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 Indiana Sales Tax Exemption Certificate to their vendor.
Learn more about what a sales tax exemption certificate is, how to get one, and more.
What is a Sales Tax Exemption 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 Indiana 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 Indiana Registered Retail Merchant Certificate from the Indiana Department of Revenue. The Registered Retail Merchant Certificate 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 Registered Retail Merchant Certificate and Sales Tax Exemption Certificate is commonly thought of as the same thing, but they are actually two separate documents. The Registered Retail Merchant Certificate allows a business to sell and collect sales tax from taxable products and services in the state, while the Sales tax exemption 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 Sales Tax Exemption Certificate.
A sales tax exemption certificate is provided by the Indiana Department of Revenue by downloading and filling out the Sales Tax Exemption Certificate (Form ST-105).
ST-105 Sales Tax Exemption Certificate Fillable Form
How to fill out the Indiana Sales Tax Exemption Certificate – Form ST-105
Filling out the ST-105 is pretty straightforward but is critical for the seller to gather all the information.
If audited, the Indiana Department of Revenue requires the seller to have a correctly filled out ST-105 Sales Tax Exemption 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-105 Indiana Sales Tax Exemption Certificate
Step 1 – Begin by downloading the Indiana Sales Tax Exemption Certificate Form ST-105
Step 2 – Identify the name and business address of the seller in addition to either the Indiana Registered Retail Merchant’s Certificate number or state tax ID number if located out-of-state.
Step 3 – If the retailer is expected to be purchasing items frequently from the seller, instead of completing a sales tax exemption certificate for every invoice, check the “blanket purchase exemption request box. In section 2, the buyer will provide a description of the items they will be purchasing.
Step 4 – The purchaser will indicate the type of exemption being claimed. The most common responses are:
- Sales to a retailer, wholesaler, or manufacturer for resale only
- Sale of manufacturing machinery, tools, and equipment to be used for direct production.
Step 5 – The purchaser will certify the property being purchased is for resale and provider their title, sign, and date the certificate.
The sales tax exemption certificate is kept on file by the seller and is not filed with the state.
Does an Indiana sales tax exemption certificate expire?
Indiana sales tax exemption certificates do not expire.
Are sellers required to accept resale or sales tax exemption certificates?
Sellers are not required to accept sales tax exemption 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 sales tax exemption 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 Indiana sales taxes on the seller.
Before accepting a sales tax exemption or resale certificate, a seller should:
- Review the sales tax exemption certificate to make sure it is completely filled out.
- Verify the purchaser’s Registered Retail Merchant Certificate is valid. There is no online verification, so sellers will have to call the Department of Revenue at 317-233-4015 to verify the certificate is valid.
- 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 sales tax exemption certificates.