How To Buy Inventory Tax Free Using A Resale Certificate
Do you buy products to sell to others? If so, do you know about resale certificates? You could potentially save a decent chunk of change by not paying sales tax on items you intend to resale. Let's dive in and see if a resale sales certificate might be a good fit for your business!
What exactly are resale certificates?
Good question! A resale certificate is a document that allows retailers to buy goods for resale without having to pay sales tax on those items.
After you obtain a resale certificate (more on that later), you'll receive either a customized resale certificate from the state or, depending on the state, they will just give you a resale certificate number you can use with a generic template.
What's the difference between resale certificates and sales tax permits?
Your resale certificate number is sometimes the same as your sales tax permit number, but in a few cases it isn't. As usual when it comes to anything sales tax related, this depends on the sales tax rules in your individual state. Go check out TaxJar's State Resale Certificate blog series or contact your state to double-check their process.
What can I buy with resale certificates?
You can buy individual items you intend to resale or the components to create items you intend to resale. If you're a woodworker, you can use a resale certificate to buy wood, nails, stain, and other items you use to build the chairs you sell.
That said, you can't buy tools or office supplies with a resale certificate–that's considered a fraudulent use of the resale certificate.
Which retailers accept resale certificates?
Many of them, but not all. It is really all up to the retailer's discretion since they are on the hook to pay any uncharged sales tax if the purchaser used an expired or fake resale certificate.
Some retailers who sell limited edition items like collectible action figures or in-demand electronics don't allow resale certificate purchases to try and discourage retail arbitrage.
Can I use these in multiple states?
Usually yes, but not always. Most of the time you can use a resale certificate from State A to buy something for resale in State B, but there are ten states that will not allow retailers to accept out-of-state resale certificates. You can always register for sales tax permits in those states if you do a lot of business there, but keep in mind that holding a sales tax permit would also require you to collect sales tax from buyers in that state.
What happens if I don't sell the items?
If you don't sell the items or components you purchased without paying sales tax due to a resale certificate, you'll generally be required to pay a use tax–this is normally the same amount as the sales tax you would have paid, and is paid on your state income tax return.
What do I do when someone gives me a resale certificate?
If you decide to honor the resale certificate, you'll want to verify that the certificate is genuine and active and keep the certificate on file. Remember, you're on the hook if the certificate ends up not being valid, but you also can choose to not accept a resale certificate and require all buyers to pay sales tax.
By now, you probably know if getting a resale certificate makes sense for your business. If you're still not sure or if you'd like to take a further deep dive, come visit the resale certificate section of the TaxJar blog or start the conversation in the comments!
About The Author
Mark Faggiano is the Founder and CEO of TaxJar, a service that makes sales tax reporting and filing simple for more than 10,000 online sellers. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!