Last Updated on August 8, 2020
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 state of New Jersey Resale Certificate to their vendor.
Learn more about what a resale certificate is, how to get one and more.
What is a Resale Certificate?
When businesses purchase products to resell or are used in the making of a product, they often don’t pay sales tax on the purchase. Instead of the business paying sales and use tax to their vendor, the vendor can sell items that are intended to be resold to the business tax free, through a sales tax exemption. The business will then charge and collect sales tax from their customer (the end user of the product) based on the final value of the merchandise. The collected sales tax is then sent by the business to the Division of Taxation.
For example, when a pet store purchases dog toys to sell in their store, by having a resale certificate, the pet store owner won’t pay sales tax on the transaction. When a customer 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 resale certificate is the seller’s evidence why sales and use tax was not collected on a transaction. Similar names for a resale certificate include reseller certificate, seller’s permit, sales tax exemption certificate or reseller’s license. In order to prove a buyer intends to resell the product, they must provide a valid resale certificate to the seller of the goods.
Resale certificates are 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 register for a New Jersey Business Tax Identification Number from the state of New Jersey Division of Taxation. The New Jersey Business Tax Identification Number is sometimes referred to as a Certificate of Authority, seller’s permit, sales tax registration number, or sales tax license.
To receive a New Jersey Tax Identification Number, a business will submit Form NJ-REG.
ST-3 Resale Certificate Fillable Form
How to fill out the New Jersey Resale Certificate – Form ST-3
Filling out Form ST-3 is pretty straightforward, but is critical for the seller to gather all the information. If audited, the New Jersey Division of Taxation requires the seller to have a correctly filled out Form ST-3 Resale 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-3 New Jersey Resale Certificate
Step 1 – Begin by downloading the New Jersey Resale Certificate Form ST-3
Step 2 – Identify the name and business address of the seller
Step 3 – Describe the nature of merchandise or service of the buyer
Step 4 – List the merchandise or services being purchased
Step 5 – Check whether the merchandise is
- For resale in its present form.
- For resale and being converted
- For use in the performance of a taxable service on personal property
Step 6 – If services are being purchased, indicate whether the seller will collect New Jersey sales tax or resell the services or if the services will be performed on personal property held for sale
Step 7 – The purchaser will certify the services or property being purchased is for resale and provide their address, type of business and sign the certificate.
The resale certificate is kept on file by the seller and is not filed with the state.
Does a New Jersey Resale Certificate Expire?
New Jersey Resale Certificates don’t expire; however, the Division of Taxation recommends the certificate be updated every few years to ensure the customer’s information is up-to-date.
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, it is the seller’s responsibility to verify the buyer’s information is correct and maintain records to demonstrate the seller’s due diligence. Failing to verify this information may put the liability of paying New Jersey 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 business tax registration number is registered and active in New Jersey by checking the Division of Revenue’s Business Registration Certificate Service.
- 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.