When a business purchases inventory to resell, they can do so without paying sales tax. In order to do so, the retailer will need to first get their Alabama Sales Tax License.
What is a Resale Certificate?
When retailers purchase products to resell, they often don’t pay sales tax on the purchase. Instead of the retailer paying sales tax, the retailer charges sales tax to their customer on the final value of the merchandise. The collected sales tax is then sent by the retailer to the Alabama Department of Revenue.
For example, when a pet store purchases dog toys to sell in their store, by having a resale certificate, the pet store owner won’t pay sales tax on the transaction. When a customer purchases the dog toy, the retailer will charge sales tax to the customer based on the full price of the toy. The retailer will collect the sales tax from all their transactions and periodically (typically at the end of the month) send the sales tax to the state.
In most states, there is a form called a resale certificate or sales tax permit that vendors will request before allowing a retailer to purchase without paying sales tax. A resale certificate is the seller’s evidence of why sales tax was not collected on a transaction. Similar names for a sales tax license include; resale certificate, reseller number, seller’s permit, exemption certificate, or reseller’s license. In order to prove a buyer intends to resell the product, they must provide a valid resale certificate to the seller of the goods.
The state of Alabama is one of the few states that don’t have a resale certificate. When asked for one by a vendor, an Alabama business will give them a copy of their Alabama Sales Tax License.
Read more about how to register for an Alabama Sales Tax License. After registering, a sales tax number and a paper copy will be provided that can be sent to the seller.
Do out-of-state sellers report sales tax?
Remote sellers (businesses without a physical presence in Alabama) will need to register with the Alabama Department of Revenue if they sell more than $250,000 to Alabama residents. They will either need to pay the Simplified Sellers Use Tax (SSUT) or report citizen tax liability, also referred to as a Use Tax.
Are sellers required to accept the Sales Tax License?
Sellers are not required to accept the sales tax license and sell products tax-free. If the vendor, wholesaler,or dealer doesn’t accept the certificate, the buyer will have to pay sales tax on the merchandise being purchased. In most cases, they will be able to get a credit for the sales taxes paid later on their sales tax filing.
Is a resale certificate the same as a sales tax ID?A Sales Tax License and Resale Certificate are commonly thought of as the same thing, but they are actually two separate documents. The Vendor’s License allows a business to sell and collect sales tax from taxable products and services in the state, while the Resale Certificate allows the retailer to make tax-exempt purchases for products they intend to resell.
What if I receive a request to sell at wholesale?
When a business is presented with a request to sell items tax-free, it is the seller’s responsibility to verify the buyer’s information is correct. Failing to verify this information may put the liability of paying Alabama sales taxes on the seller.
To verify whether the sales tax license is valid:
- Request a copy of the buyer’s Alabama sales tax license.
- Log on to My Alabama Taxes and click on “Verify a Sales Account”
- Sellers are also responsible for examining the certificate and evaluating whether the goods sold are reasonably consistent with the purchaser’s line of business. For example, if the buyer’s business is a car dealership, but they want to purchase office supplies tax-free, the seller may want to investigate further.
- While it’s not required, it’s a good idea to keep a file of the buyer’s sales tax license, sales tax exemption number, and copy showing the verification of their account.
What is the Alabama Sales Tax Rate?
Currently, combined sales tax rates in Alabama range from 4 percent to 11 percent, depending on the location of the sale.