What Is a Resale Certificate?
The purpose of a resale certificate--also known as a tax exemption certificate--is to allow you to buy goods through your business without paying local sales tax.
When doing this, it's your responsibility to collect the tax from the customer when you sell the item.
The wholesaler that you purchase the goods from will request to see your resale certificate as proof that the property is being purchased for resale.
What information is on a resale certificate?
A resale certificate typically includes:
- the name and address of the buyer
- the reseller’s permit number
- a description of the items being purchased
- a statement that the property is being purchased for resale
Without a resale certificate, a business or individual is typically required to pay sales tax on all purchases. Thus, a resale certificate can be beneficial to your business by allowing you to avoid sales tax and pass the savings on to your consumer. It can also allow you to buy more merchandise in order to grow your business.
Please note that if you intend to make multiple purchases from the same vendor, you can usually provide your resale certificate only once to that vendor and the vendor will keep it on file.
A business owner can typically apply for a resale certificate with his/her state tax department. Once you receive your resale certificate (or tax exemption certificate), the state will start sending you monthly or quarterly statements.
The physical location of your business is what determines where you apply for the resale certificate, rather than the state in which you formed the company. Therefore, if you sell merchandise in more than one state, you will need to apply for resale certificates in the all states in which you operate—it does not matter where your business was incorporated.
One of the requirements for a resale certificate is to be qualified in your state to do business. If your company is physically operating in a state outside the state of formation, you will need to complete the process of Foreign Qualification, which enables a company to transact business in a jurisdiction other than where it was formed.
For more information on obtaining a resale certificate, aka tax exemption certificate, consult your local state department.
Next: Company Formation Documents, Defined
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.
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There are 20 comments left for What Is a Resale Certificate?
Farooq Saleem said: Sunday, July 22, 2018Hi, do you help in obtaining reseller certificate also ?
HBS Staff replied: Tuesday, July 24, 2018No, we don't. Contact your local Small Business Administration--they should be able to point you in the right direction.
Tamar Baptiste-Roberts said: Wednesday, June 6, 2018Hi Do I need a resale certicate if all I'm going to do is market goods and products on line. Thank you
HBS Staff replied: Monday, June 11, 2018Your best bet is to check with your local Small Business Administration and/or your state's Division of Corporations. The laws are different in different states.
Kevin Strickland said: Saturday, April 28, 2018Hi, can you provide a list of all the states that accept out of state resale certificates?
HBS Staff replied: Tuesday, May 1, 2018We don't have that type of information. The Small Business Association may have a list like that.
If I have local business receipt do I need a resale certificatio said: Monday, March 12, 2018Help me please
HBS Staff replied: Monday, March 12, 2018That question is better answered by your local Division of Corporations and/or your local Small Business Administration office.
Brenna Taylor said: Saturday, January 27, 2018I am an independent contractor selling another companies’ product at my business. They said the resale certificate is optional. I was wondering what the legal requirements are to having a resales certificate and the pros and cons of either going with it, or going without.
HBS Staff replied: Monday, January 29, 2018Unfortunately, we can't answer that question for you as it is out of the realm of our expertise. Check with your local Score office or the SBA (Small Business Assocation); you could also consult an attorney.