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 Illinois Certificate of Resale to their vendor.
Learn more about what a resale certificate is, how to get one and more.
What is a Certificate of Resale?
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 Illinois 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 get an Illinois Sales Tax Permit from the Illinois Department of Revenue. 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 sales tax number will be provided by the Department of Revenue. This number will be listed on the certificate of resale.
A certificate of resale can be generated by the buyer or seller provided their certificate contains the required information as outlined in 86 Ill Adm. Code 130.1405. To make things easier, Form CRT-61 was created by the Department of Revenue to document tax-free transactions.
CRT-61 Certificate of Resale Fillable Form
How to fill out the Illinois Certificate of Resale – Form CRT-61
Filling out the CRT-61 is pretty straightforward, but is critical for the seller to gather all the information.
If audited, the Illinois Department of Revenue requires the seller to have a correctly filled out CRT-61 certificate of resale. 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 CRT-61 Illinois Certificate of Resale
Step 1 – Begin by downloading the Illinois Certificate of Resale Form CRT-61
Step 2 – Identify the name and business address of the seller
Step 3 – Identify the name and business address of the buyer
Step 4 – Complete information about the buyer by selecting on of the three boxes:
- The purchaser is registered as a retailer with the Illinois (Enter the Account ID number)
- The purchaser is registered as a reseller with the Illinois (Enter the resale number)
- The purchaser is authorized to do business out-of-state and will resell and deliver property only to purchasers located outside the state of Illinois
Step 5 – Describe the tangible personal property being resold or list the invoice number and date of purchase.
Step 6 – If the retailer is expected to be purchasing items frequently from the seller, instead of completing a resale certificate for every invoice, the blanket certificate section should be used. In this section, one of the boxes need to be selected which indicate whether all purchases are for resale or a certain percentage will be for resale.
If at any time, the percentage of purchases for resale changes, the certificate should be updated.
Step 7 – The purchaser will certify the property being purchased is for resale and sign and date the certificate.
The resale certificate is kept on file by the seller and is not filed with the state.
Does an Illinois 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.
It the seller is out-of-state, Illinois is one of a few states that don’t recognize out-of-state resale certificates. In order to purchase tax-free from vendors in other states, the buyer will have to register for a sales tax permit in the seller’s state.
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 Illinois 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 Illinois account ID or Illinois resale number is valid and active by visiting MyTax Illinois and using the Verify a Registered Business tool.
- 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.