How to get a Certificate of Exemption in Michigan
When a business purchases inventory to resell, it can do so without paying sales tax. In order to do so, the retailer will need to provide a Michigan Certificate of Exemption (commonly known as a Resale Certificate) to their vendor.
Learn more about what a Resale Certificate is, how to get one, and more.
What is a Certificate of Exemption?
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 Michigan Department of Treasury.
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, it must first get a Michigan Sales Tax License from the Michigan Department of Treasury. The Sales Tax License is sometimes referred to as a seller’s permit, sales tax number, or sales tax permit.
Is a Certificate of Exemption the same as a Sales Tax License?
The Sales Tax License and Resale Certificate are commonly thought of as the same thing, but they are actually two separate documents. The Sales Tax License 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.
Related: How to register for a Michigan Sales Tax License
After registering, a Sales Tax License Number will be provided by the Department of Treasury. The Sales Tax License Number will be used on the Resale Certificate.
How to fill out the Michigan Sales and Use Tax Certificate of Exemption
A Certificate of Exemption resale certificate is obtained by filling out Form 3372 from the Department of Treasury titled Michigan Sales and Use Tax Certificate of Exemption.
Filling out the 3372 is pretty straightforward but is critical for the seller to gather all the information.
If audited, the Michigan Department of Treasury requires the seller to have a correctly filled out Form 3372. 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 Michigan Sales and Use Tax Certificate Exemption (Form 3372)
Step 1 – Begin by downloading the Michigan Resale Certificate Form 3372
Step 2 – Indicate whether the transaction is a one-time purchase or a blanket certificate. 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 box should be used. The purchaser can select whether the blanket certificate will be used in the foreseeable future or expires on a certain date. Certificates are only valid for four years.
Step 3 – Check whether the certificate covers all items purchased from the seller or is limited to certain items.
Step 4 – Indicate the reason for sales tax exemption. If a retailer is purchasing merchandise for resale, check box number 2 and include their Sales Tax License Number.
Step 5 – Fill out the name of the business, address, phone number, signature, title, and date.
Michigan Sales and Use Tax Certificate of Exemption Fillable Form 3372
How much does a Sales Tax Exemption Certificate cost in Michigan?
There is no cost for an Exemption Certificate in Michigan.
Does a Michigan Certificate of Exemption Expire?
The Michigan Sales and Use Tax Certificate of Exemption is valid for up to four years.
Where do I file the Michigan Certificate of Exemption?
The resale certificate is kept on file by the seller and is not filed with the state.
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, a credit is available when filing the Michigan sales tax return.
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 Michigan 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 Sales Tax License Number by calling the Michigan Department of Treasury at 517-636-6925.
– 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.