What Is a Resale Certificate?

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what is a resale certificate

Who Needs a Resale Certificate?

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.

 

 

 

 

More By Devin Scott

There are 7 comments left for What Is a Resale Certificate?

If I have local business receipt do I need a resale certificatio said: Monday, March 12, 2018

Help me please

HBS Staff replied: Monday, March 12, 2018

That question is better answered by your local Division of Corporations and/or your local Small Business Administration office.

Brenna Taylor said: Saturday, January 27, 2018

I am an independent contractor selling another companies’ product at my business. They said the resale certificate is optional. I was wondering what the legal requirements are to having a resales certificate and the pros and cons of either going with it, or going without.

HBS Staff replied: Monday, January 29, 2018

Unfortunately, we can't answer that question for you as it is out of the realm of our expertise. Check with your local Score office or the SBA (Small Business Assocation); you could also consult an attorney.

Rabab said: Thursday, February 23, 2017

I live in California and i don’t have a work permit will be available after 4 months & I want go sell on Amazon, can i apply for EIN without work permit?

HBS Staff replied: Thursday, February 23, 2017

That question would be better directed at the California Division of Corporations or an attorney familiar with California's laws. It's a bit beyond our scope.

christian Albrand said: Tuesday, February 7, 2017

i am from a foreign country and htey are asking me for a resale certificate, but here we don´t have or use that certification

HBS Staff replied: Wednesday, February 8, 2017

Since we don't have much information on the your situation, we can't offer much of a solution. Feel free to call us at 1-800-345-2677 and ask for Devin; he may be able to help you if you tell him more about your specific scenario.

Erick Bradley said: Saturday, January 7, 2017

What if we live in another state Ilinois, run an online business, plan to buy items for resale from multiple vendors in various states, but our business was formed in Delaware LLC. Should we apply a resale certificate in Delaware or Illinois?

HBS Staff replied: Monday, January 9, 2017

Thank you for your question. The Resale Certificate would be obtained in the state in which you are physically operating your business.

 

 

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