This certificate is called many different names depending on the state: Sales tax certificate, resale certificate, reseller’s license, reseller permit, or tax exemption certificate. Continue reading this article if you want to know how it actually works and how it can help your business save anywhere from 4% to 10% on state and local taxes.
Well, let’s get started.
What Is a Resale Certificate?
It is a signed document stating that the buyer intends to resell the goods. This certificate allows your business to purchase or lease products or services tax-free when these are going to be resold or re-leased. The retail company is the one that should provide this document to the distributor or wholesaler.
States that allow these resale exemptions will accept a state-issued resale certificate, or they may accept a multi-state certificate in some cases.
How Does a Resale Certificate Work?
When your business purchases products, you usually have to pay sales tax. However, if your business buys products at a wholesale price and resells them at a retail price, there’s a chance to be exempt from sales tax by obtaining a resale certificate.
For example, if you buy separate parts to create a product (like a clothing manufacturer buying fabric, thread, and more).
In this case, you’re not using those products for your business, but rather reselling them at a retail price.
To avoid paying these taxes, you need to request and notify the state that you wish to be exempt from them. Once you obtain this exemption, you only need to present your certificate to the wholesale company so they won’t charge taxes on your sales. Let’s now see how you can obtain this certificate.
How to Obtain a Resale Certificate
Remember that if your business is incorporated in Alaska, Delaware, Montana, New Hampshire, or Oregon, you are exempt from sales tax. If you are not in one of these states, you will need to request a resale certificate from your state’s Department of Revenue. To obtain this certificate, you should:
- Visit your state’s Department of Taxation website.
- Once on the website, search for “resale certificate” or use any of the other names until you find the one used by your state for this document.
- Learn about the types of products and services that qualify for this certificate, as not all products are valid in all states.
- You’ll need to fill out the form with questions about your business and the reason for the exemption.
- Finally, you’ll have to select your type of business and specify the reason for the exemption from a list of allowed reasons in that state.
If you typically do business in multiple states, you may need to apply for a resale certificate in each of these.
It’s also important to remember that certificates have expiration dates, so you must renew them periodically.
It’s Time to Request Your Resale Certificate
We are Rex Legal, and we want to accompany and assist you on your journey to create or grow a business in the United States. If you need help, guidance, or support, don’t hesitate to contact us; we’ll be happy to assist you.