as a “streamlined sales tax certificate” or a “reseller’s permit.”
What is the difference between a seller’s permit and a resale certificate?
A seller’s permit is generally used by businesses that sell goods or services and collect sales tax from their customers. A resale certificate is used by businesses that purchase merchandise for resale without paying sales tax.
What is the difference between a resale certificate and an exemption certificate?
An exemption certificate exempts a buyer from paying sales tax on specific transactions. A resale certificate allows businesses to purchase merchandise without paying sales tax.
Do I need a resale certificate to buy wholesale?
If you’re planning on reselling the merchandise you purchase at wholesale, then yes, you will need this certificate.
Conclusion
A resale certificate exempts retailers from paying local sales tax on items they purchase for resale. The seller is responsible for collecting the appropriate sales tax from the customer when the items are sold. If a purchaser does not have a resale certificate, they must pay sales tax on the items intended to be resold.
