As an online seller, chances are you buy the products you sell from a wholesaler or other supplier. Or, if you’re a crafter or manufacturer, you most likely buy the component parts of your products somewhere.
The good news is that, in the U.S., you can buy products or component parts you intend to use for resale without paying sales tax. You can do this by presenting a resale certificate – also known as a “reseller’s permit” or, more broadly, an “exemption certificate” – to your vendor.
The slightly less good news is U.S. sales tax is governed at the state level, and that means rules and laws on using resale certificates vary from state to state. However, there are some general rules of thumb when it comes to using resale certificates, and we pulled together state-by-state guides to using resale certificates in the 45 U.S. states and Washington D.C. that have a sales tax.
Let’s dig in!
Resale Certificates 101
A resale certificate is a document that a retailer presents to his or her vendor to buy products or component parts tax free. Rules and laws for using and accepting a resale certificate vary by U.S. state.
To use a resale certificate legally, the retailer must truly intend to resell the product or products bought. It’s not lawful to use a resale certificate to buy something you intend to keep and use. It’s also not lawful to buy products tax free that you might use in the regular course of your business – like printer paper or coffee – with a resale certificate. We’ll talk more about that in “Accepting a Resale Certificate.”
When using a resale certificate, you’re required to provide basic contact information such as your name, business name, address and phone number. You also need to provide information about your status as a reseller, and a valid sales tax registration number. If you are not registered to collect sales tax, then you are not eligible to buy items for resale.
You must sign and date the resale certificate to certify that the information you have provided is valid. Some states also require that your vendor gathers additional information on a resale certificate.
One common misconception is that your state issues a resale certificate. While in some cases you can request a resale certificate or resale certificate template from your state, you can also print out blank resale certificates, or even go to any office supply store and buy a tablet of them. More important than the actual certificate itself is the fact you provided and verified all data your vendor needs to sell to you tax free.
When Vendors Don’t Accept your Resale Certificate
It’s important to note that your vendor reserves the right to refuse your resale certificate, and there are number of reasons why he or she may not want to sell you items tax free. A major chain of U.S. retail stores refuses to accept resale certificates from people they suspect are resellers, simply because they don’t want other retailers selling their exclusive merchandise. Vendors can also refuse a resale certificate when they suspect that it is fraudulent or being used improperly.
There are also U.S. states that do not allow vendors to accept out-of-state resale certificates. That means you are required to register for a sales tax permit with that state and collect sales tax from all buyers in that state if you want to use a resale certificate to buy tax free from a vendor in that state.
- Washington D.C.
If you, as a retailer, end up buying products for resale yet paying sales tax on them, some states allow you recourse to recover the sales tax you paid.
Accepting a Resale Certificate
As a retailer, one of your buyers may present you with a resale certificate. This can be a great way to boost sales and get your products in more stores and to more customers. But be careful! In most states, if a retailer accepts a fraudulent resale certificate, he or she is ultimately responsible for paying back the uncollected sales tax. That’s right – failing to do due diligence on the person presenting you with the resale certificate can result in money out of your pocket. Ouch!
When a customer presents you with a resale certificate, take care to do the following:
- Ensure the resale certificate is entirely filled out – All information required by your state must be complete, and the resale certificate must be signed and dated.
- Verify that the buyer’s resale certificate is valid – The resale certificate number must match state records and not be expired. Most states allow you to verify resale certificates online. Also keep in mind that if you live in one of the states listed above that don’t allow remote resale certificates, you should not accept an out-of-state resale certificate.
- Confirm in “good faith” that the buyer is buying the items for resale – States vary, but a reseller is typically not held responsible for tax fraud if you took a bad sales tax certificate in “good faith,” i.e., The seller lied or misrepresented themselves to commit fraud. One way to ensure you’re accepting a resale certificate in good faith is to determine whether the items are products the buyer would truly resell. For example, if your buyer is buying a swimming pool for “resale” yet indicates on his resale certificate that he owns a flower shop, you may want to think twice.
- Keep the resale certificate on file – Most states require that you keep resale certificates on file for approximately four years (time varies by state). Your state’s department of revenue can audit and check that all resale certificates you accepted were valid.
For more about using resale certificates with WooCommerce, check out our state-by-state guide on using and accepting resale certificates.