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 New York 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 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 New York Department of Taxation and Finance.
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 a New York Sales Tax Certificate of Authority from the New York Department of Taxation and Finance. The Sales Tax Certificate of Authority is sometimes referred to as a seller’s permit, sales tax number, or sales tax license.
The Sales Tax Certificate of Authority and Resale Certificate are commonly thought of as the same thing but they are actually two separate documents. The Sales Tax Certificate of Authority 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.
After registering, a Certificate of Authority Number will be provided by the Department of Taxation and Finance. This number will be listed on the Resale Certificate.
Form ST-120 Fillable Resale Certificate
How to fill out the New York Resale Certificate – Form ST-120
Filling out Form ST-120 is pretty straightforward, but is critical for the seller to gather all the information.
If audited, the New York Department of Taxation and Finance requires the seller to have a correctly filled out Form ST-120 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 Form ST-120 New York Resale Certificate
- Step 1 – Begin by downloading the New York Resale Certificate Form ST-120
Step 2 – Identify the name and business address of the seller
Step 3 – Identify the name and business address of the buyer
Step 4 – 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 can be checked. Otherwise, select single-use certificate.
Step 5 – Describe the purchaser’s type of business and the primary products sold
Step 6 – New York based vendors will enter their Certificate of Authority Number of the vendor (purchaser) in Part 1
Step 7 – New York based vendors will select whether the purchase being made is:
– Tangible personal property for resale or certain services
– A service for resale; or
– Restaurant-type food, heated food, or heated drink for resale
Step 8 – Out-of-state purchasers will enter their state of registration and sales tax ID number, in addition to the merchandise being purchased.
Step 9 – 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 New York Resale Certificate Expire?
If selecting blanket certificate, the resale certificate does not expire.
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 New York 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 New York Certificate of Authority Number is valid by visiting the Department of Taxation and Finance’s Registered Sales Tax Vendor Lookup database.
- 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.