How to get a Resale Certificate in Maryland
A resale certificate, also known as a resale license or reseller’s permit, is a document that allows businesses to avoid paying sales tax on products that are purchased from wholesalers or manufacturers for the purpose of reselling them to customers.
In order to purchase tax-free, 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 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 Comptroller of Maryland.
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, it must first get a Maryland Sales Tax License 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.
Is a Resale Certificate the same as a Sales Tax License?
The Sales Tax License and Resale Certificate are commonly thought of as the same thing, but they are actually two separate documents. The Sales 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.
After registering for the license, a sales and use tax registration number will be provided by the Comptroller of Maryland.
How to Prepare the Resale Certificate
While there is no official state Resale Certificate, the Comptroller of Maryland has a suggested blanket certificate available for download.
The Resale Certificate should include the following information:
- 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.
How much does a Resale Certificate cost in Maryland?
There is no cost for a Resale Certificate in Maryland.
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.
Where do I file the Maryland sales tax exemption certificate?
The resale certificate is kept on file by the seller and is not filed with the state of Maryland.
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, a credit is available when filing the Maryland sales tax return.
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, 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 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 on 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 want to purchase office supplies tax-free, the seller should investigate further.
– Keep a file of resale certificates.