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The purpose of a resale certificate--also known as a tax exemption certificate--is to allow you to buy goods through your business without paying local sales tax.
When doing this, it's your responsibility to collect the tax from the customer when you sell the item.
The wholesaler that you purchase the goods from will request to see your resale certificate as proof that the property is being purchased for resale.
A resale certificate typically includes:
Without a resale certificate, a business or individual is typically required to pay sales tax on all purchases. Thus, a resale certificate can be beneficial to your business by allowing you to avoid sales tax and pass the savings on to your consumer. It can also allow you to buy more merchandise in order to grow your business.
Please note that if you intend to make multiple purchases from the same vendor, you can usually provide your resale certificate only once to that vendor and the vendor will keep it on file.
A business owner can typically apply for a resale certificate with his/her state tax department. Once you receive your resale certificate (or tax exemption certificate), the state will start sending you monthly or quarterly statements.
The physical location of your business is what determines where you apply for the resale certificate, rather than the state in which you formed the company. Therefore, if you sell merchandise in more than one state, you will need to apply for resale certificates in the all states in which you operate—it does not matter where your business was incorporated.
One of the requirements for a resale certificate is to be qualified in your state to do business. If your company is physically operating in a state outside the state of formation, you will need to complete the process of Foreign Qualification, which enables a company to transact business in a jurisdiction other than where it was formed.
For more information on obtaining a resale certificate, aka tax exemption certificate, consult your local state department.
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.
There are 20 comments left for What Is a Resale Certificate?Rahul Dutt said: Monday, February 10, 2020
I would like to apply for a Resale Certificate for Delaware.HBS Staff replied: Tuesday, February 11, 2020
Unfortunately, we cannot obtain a resale certificate from Delaware on your behalf. You can contact the Delaware Division of Revenue directly, or contact our partner LicenseLogix and they may be able to assist you.Ajay Verma said: Tuesday, August 20, 2019
I sell physical products online and even buy online, I do not own any warehouse or basically it is work from home business , Do I still need the resale certificate? And Do I still need to pay the sales tax every month ?HBS Staff replied: Wednesday, August 21, 2019
Ajay, we recommend getting clarification on your specific needs from a tax professional in your country. Unfortunately, we are unable to provide this advice to our clients.Ranell said: Friday, August 2, 2019
I am trying to understand how the resale certificate works. We have a company that is located in CA. We purchase from Companies in several different states. Then resell the product to our customers that live in several different states. Do I have to pay tax from the vendors I am purchasing from unless I have a resale license in each state that the vendor is located in? Or do I need a resale license in the state that our customer lives in? If our company is located in CA can I get resale exemption certificates from other states? ThanksHBS Staff replied: Monday, August 5, 2019
Ranell, we would recommend getting clarification on your specific needs from a tax professional. Unfortunately, we are unable to provide this advice to our clients. Sorry we can't be more helpful!Daniela Owusuah said: Thursday, July 25, 2019
Do I need resale certificate when I buy online and sale as part time business .HBS Staff replied: Tuesday, July 30, 2019
Typically, it does not matter if your business is full or part time. If you are unsure if you need a resale certificate, we recommend checking with an attorney or contacting the Delaware Division of Revenue (if you have a Delaware company).Emma Kay said: Tuesday, July 23, 2019
Do businesses that intend to rent the items they buy wholesale qualify for the resale certificate?HBS Staff replied: Wednesday, July 24, 2019
Emma, for this question we recommend you consult the state's Tax and Revenue department to see what their rules are. Your accountant may also be able to advise you.