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?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 certificationHBS 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.
Tamika said: Thursday, November 10, 2016
I live in Delaware and I am trying to purchase a resale certificate. However, we don't have taxes here. So, would I need a resale certificate?HBS Staff replied: Thursday, November 10, 2016
For more information on obtaining a resale certificate, aka tax exemption certificate, consult your local state department. That is unfortunately a question we cannot answer.Jeffrey Turner said: Sunday, November 6, 2016
Do you offer militany discounts?? & is it busy to get into the resale buisness because where I live their is only 1 place that's a rinky, dink operation, and they mark their ammo ski high and any guns or gun parts, ide be interested in resale of rifle paets and not screw the people over on ammo or parts because most people are on unemployment in the wintertime and they actualy count pennies it's so bad ide like to do my part and help. I'm a 100% disabled veteran that's why I asked if u gave a military discountHBS Staff replied: Monday, November 7, 2016
We do not hande resale certificates--we were just sharing information about them. This organization offers support to military/veteran business owners and may be able to assist you: http://militaryspousebusinessacademy.org/