What Is 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 as proof that the property is being purchased for resale.

What information is on a resale certificate?

A resale certificate typically includes:

• the name and address of the buyer
• the reseller’s permit number
• a description of the items being purchased
• 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. 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.

Next: Company Formation Documents, Defined