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 an Idaho Sales Tax 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 Idaho State Tax Commission.
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 an Idaho Sales Tax Permit from the Idaho State Tax Commission. 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.
After registering, a Seller’s Permit Number will be provided by the State Tax Commission. This number will be listed on the Sales Tax Resale Certificate.
The Idaho State Tax Commission created the Sales Tax Resale or Exemption Certificate (Form ST-101) to document tax-free transactions.
ST-101 Sales Tax Resale or Exemption Fillable Certificate
How to fill out the Idaho Sales Tax Resale or Exemption Certificate – Form ST-101
Filling out the ST-101 is pretty straightforward, but is critical for the seller to gather all the information.
If audited, the Idaho State Tax Commission requires the seller to have a correctly filled out ST-101 Sales Tax 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-101 Idaho Sales Tax Resale Certificate
Step 1 – Begin by downloading the Idaho Sales Tax Resale Certificate Form ST-101
Step 2 – Identify the buyer’s name and address
Step 3 – Identify the seller’s name and address
Step 4 – Describe the primary nature of the buyer’s business and the products they sell, lease or rent in section 1.
Step 5 – Enter the Idaho seller’s permit number and whether the buyer is:
- Wholesale only and no retail sales
- Out-of-state retailer with no Idaho business presence
- Idaho registered prepaid wireless service seller
Step 6 – List producer exemptions – Only applicable for companies in:
- Publishing free newspapers
Or producers in:
- Hunting or fishing operations
If the business is classified as a producer, the products made must be listed
Step 7 – If the buyer is an exempt entity, they can mark the name of the buyer in section 3. Some exempt entities include the American Red Cross, government entities, hospitals, etc.
Step 8 – Contractors working on certain projects can claim tax-exemptions. They can indicate the invoice, location of the job, and project owner name.
Step 9 – If the entity falls under the other exempt goods and buyers, they will check these boxes.
Step 10 – The buyer will certify the property being purchased is for resale and sign, date, and include their title, EIN or Driver’s License Number.
The resale certificate is kept on file by the seller and is not filed with the state.
Does an Idaho 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.
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 Idaho 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 Idaho Seller’s Permit by logging into the Idaho State Tax Commission’s Taxpayer Access Point (TAP) website and selecting “Validate Seller’s Permit”.
- 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.