Dawn Moser Feb 12, 2023
Sales tax exemptions are a tough nut to crack. Each state has its own rules about what is or isn’t exempt. One of the few things consistent across the board: Resellers can typically skip the tax on goods they’ll be reselling. How that exemption shakes out is a little less uniform.
Most states have their own resale certificates. Others, like Colorado and North Carolina, just use multistate certificates. Mississippi doesn’t even require a certificate, so long as the reseller has a valid sales tax permit.
If you’re buying or selling goods for resale in multiple states, there’s a lot to keep track of.
To that end, here’s an overview of basic resale exemption information, as well as a state-by-state guide to certificate requirements.
A resale certificate is a document that allows a business to make exempt purchases based on the assumption the goods will be resold and the sales tax will be paid by the end consumer.
Purchasers apply for resale certificates and provide them to sellers at checkout.
Sellers collect and validate certificates prior to exempting tax. Sellers store each certificate, so it’s accessible for future purchases or to validate the exemption if the business is audited.
Drop shipping can further complicate resale certificates or sales tax collection. Things get trickier when you go from a business selling to a customer, to a business purchasing from a drop shipper for delivery to a customer. Who collects what largely depends on who has nexus (and where everyone is located). We cover the sales tax implications of drop shipping in a post of its own.
“Exemption certificate” is an umbrella term for any document that allows tax-exempt purchases based on the status or circumstances of the purchaser.
A resale certificate is a type of exemption document.
No. There’s no one universally accepted resale certificate. However, there are two types of multistate resale certificates:
Not every state accepts these certificates. You’ll need to obtain a valid state-issued certificate in those that won’t accept either.
To get a resale certificate, a business must obtain a sales tax permit. Then that business can apply for the proper sales tax exemption forms, including resale certificates.
Most states accept out-of-state resale certificates, but not all. It’s important to make sure you have the right certificate if you’re purchasing items for resale outside of your home state.
In a word, no. Sales tax obligations are imposed by the state or local tax jurisdiction, not individual retailers.
If anything is out of order with the certificate, the seller is responsible for any uncollected sales tax. For that reason, sellers may choose not to honor resale certificates.
If a buyer pays sales tax on goods for which they’re entitled to an exemption, they can request a refund from the state tax authority.
Purchasers should maintain certificates for as long as they’re valid. In some cases, resale exemptions are issued for individual purchases. In others, they’re valid for several years, or even indefinitely, as long as the information is correct. Changes to a business, such as name, address, and ownership, can void an exemption certificate.
Sellers should hold on to resale certificates until the statute of limitations expires on the purchase, at a minimum. Each state has its own time frame for sales tax assessments. If you’re audited and can’t produce a certificate to justify an exempt sale, you may be responsible for the applicable taxes, as well as potential penalties.
Important note: Tax rules change and exceptions are common. The information here is subject to change and offered for informational purposes only. It should not be used as tax advice.
Please consult a sales tax expert who can discuss the details that apply to your business.
