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 Utah Exemption Certificate (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 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 Utah State Tax Commission.
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.
How to Obtain a Resale Exemption Certificate in Utah
Before a business starts selling products or providing taxable services, they must first get a Utah Sales Tax License from the Utah State Tax Commission. The Sales Tax License is sometimes referred to as a seller’s permit, sales tax number, or sales tax permit.
Is a resale certificate the same as a sales tax ID?
The Sales Tax License and Resale 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 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 State Tax Commission. This number will be listed on the Resale Exemption Certificate.
Fillable Form TC-721 Exemption Certificate
How to fill out the Utah Resale Exemption Certificate – Form TC-721
Filling out Form TC-721 is pretty straightforward, but is critical for the seller to gather all the information.
If audited, the Utah State Tax Commission requires the seller to have a correctly filled out Form TC-721 Resale 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 TC-721 Utah Resale Certificate
Step 1 – Begin by downloading the Utah Exemption Certificate Form TC-721
Step 2 – Identify the name, address, phone number, name title and signature of the purchaser
Step 3 – Enter the name of the supplier
Step 4 – For businesses requesting a sales tax exemption because of reselling goods, enter the buyer’s sales tax license number
Step 5 – If reselling goods, check the first box, Resale or Re-lease
The resale certificate is kept on file by the seller and is not filed with the state.
Does a Utah Resale Certificate Expire?
A Utah Resale Exemption Certificate does not expire provided the buyer purchases from the seller at least once every 12 months.
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.