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 Vermont 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 Resale Certificate?
When retailers purchase products to resell, they often don’t pay sales tax on the purchase. 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 Department of Taxes.
For example, when a pet store purchases dog toys to sell in their store, by having a resale certificate, the pet store owner won’t pay sales tax on the transaction. When a customer 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 of their transactions and periodically (typically at the end of the month) send the sales tax to the state.
The resale certificate is the seller’s evidence why sales tax was not collected on a transaction. Similar names for a resale certificate include reseller number, seller’s permit, or reseller’s license. In order to prove a buyer intends to resell the product, they must provide a valid resale certificate to the seller of the goods.
Resale certificates are 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 Vermont Sales Tax Permit from the Vermont Department of Taxes. 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.
Read more about how to register for a Vermont Sales Tax Permit. After registering, a Sales & Use Tax Account Number will be provided by the Department of Taxes. This number will be listed on the Certificate of Exemption.
Fillable Form S-3 Certificate of Exemption
How to fill out the Vermont Certificate of Exemption – Form S-3
Filling out Form S-3 is pretty straightforward, but is critical for the seller to gather all the information.
If audited, the Vermont Department of Taxes requires the seller to have a correctly filled out Form S-3 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 S-3 Vermont Certificate of Exemption
Step 1 – Begin by downloading the Vermont Certificate of Exemption Form S-3
Step 2 – Check whether the certificate is for a single purchase or multiple purchases. If the retailer is expected to be purchasing items frequently from the seller, instead of completing a resale certificate for every invoice, the multiple purchase (also known as a blanket certificate) box should be checked
Step 3 – Identify the name, FEIN (Federal Employment Identification Number), address and description of the buyer’s business
Step 4 – Include the name and address of the seller
Step 5 – Describe the merchandise being resold
Step 6 – Check the box with the reason for claiming an exemption. Most businesses reselling the merchandise being purchased will check the first box “For resale/wholesale”. In that case, include the buyer’s Vermont Sales & Use Tax Account Number
Step 7 – The purchaser will certify the property being purchased is for resale and sign and date the certificate.
The resale certificate is kept on file by the seller for three years from the date of the last sale and is not filed with the Vermont Department of Taxes.
Does a Vermont Resale Certificate Expire?
Vermont Resale Exemption 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, it is the seller’s responsibility to verify the buyer’s information is correct and maintain records to demonstrate the seller’s due diligence. Failing to verify this information may put the liability of paying Vermont 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 Vermont Tax Account Number is valid and active by calling the Department of Taxes at 802-828-2505 Option 2.
- 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 for at least three years from the date of the last transaction.