Sales tax permits VS. resale certificates
While it’s a simple enough concept, exemption complexities soon arise in this modern, borderless business landscape. Because resellers require a resale certificate for each state in which they have a sales tax permit. So once you have a nexus and are required to collect sales tax yourself, you need a resale certificate to avoid double taxation.
So now the question is, how do you obtain a resale certificate?
How do I apply for a resale certificate?
While each state has its own application process and set of requirements, applying for a resale certificate generally involves these key steps:
Step 1: Obtain a Sales Tax Permit
Yes, we’re working backwards here. But you have to start at square one. Before you can issue or use a resale certificate, your business needs to have a valid sales tax permit (also known as a seller’s permit or a sales and use tax permit) from the state in which you operate. This permit allows you to collect sales tax on behalf of the state.
Step 2: Download & Fill Out the Resale Certificate Form
Each state has its own resale certificates which capture the key information regarding the business and the purchase, in order to accurately document the exemption.
The information that needs to be filled out on the certificate generally include the following:
- Name and address of purchaser
- Name and address of seller
- Registration number of purchaser
- Description of property purchased for resale
- Reason for exemption
- Statement that if the property is put to use in a taxable manner that the purchaser will remit the consumer’s use tax
- Date and Signature and Title of authorized individual at the purchaser
Resale certificates can be downloaded from the state’s department of revenue website or often a local tax agency’s site.
Step 3: Provide the Certificate to Suppliers & Keep Record of Exempt Purchases
Once you’ve completed the form, you’re ready to roll. Simply provide a copy of your resale certificate to suppliers when purchasing goods for resale and make sure you keep record of all purchasers that are going to be used for resale.
Step 4: Renewing and Updating Your Exemption
Some states require businesses to renew their resale certificates periodically, while others issue them with no expiration. Colorado and Indiana, for instance, require renewal after two years, while Michigan requires annual renewal.
Additionally, if any of your business information changes (like your address or business name), your resale certificate should be updated accordingly.
What are multijurisdictional resale certificates?
When buying from multiple states, the approach to resale certificates can get a bit more complex. Here’s what typically happens:
Generally, businesses need to obtain a resale certificate for each state in which they are registered to collect sales tax. This means if you have a sales tax nexus in multiple states (due to physical presence, economic activity, etc.), and you purchase goods for resale in those states, you’ll need separate resale certificates for each state.
To ease this burden, however, some states participate in a streamlined system that allows the use of a multijurisdictional resale certificate (or uniform resale certificates). This is a single document, a “blanket” resale certificate if you will, that can be used across multiple states.
The regulatory body that currently oversees the governance of these uniform resales certificates is the Multistate Tax Commision (MTC). As of the writing of this answer, 36 states accept the MTC’s multijurisdictional resale certificate, simplifying the lives of countless business practitioners and tax experts across the USA>
As with any other exempt transaction, regardless of whether you use state-specific or multijurisdictional certificates, it’s important to ensure that each certificate is properly filled out, kept on file, and used only for qualifying purchases.
