When a business purchases inventory to resell, they can do so without paying sales tax. In most states, a form called a Resale Certificate is filled out and provided to the vendor. The process is a little different in Mississippi.
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 Mississippi 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.
Most states provide a form the retailer fills out and provides to the vendor, however Mississippi does not have a form. Instead, the state only requires the retailer to provide their Sales Tax Permit Number to the vendor.
Read more about how to register for a Mississippi Sales Tax Permit.
What steps should a business take to accept an order for resale?
When a business receives an order for resale be made tax-free, it is the seller’s responsibility to follow a few steps and verify the buyer’s information.
- Verify the purchaser’s Sales Tax Permit is valid and active by visiting the Mississippi Taxpayer Access Point and click on “Verify a Permit Number”.
- Sellers have some responsibility for considering 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. Also, if the seller willingly sells merchandise tax-free and they know the buyer isn’t purchasing merchandise to resell, the seller may be liable for paying the sales taxes.