As a business owner, it’s essential to understand the ins and outs of sales tax. A sales tax is imposed on the sale of goods and services by state and local governments in the United States. It’s a crucial source of revenue for these governments, and understanding how sales tax works is crucial for businesses.
That being said, certain businesses may be exempt from paying sales tax if they obtain the necessary paperwork to justify it. One such piece of paperwork is the sales tax resale certificate, which is a key tax strategy for resellers. In this guide, learn more about the sales tax resale certificate, including its benefits, how to apply for one, and how to stay compliant with the law.
What is a Sales Tax Resale Certificate?
Definition and Purpose
A sales tax resale certificate is an official document that exempts a business from paying local sales taxes on products it purchases at retail with intent to resell. Typically, retailers provide these certificates to wholesalers when purchasing inventory. These certificates are also used by manufacturers purchasing parts and materials from suppliers.
Benefits for Businesses
Owning a sales tax resale certificate holds a range of benefits. With the certificate, businesses save a significant amount of money when purchasing products before resale because they are not spending money on sales tax, which in turn allows businesses the chance to purchase more products at a time. And because the cost per product is lower without any sales tax, businesses can take advantage of reselling the products at more competitive prices on the market.
Why Do You Need a Resale Certificate?
If your business is a reseller, retailer, or tax-exempt organization that purchases products for resale on a regular basis, you should consider obtaining a sales tax resale certificate.
- Avoid double taxation — By transferring the sales tax obligation to the consumer, the sales tax is only paid once.
- Minimize costs — By being exempt from sales tax, your business can save that much more money with every purchase.
- State compliance — Each state has different rules for issuing and handling sales tax resale certificates. It is also important to note that if you source products from more than one state, you may need to obtain multiple certificates to account for each state.
How to Apply for a Sales Tax Resale Certificate in Each State
Most states issue their own sales tax resale certificates, so it is important that your business identify the correct certificate to obtain for your tax exemption needs.
Researching State-Specific Requirements
While most sales tax resale certificates are state-issued, a few states use multi-state certificates. Other states may not even require this certificate, especially those without a statewide sales tax in place. Consult with a tax professional to determine which states’ certificates your business should obtain, if any.
Completing the Application Process
Filing Requirements
Most sales tax resale certificate applications can be completed online as provided by corresponding state tax authorities. Be sure to gather all the necessary documents and information required to complete the application, including but not limited to:
- Details about your business — Articles of incorporation, tax identification number, business address
- Seller’s permit — This form is what legally enables your business to collect sales tax on the products you sell and/or resell to consumers.
- Details about your suppliers — Names and addresses, purposes of products your business has purchased with intent to resell
Registration Fees and Processing Time
Most states do not charge a fee to apply for a sales tax resale certificate, but some states do. Other states may also charge a fee to renew your certificate. Once your business’s application is processed and approved, be sure to obtain a copy of the certificate so you can present it to each of your wholesalers and other suppliers.
Keeping Your Resale Certificate Valid and Up-to-Date
Each state’s sales tax resale certificate is valid for different amounts of time, from a few years to forever so long as all the information remains accurate. Double check the expiration date on each certificate in case your business may need to renew it periodically and stay compliant with the law.
How Manay CPA Can Assist with Sales Tax Compliance
At Manay CPA, we provide expert guidance on navigating state sales tax regulations, ensuring that your business is fully compliant with local requirements. Our team can help streamline the application process for resale certificates across all states. For more information and state-specific sales tax guidance for your business, contact us today to schedule a free consultation.
