In order to purchase inventory without paying sales tax in North Carolina, a Certificate of Exemption is needed. Learn more about the certificate and how to get one!
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 North Carolina 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 Sales Tax 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 North Carolina 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.
Before a business starts selling products or providing taxable services, they must first get a North Carolina Sales Tax Permit from the North Carolina Department of Revenue. The Sales Tax Permit is sometimes referred to as a seller’s permit, sales tax number, or sales tax license.
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.
After registering, a sales tax number will be provided by the Department of Revenue. This number will be listed on the Resale Certificate which is called a Certificate of Exemption.
A Resale Certificate is generated by filling out the Certificate of Exemption.
E-595E Certificate of Exemption Fillable Form
How to fill out the North Carolina Certificate of Exemption – Form E-595E
Filling out the E-595E is pretty straightforward, but is critical for the seller to gather all the information.
If audited, the North Carolina Department of Revenue requires the seller to have a correctly filled out E-595E 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 the E-595E North Carolina Certificate of Exemption
Step 1 – Begin by downloading the North Carolina Certificate of Exemption Form E-595E
Step 2 – Indicate whether the Multistate Supplemental form is being attached. This is the second page of the exemption form. Several states joined together to accept one resale form to make it easier for merchants
Step 3 – Check whether the certificate is for a single purchase. Otherwise the form is considered a blanket certificate that allows a buyer to purchase multiple times from a vendor without having to file a separate certificate.
Step 4 – Include the name, address and State Tax ID Number. If there is no State Tax ID Number, enter the purchaser’s FEIN and Driver’s license number.
Step 5 – Enter the name and address of the seller.
Step 6 – Check the box that corresponds closest to the type of business the buyer is in.
Step 7 – Indicate the reason for exemption. Most retailers are going to check box G for Resale.
Step 8 – The purchaser will certify the property being purchased is for resale, include their title, phone number and email address then sign and date the certificate.
The resale certificate is kept on file by the seller and is not filed with the state.
Does a North Carolina Certificate of Exemption Expire?
Provided the single purchase box isn’t checked and the purchaser makes at least one purchase within 12 months, the certificate does not expire.
Are sellers required to accept resale certificates?
It does not require sellers 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 North Carolina 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 North Carolina Sales Tax ID is valid by visiting the Department of Revenue’s Registry of Sales and Use Tax Numbers.
- 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.