If your business plans to sell goods, properly filing for and using resale certificates—also known as resale permit licenses—is critical for saving significant upfront costs on inventory. Below, we’ll define what a resale certificate is and how to utilize it for your business.
What is a resale certificate?
A resale certificate is a legally signed document that transfers the obligation to pay sales tax on all items purchased from the vendor to the buyer. Manufacturers can also issue resale certificates to their suppliers who provide the materials used to create their products.
While resale certificates qualify as a type of tax exemption, they can’t be used by government agencies, nonprofits, and other organizations to avoid paying sales tax on applicable purchases.
A resale certificate must include:
- The purchaser’s name and address.
- The document’s creation date.
- The purchaser’s signature, or the signature of the person approved to act on their behalf.
- The purchaser’s seller permit number (unless they aren’t required to have one, in which case, they’ll need to state why).
- A description of the purchased items.
- A statement indicating the described purchased items are meant for resale.
Note that resale certificates are issued in your home state, and requirements vary by state. You can apply for a multistate resale certificate; however, there are still 12 states that do not accept out-of-state resale certificates. If you purchased inventory from a state that doesn’t accept out-of-state resale certificates, you’d be responsible for paying the sales tax on those items, not your customers.
[Read more: How Children's Marketplace Kidsy is Thriving in the Off-Price and Resale Boom]
Resale certificate vs. seller’s permit: what’s the difference?
Unlike a resale certificate, which passes the responsibility of paying sales tax to the buyer, a seller’s permit grants businesses the authority to collect sales tax from customers on taxable goods and services. While these documents aren’t interchangeable, businesses that sell tangible goods should have both to avoid noncompliance penalties.
A resale certificate is also different from other types of business certifications, which are more about affirming a business’s identity (e.g. women-owned, veteran-owned, or HUBZone certifications) and granting them access to certain exclusive opportunities.
How to use a resale certificate for your business
If your business requires a resale certificate, here are some tips to utilize it to your advantage.
Determine your need for a resale certificate
You’ll need a resale certificate if your business:
- Sells products in a wholesale or retail capacity.
- Operates in multiple states. (While a multistate certificate may suffice in some instances, check if it is accepted in the states where you conduct business. If not, apply for individual certificates for those states.)
- Runs on an e-commerce platform, but houses inventory or has a significant presence in certain states.
[Read more: The Benefits of Buying in Wholesale for Your Business]
When purchasing your resale inventory, provide a copy of your completed resale certificate to the seller to be exempt from paying sales tax.
Apply for a resale certificate through your state
The application process varies by state, but generally, you should:
- Register your business for tax purposes.
- Visit your state’s Department of Revenue website to determine available certificate types and submit your application. You’ll need to include details about your business and your tax ID number.
Your state tax authority will review your application and send your resale certificate if approved. Some states require companies to renew their certificates annually. Others do not, as long as your business is operational and in good standing.
Provide your certificate to suppliers
When purchasing your resale inventory, provide a copy of your completed resale certificate to the seller to be exempt from paying sales tax. Attempting to misuse a resale certificate to purchase items not intended for resale could result in additional interest charges and noncompliance penalties.
If you receive a resale certificate from a customer, verify the buyer’s state registration number and expiration date, and keep a copy of the resale certificate and transaction for your records. If you accept an invalid resale certificate and don’t charge the customer sales tax, you may have to pay the sales tax for that transaction yourself.
Keep your resale records up to date
Be sure to maintain accurate records of transactions, including those involving your resale certificate. Keep copies of all the certificates you previously provided to suppliers, along with a detailed list of your tax-exempt purchases, in case of an audit. This can also streamline due diligence if you sell the business in the future.
[Read more: Is My Business Tax-Exempt?]
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