Resale Certificates 101: Comprehensive Guide
What is Resale Certificate
A resale certificate, also known as a reseller’s permit and reseller’s license, is basically a signed document that helps the reseller buy goods from a wholesaler without paying sales tax.
The resale certificate makes it the retailer’s responsibility to collect the sales tax from the customer on the sale of the goods. Without the resale certificate, the buyer will have to pay sales tax on the items they want to resell.
A simple online store purchases goods from wholesalers and sells them online, for this type of business model, sales tax is usually complicated. Pay sales tax on items they intend to resell, such online store owners should have a resale certificate.
Producers and manufacturers also use a resale certificate to purchase equipment and services used in the manufacturing of goods.
Why is a resale certificate needed?
Well, a resale certificate is something you give to someone you’re buying something from to have them not with hold sales taxes. So in the United States, sales taxes are imposed on the buyers.
If you are buying and it’s really the ultimate consumer. So if I buy this mouse, I pay sales taxes on it because I’m the one using it.
If I buy 20,000 mouses with the intent, if I buy this mouse with the intent to resell it, I can show them my resale certificate, and they won’t charge me. The sales tax is very important for online retailers and basically for any retailer because you don’t want to be on the hook and pay the sales taxes up.
When you’re not required to. So if I buy 10,000 of these mice or $10 each, so it’s whatever, is that a hundred thousand dollars, a million dollars, whatever. If I spend all that money on these mice, I will pay 7% on that. So if I buy a million dollars with mice, I’m going to pay $70,000 in sales taxes.
When I don’t have to, if I showed them resale certificates, yet I wouldn’t have to pay those sales taxes. And when I resell them, I would then collect sales taxes from the people I’m selling it to.
What information is required for a resale certificate?
The information required for a resale certificate differs from state to state. Most probably, the information requires:
- Reseller’s name, address, phone number.
- Reseller’s sales tax permit number.
- Description of the reseller’s business.
- Description of the merchandise sold.
Further information is available below in the sample resale certificate.
How to Apply for a Resale Certificate
The process for applying for a resale certificate is varied from state to state. You can apply for a resale certificate through your state’s tax department.
Remember this to apply for the resale certificate, you must have a physical address in this state. If you run your business in more than one state, you must have a resale certificate in all these states.
To learn more information on the resale certificate in each state, click on the state below.