When a business purchases inventory to resell, they can do so without paying Transaction Privilege Tax (TPT). In order to do so, the retailer will need to provide an Arizona Resale Certificate to the vendor.
Learn more about what a resale certificate is, how to get one, and more.
What is a Resale Certificate?
When retailers purchase products to resell, they often don’t pay sales tax to the supplier on the purchase. The sales tax will still be paid, but 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 Arizona Department of Revenue.
For example, when a pet store purchases dog toys from their supplier to sell in the store, the pet store owner won’t typically have to pay sales tax to their supplier. When a customer (or end-user) 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.
The purpose of the certificate is to provide evidence of why sales tax was not collected on a transaction. Similar names for a resale certificate include reseller number, seller’s permit, exemption certificate, wholesale license, or reseller’s license. In order for the supplier to allow the tax-exempt purchase, the seller needs proof the buyer intends to resell the product by providing a valid resale certificate.
The sales tax exemption is only intended to be used for inventory that will be resold and not intended for the tax-free purchase of items used in normal business operations such as paper, pens, etc.
Before a business starts selling products or providing taxable services, they must first get an Arizona Transaction Privilege Tax License from the Arizona Department of Revenue.
The Transaction Privilege Tax License and resale certificate are commonly thought of as the same thing, but they are actually two separate documents. The Transaction Privilege Tax License allows a business to sell and collect the Transaction Privilege Tax from taxable products and services in the state, while the Resale Certificate allows the retailer to make tax-exempt purchases only for products they intend to resell.
To get a Resale Certificate, you will first need to register for an Arizona Transaction Privilege Tax License (sometimes referred to as a state sales tax permit or state sales tax license). After registering, a Transaction Privilege Tax number will be provided by the Department of Revenue. This number will be listed on the Resale Certificate.
A Resale Certificate can be generated by the buyer or by the seller, provided the certificate contains the required information as outlined in A.R.S. § 42-5009(A). To make things easier, Form 5000A was created by the Department of Revenue to document tax-free transactions.
5000A Resale Certificate Fillable Form
How to fill out the Arizona Resale Certificate – Form 5000A
Filling out the 5000A is pretty straightforward but is critical for the seller to gather all the information.
If audited, the Arizona Department of Revenue requires the seller to have a correctly filled out 5000A Resale Certificate. Without it correctly filled out, the seller could end up owing Transaction Privilege Taxes that should have been collected from the buyer in addition to penalties and interest.
Steps for filling out the 5000a Arizona Resale Certificate
Step 1 – Begin by downloading the Arizona Resale Certificate Form 5000A
Step 2 – Identify the name, business address, and TPT License number of the buyer
Step 3 – Indicate whether the certificate covers a single transaction or a blanket date range. If the buyer is expected to be purchasing items frequently from the seller, they can indicate a period of time the certificate is valid.
Step 4 – Describe the nature of the purchaser’s business
Step 5 – Describe the property being purchased
Step 6 – Some entities are not required to provide a TPT or Sales Tax License, including sales to the U.S. government, Arizona school district, or charitable organizations. If the buyer falls into any of the exempt categories, check the corresponding box in section E.
Step 7 – The purchaser will certify the property being purchased is for resale and the information on the certificate is correct, then sign and date the certificate.
The resale certificate is kept on file by the seller and is not filed with the state.
Does an Arizona Resale Certificate Expire?
To ensure the buyer’s information is up-to-date, the Department of Revenue strongly encourages certificates by updated each year, however, they will accept certificates for up to four years provided the TPT number is verified each calendar year.
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.
Are sellers required to accept resale certificates?
Sellers are not required to accept resale certificates, however, most do. In this case, the buyer will have to pay tax on the items being purchased. In most cases, they will be able to get a credit for the Transaction Privilege Taxes paid.
What steps should a business take to accept a Resale Certificate?
When a business is presented with a resale certificate, the burden of proof is on the seller to verify that the buyer’s information is correct and to keep these records. Failing to verify this information may put the liability of paying Arizona Transaction Privilege Taxes on the seller.
Before accepting a resale certificate, a seller should:
- Review the resale certificate to make sure it is completely filled out. A missing signature is a common mistake.
- Indicate on the invoice that the gross proceeds of sales or gross income is tax-exempt.
- Verify the purchaser’s Arizona account ID or Arizona resale number is valid and active by logging into the Arizona Department of Revenue and entering the 8-digit TPT number of the buyer.
- 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.