When a business purchases inventory to resell, it can do so without paying sales tax. In order to do so, the retailer will need to provide a Pennsylvania Exemption Certificate (commonly called a Resale Certificate in most states) to their vendor.
Learn more about what the exemption certificate is, how to get one, and more.
What is an 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 Pennsylvania 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 Pennsylvania Sales Tax License from the Pennsylvania Department of Revenue. The Sales Tax License is sometimes referred to as a seller’s permit, sales tax number, or sales tax license.
The Sales Tax License and Exemption Certificate are commonly thought of as the same thing but they are actually two separate documents. The Sales Tax License allows a business to sell and collect sales tax from taxable products and services in the state, while the Exemption Certificate allows the retailer to make tax-exempt purchases for products they intend to resell.
After registering, a tax account ID number will be provided by the Department of Revenue. This number will be listed on the Exemption Certificate.
REV-1220 Exemption Certificate Fillable Form
How to fill out the Pennsylvania Exemption Certificate – Form REV-1220
Filling out Form REV-1220 is pretty straightforward, but is critical for the seller to gather all the information.
If audited, the Pennsylvania Department of Revenue requires the seller to have a correctly filled out Form REV-1220 Exemption 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 REV-1220 Pennsylvania Exemption Certificate
Step 1 – Begin by downloading the Pennsylvania Exemption Certificate Form REV-1220
Step 2 – Indicate the type of tax the exemption is being requested for
- State and local sales and use tax (what most retailers will use)
- State and local hotel occupancy tax
- Public transportation assistance taxes and fees
- Vehicle rental tax
- Additional local, city, county hotel tax
Step 3 – Check whether the certificate if for a single transaction or blanket exemption. If the retailer is expected to be purchasing items frequently from the seller, instead of completing a resale certificate for every invoice, the blanket exemption box should be checked.
Step 4 – Enter the name and address of the seller.
Step 5 – Select one of the boxes to indicate why the exemption is being requested. Most retailers will select number 3 “Property will be resold”. Enter the buyer’s sales tax number
Step 6 – The purchaser sign and date the certificate and include their address and FEIN (Federal Employer Identification Number).
The resale certificate is kept on file by the seller and is not filed with the state.
Does a Pennsylvania Resale Certificate Expire?
Pennsylvania Resale Exemption Certificates don’t 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 Pennsylvania 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.
- The certificate should be in the seller’s possession within 60 days from the date of the sale
- The seller doesn’t contain anything knowingly false.
- 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.