Resale certificates allow the tax-free purchases of merchandise to resell. Learn more about the certificate, why it’s needed and how to get one.
What is a resale certificate?
A resale certificate is a document that allows resellers to purchase goods from a vendor (usually a wholesaler) without paying sales tax. The reseller, who is often the retailer, sells the product to the end-user of the product and collects sales tax.
Manufacturers will also use resale certificates to purchase the supplies or services needed in the products they make. Depending on the state, a resale certificate may be called a reseller’s permit, reseller’s license, sales tax exemption certificate or something similar.
Why is a resale certificate needed?
When a wholesaler makes a sale to a retailer, the wholesaler doesn’t charge the retailer sales tax. The state of course wants to be paid the sales tax. The resale certificate provides documentation about the reseller and their business. Each state’s Departments of Revenue (or similarly named revenue agency) will audit businesses making tax-exempt sales to ensure they are making sales to businesses that are actually reselling the merchandise being sold. If there is an audit and a wholesaler is making tax-free sales without the proper documentation or selling to businesses that don’t reasonably appear to be in the business of selling the products being purchased, the wholesaler can face fines and be charged the full amount of tax on the sale.
What information is needed for a resale certificate?
The information needed to fill out a resale certificate varies by state, but resale certificates typically require:
- Reseller’s name, address, phone number
- Reseller’s sales tax permit number
- Description of the reseller’s business
- Description of the merchandise sold
Additionally, some certificates ask whether the certificate should be treated as a blanket certificate or will be for a one-time transaction. A blanket resale certificate is one where the reseller expects to make recurring purchases with the vendor over an extended period of time.
How to Apply for a Resale Certificate
Each state has a different process for getting a resale certificate but the process is one where the reseller will first obtain a sales tax permit from the state revenue agency and then fill out a resale certificate. A certificate is typically provided by each state, however in many cases as long as the required information is included, any form can be used. The certificate isn’t filed with any agency, however is kept on file with the seller in case of an audit.
Since businesses are increasingly doing business over state lines, several states joined together to simplify sales taxes. The Multistate Tax Commission (MTC) developed a single resale certificate used among the participating states called the Uniform Sales &Use Tax Exemption Certificate.
To see more information on the resale certificate in each state, click on the state below.