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 an Ohio Sales and Use Tax Exemption Certificate (commonly known as a Resale Certificate in most states) to their vendor.
Learn more about what a resale certificate is, how to get one, and more.
What is a Sales Tax Exemption 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 Ohio Department of Taxation.
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 an Ohio Vendor’s License from the Ohio Department of Taxation. The Vendor’s License is sometimes referred to as a seller’s permit, sales tax number, or sales tax license.
Is a resale certificate the same as a sales tax ID?
The Vendor’s License and Resale Certificate are commonly thought of as the same thing, but they are actually two separate documents. The Vendor’s License 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 Vendor’s license number will be provided by the Department of Taxation. This number will be needed to fill out the certificate.
Ohio uses two types of certificates. One is the Single Unit Exemption Certificate (Form STEC U) or the Blanket Certificate (Form STEC B). The Single Unit Exemption Certificate is for one-time transactions, while the Blanket Certificate is what most retailers will use if they are purchasing inventory for resale.
Sales and Use Tax Exemption Certificate Fillable Form
How to fill out the Ohio Sales and Use Tax Exemption Certificate
Filling out the Exemption Certificate is pretty straightforward but is critical for the seller to gather all the information.
If audited, the Ohio Department of Taxation requires the seller to have a correctly filled-out 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 Ohio Sales and Use Tax Exemption Certificate
Step 1 – Begin by downloading the Ohio Sales and Use Tax Exemption Certificate STEC U for a single transaction or STEC B for multiple transactions.
Step 2 – Enter the vendor’s name
Step 3 – Describe the reason for claiming the sales tax exemption. If purchasing merchandise for resale, some wording regarding the resale of products will likely be included
Step 4 – Include the name, type of business, address, title, Vendor’s License Number, and signature of the purchaser
The resale certificate is kept on file by the seller and is not filed with the state.
Does an Ohio Resale Certificate Expire?
Ohio Resale Certificates do 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 Ohio 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 Ohio Vendor License is active by downloading the List of Active Vendors from the Department of Taxation.
- The first 88 tabs of the report are for active county Vendor’s Licenses. The first tab is “County VL_1,” which refers to Adams County, while the last county tab, “County VL_88,” is Wyandot County.
- Transient vendors, who are those with temporary locations, vending machines, or service providers, are listed on the “Transient VL_89” tab. While out-of-state sellers are listed on the “Seller’s Use_91” tab.
- 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.