If you’re starting a business and plan to sell tangible goods subject to sales tax, you probably know you need to get a state sales tax license. But you may not know that you’ll also need a resale certificate or several of them so you can buy goods without paying sales tax.
This keeps goods from being taxed twice since you’ll collect sales tax from your customers and pay it to your state.
How Does a Resale Certificate Work?
For each vendor you purchase goods from, you’ll need to have a resale certificate from your state, which you will then present to that vendor to avoid paying sales tax on the items you buy (depending on your state’s laws, however, you may still have to pay a use tax).
It’s your responsibility to collect sales tax from your customers who buy those goods and pay that tax to your state. Resale certificates also apply to parts you purchase to produce goods your business sells.
Keep in mind that you need a separate resale certificate for each vendor. In some states, your sales tax license, a seller’s permit, will serve as your resale certificate for all vendors.
If your business provides taxable services, you’ll need a sales tax license, but not a resale certificate, since resale certificates only apply to goods purchased for resale or manufacturing.
If you purchase goods using your resale license and fail to sell them, you’ll be responsible for the sales tax yourself and could face fines and penalties. In addition, if you use a resale certificate to buy something you do not intend to resell, such as office equipment, that’s tax fraud, a federal offense. Penalties vary by state but could include fines and a jail sentence.
Suppliers and vendors do not have to accept resale certificates. However, they may choose not to do so because the supplier or vendor will be responsible for the sales tax if your certificate is invalid.
Multi-Jurisdictional Resale Certificates
If you purchase goods in more than one state, you may be able to get a multi-jurisdictional resale certificate to cover multiple suppliers, but not all states accept these. In addition, these certificates can get complicated, so you’ll want to do some homework before you get one.
You can learn more from the Multistate Tax Commission.
How to Get a Resale Certificate
You’ll obtain a resale certificate from your state’s tax department. This must be from the state where you do business, even if you registered your business in another state. You’ll need resale certificates for vendors in every state where you do business.
Obtaining a resale certificate is simple and saves thousands of dollars annually. However, remember that you need one for each of your vendors. It’s also a good idea to keep track of expiration dates so that your certificates never expire, forcing you to pay sales tax on certain goods.