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 Massachusetts 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 Massachusetts 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 register as a vendor and get a Sales Tax Permit from the Massachusetts Department of Revenue. 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 ID?
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 Massachusetts Sales Tax Permit. After registering, a sales tax number will be provided by the Department of Revenue. This number will be listed on the Resale Certificate.
ST-4 Resale Certificate Fillable Form
How to fill out the Massachusetts Resale Certificate – Form ST-4
Filling out the ST-4 is pretty straightforward but is critical for the seller to gather all the information.
If audited, the Massachusetts Department of Revenue requires the seller to have a correctly filled out ST-4 Resale 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 ST-4 Massachusetts Resale Certificate
Step 1 – Begin by downloading the Massachusetts Resale Certificate Form ST-4
Step 2 – Identify the name and business address of the purchaser
Step 3 – Include the Account ID number or Federal ID number (FEIN)
Step 4 – Describe the purchaser’s business
Step 5 – List what tangible personal property or services are being purchased
Step 6 – Identify the name and business address of the buyer
Step 7 – The purchaser will certify they hold a valid Massachusetts Vendor Registration are in the business of selling the property that is being purchased.
The resale certificate is kept on file by the seller and is not filed with the state.
Does a Massachusetts Resale Certificate Expire?
Resale Certificates don’t expire in Massachusetts.
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 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 Massachusetts 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 Massachusetts Sales & Use Tax ID is valid and active by visiting MassTax Connect.
- 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.