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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 (aka tax exemption certificate) as proof that the property is being purchased for resale.
A resale certificate typically states the name and address of the buyer, the reseller’s permit number, a description of the items being purchased and a statement that the property is being purchased for resale.
Without a resale certificate, a business or individual is typically required to pay sales tax on all purchases.
A tax exemption 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's state tax department. Once you receive your 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.
THE AUTHOR OF THIS BLOG ARTICLE IS NOT A LAWYER AND HARVARD BUSINESS SERVICES, INC. IS NOT A LAW FIRM. THE ARTICLE ABOVE IS NOT INTENDED AS LEGAL ADVICE AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. THIS SHORT ARTICLE IS STRICTLY TO MENTION SOME ASPECTS OF DELAWARE’S CORPORATION LAWS AND/OR LAWS RELATING TO OTHER FORMS OF ENTITIES WHICH YOU MAY NOT BE FAMILIAR WITH. WE RECOMMEND THAT YOU CONSULT WITH A LAWYER BEFORE FORMULATING A STRATEGY WHICH WILL BE SUITABLE FOR YOUR SPECIFIC CASE.
There are 18 comments left for What Is a Resale Certificate?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.bushta said: Sunday, April 7, 2019
hello . i need to resell online and i need resale certificate but i have no idea what i have to do after i get it and after i start sellingHBS Staff replied: Thursday, April 11, 2019
Bushta, the Resale Certificate or Business license is typically obtained where the company is actually physically operating. If you need any assistance obtaining the required business licenses, many of our clients have worked with David Calabrese at DCalabrese@licenselogix.com or 800-292-0909 x 353 at LicenseLogix.Ray Anding said: Monday, March 18, 2019
I am opening up my second location same name same everything. Do I need a different resale certificate for that location or can I use the same one?HBS Staff replied: Tuesday, March 19, 2019
Ray, you may be able to use the same certificate but we typically recommend that clients reach out the county in the jurisdiction in which they operating to determine if they need to do anything additional.