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 provide an Arkansas Sales Tax Exemption Certificate (commonly known as a Resale Certificate) to their vendor.
Learn more about what a Sales Tax Exemption Certificate is, how to get one, and more.
What is a Sales Tax Exemption 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 Arkansas Department of Finance and Administration.
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 Arkansas Sales Tax Permit from the Arkansas Department of Finance and Administration. The Sales Tax Permit is sometimes referred to as a seller’s permit, sales tax number, or sales tax license.
The Sales Tax Permit and Sales Tax Exemption Certificate is commonly thought of as the same thing but they are actually two separate documents. The Sales Tax Permit allows a business to sell and collect sales tax from taxable products and services in the state, while the Exemption Certificate allows the retailer to make tax-exempt purchases for products they intend to resell.
After registering, a sales tax number will be provided by the Department of Finance and Administration. This number will be listed on the Sales Tax Exemption Certificate.
The Department of Finance and Administration created a Sales Tax Exemption Certificate (Form ST391) to document tax-free transactions.
ST391 Sales Tax Exemption Certificate Fillable Form
How to fill out Arkansas Sales Tax Exemption Certificate – Form ST391
Filling out Form ST391 is pretty straightforward, but is critical for the seller to gather all the information.
If audited, the Arkansas Department of Finance and Administration requires the seller to have a correctly filled out ST391 Sales Tax Exemption Certificate. Without it correctly filled out, the seller could end up owing sales taxes that should have been collected from the buyer in addition to penalties and interest.
Steps for filling out the ST391 Arkansas Sales Tax Exemption Certificate
Step 1 – Begin by downloading the Arkansas Sales Tax Exemption Certificate Form ST391
Step 2 – Include the Arkansas Sales/Use Tax Permit Number or the state and Sales Tax Number if the buyer is from another state.
Step 3 – Identify the name of the seller
Step 4 – Describe the merchandise being purchased for resale
Step 5 – Provide the reason the merchandise is exempt (typically because it is being resold).
Step 6 – Include the purchaser’s business activity or line of business
Step 7 – Include the purchaser’s business name, signature, address, position, and date
The exemption certificate is kept on file by both the buyer and seller and is not filed with the state.
Does an Arkansas Sales Tax Certificate Expire?
There is not a stated date a certificate expires, but it’s a good practice to keep the buyer’s information current and update certificates at least every three years.
Are sellers required to accept resale certificates?
Sellers are not required to accept resale certificates, however most do. If the vendor 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.
What steps should a business take to accept a Sales Tax 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 Arkansas sales taxes on the seller.
Before accepting a resale certificate, a seller should:
- Review the resale certificate to make sure it is completely filled out.
- Verify the purchaser’s Arkansas sales tax ID is valid and active by logging into the Arkansas’s Taxpayer Access Point.
- 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 are wanting to purchase office supplies tax-free, the seller should investigate further.
- Keep a file of resale certificates.