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 Maryland 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 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 Comptroller of Maryland.
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.
The resale certificate is the seller’s evidence why sales tax was not collected on a transaction. Similar names for a resale certificate include 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.
Resale certificates are 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. There is a similar form called a Sales and Use Tax Exemption Certificate that allows certain organizations like non-profits, education, religious organizations, etc to purchase items tax free, but is not to be used by businesses purchasing merchandise to resale.
Before a business starts selling products or providing taxable services, they must first get a Maryland Sales Tax Permit from the Comptroller of Maryland. 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 Resale Certificate are 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 Resale Certificate allows the retailer to make tax-exempt purchases for products they intend to resell.
Read more about how to register for a Maryland Sales & Use Tax License. After registering for the license, a sales and use tax registration number will be provided by the Comptroller of Maryland.
A Resale Certificate is generated by the buyer and given to the seller.
- A signed statement that the purchase is intended for resale,
- The purchaser’s name and address; and,
- The purchaser’s Maryland sales and use tax registration number.
Resale Certificate Fillable Form
While there is no official state Resale Certificate, the Comptroller of Maryland has a suggested blanket certificate available for download.
Does a Maryland Resale Certificate Expire?
While sales tax numbers can become inactive or revoked if not used, resale certificates will not expire. To ensure the buyer’s information is up-to-date, it is recommended that certificates be updated 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.
Additionally, purchases under $200 may not be tax-free unless;
- Purchasing the goods by vendor credit,
- The goods would normally be exempt even if not sold for resale
- Alcoholic beverages regulated by Article 2B of the Annotated Code of Maryland
What steps should a business take to accept a resale certificate?
When a business is presented with a resale certificate, it is the seller’s responsibility to verify the buyer’s information is correct and maintain records to demonstrate the seller’s due diligence. Failing to verify this information may put the liability of paying Maryland 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 Maryland account ID or Maryland resale number is valid and active by visiting the Maryland Tax Account Number Verification page from the Comptroller’s website.
- 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.