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 a Hawaii Resale Certificate to their 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 Hawaii Department of Taxation.
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 a Hawaii General Excise Tax License from the Hawaii Department of Taxation. The General Excise Tax License is sometimes referred to as a seller’s permit, sales tax number, or sales tax license.
Is a resale certificate the same as a sales tax ID?
The General Excise Tax License and resale certificate are commonly thought of as the same thing, but they are actually two separate documents. The General Excise Tax 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.
Before requesting a tax exemption from a supplier, you will first need to register for a Hawaii General Excise Tax License. After registering, a sales tax number will be provided by the Department of Taxation. This number will be listed on the certificate of resale.
The Department of Taxation has created Form G-17 – Resale Certificate for Goods to document tax-free transactions.
G-17 Certificate of Resale Fillable Form
How to fill out the Hawaii Certificate of Resale – Form G-17
Filling out the G-17 is pretty straightforward but is critical for the seller to gather all the information.
If audited, the Hawaii Department of Taxation requires the seller to have a correctly filled out G-17 certificate of resale. 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 G-17 Hawaii Certificate of Resale
Step 1 – Begin by downloading the Hawaii Certificate of Resale Form G-17
Step 2 – Identify the name and of the seller
Step 3 – Enter the date the certificate was prepared
Step 4 – Include the buyer’s Hawaii Tax Identification Number.
Step 5 – Describe the nature and character of the buyer’s business
Step 6 – Indicate whether the purchases are for resale at retail or leases or resale at wholesale
Step 7 – Enter the name, address, title, and signature of the buyer.
If, at any time, the percentage of purchases for resale changes, the certificate should be updated.
The resale certificate is kept on file by the seller and is not filed with the state.
Does a Hawaii Resale Certificate Expire?
Hawaii resale certificates don’t expire, however, if the buyer’s information changes, the buyer should send a new certificate to their vendors.
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.
If the seller is out-of-state, Hawaii is one of a few states that don’t recognize out-of-state resale certificates. In order to purchase tax-free from vendors in other states, the buyer will have to register for a sales tax permit in the seller’s state.
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 Hawaii 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 Hawaii sales tax license is valid and active by visiting the Hawaii Tax Online page.
- 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 should investigate further.
- Keep a file of resale certificates.