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 South Dakota Certificate of Exemption to their vendor.
Learn more about what a Certificate of Exemption is, how to get one, and more.
What is a 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 South Dakota 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 South Dakota Sales Tax License from the South Dakota Department of Revenue. The Sales Tax 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 Sales Tax License and Certificate of Exemption 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 Certificate of Exemption 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 Certificate of Exemption.
EFORM – 1932 Fillable Certificate of Exemption
How to fill out the South Dakota Certificate of Exemption – EFORM – 1932
Filling out the SD EFORM – 1932 is pretty straightforward but is critical for the seller to gather all the information.
If audited, the South Dakota Department of Revenue requires the seller to have a correctly filled out SD EFORM – 1932 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 EFORM – 1932 South Dakota Certificate of Exemption
Step 1 – Begin by downloading the South Dakota Certificate of Exemption Form EFORM – 1932
Step 2 – Indicate whether the Multistate Supplemental form is being attached. This is the second page of the exemption form. Several states joined together under the Streamlined Sales Tax Agreement 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 Certificate of Exemption is kept on file by the seller and is not filed with the state.
Does a South Dakota Certificate of Exemption Expire?
Provided the box for a single-purchase certificate wasn’t checked and the purchaser makes recurring purchases with the seller at least once every 12 months, the Certificate of Exemption doesn’t expire.
Are sellers required to accept a Certificate of Exemptions?
Sellers are not required to accept Certificate of Exemptions, 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 Certificate of Exemption?
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 South Dakota sales taxes on the seller.
Before accepting a Certificate of Exemption from a buyer, the following steps should be taken.
- Review the Certificate of Exemption to make sure it is completely filled out.
- Verify the purchaser’s South Dakota Sales Tax License is valid and active by calling the South Dakota Department of Revenue at 800-829-9188, option 1.
- 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 Certificate of Exemptions.