How to get a Certificate of Exemption in Minnesota

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Quick Reference

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 a Minnesota Certificate of Exemption 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 Minnesota 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.

Note that the Certificate of Exemption is different from a business license. Learn more about starting a business in Minnesota.

 

Getting Started

Before a business starts selling products or providing taxable services, they must first get a Minnesota Sales Tax Permit from the Minnesota Department of Revenue.

Is a resale certificate the same as a sales tax ID?

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.

Related: How to register for a Minnesota Sales Tax Permit

After registering, a state tax ID number will be provided by the Department of Revenue.

The Department of Revenue uses Form ST3, Certificate of Exemption, to fill out and provide to a vendor for documenting tax-free transactions. 

ST3 Certificate of Exemption Fillable Form

Minnesota Certificate of Exemption - Form ST3

How to fill out the Minnesota Certificate of Exemption – Form ST3

Filling out Form ST3 is pretty straightforward but is critical for the seller to gather all the information.

If audited, the Minnesota Department of Revenue requires the seller to have a correctly filled out Form ST3 Certificate of Exemption.  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 Form ST3, Minnesota Certificate of Exemption

Step 1 – Begin by downloading the Minnesota Certificate of Exemption Form ST3
Step 2 – Select whether the certificate is for a one-time purchase (include the invoice or purchase order number). If the retailer is expecting to purchase items frequently from the seller, instead of completing a resale certificate for every invoice, leave this box blank to use as a blanket resale certificate.
Step 3 – Indicate whether the purchaser is a contractor and has a purchasing agent agreement with an exempt organization to purchase tax-free for a specified job.
Step 4 – Include the name of the purchaser, business address, Tax ID Number, State the ID number was issued, and Driver’s License Number.
Step 5 – Enter the name and business address of the seller
Step 6 – Select the purchaser’s type of business
Step 7 – Check the reason for exemption.  Retailer reselling merchandise will typically select box H, Resale.
Step 8 – 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 a Minnesota 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 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 Minnesota 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 Minnesota Tax ID Number is valid and active by calling the Department of Revenue at 651-282-5225.
  • 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. 

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