In this post, hear from our guest author, Jennifer Clark, Content Marketing Manager at TaxJar, as she explains what resellers need to know about resale certificates.
As an online seller, you have to source your products from somewhere. And unless you create your products fully formed from materials you already have on hand, chances are you either buy products for resale, or component parts of products to resell.
As a retailer, you can avoid paying sales tax on items that you source for resale as long as you present your vendor with a resale certificate. At the same time, you may from time to time receive a resale certificate from one of your buyers. This blog post will walk you through how to use and accept resale certificates and why these little documents can be extremely handy for facilitating sales tax free transactions.
How to Buy Items for Resale with a Resale Certificate
A resale certificate, sometimes referred to as a “reseller’s permit” or by the blanket term “exemption certificate,” is a paper or electronic document that allows a retailer to buy items tax free.
Generally, if you are registered for a sales tax permit, you are also eligible to buy items for resale using a resale certificate. Just keep in mind that being registered for a sales tax permit also means that you are required to collect sales tax from buyers in the state(s) where you hold a sales tax permit.
Just like anything else sales tax-related, resale certificates are administered at the state level. This means that some states will have fairly relaxed resale certificate rules, while others may be very strict. In order to determine how to use a resale certificate in your state you can check with your state’s taxing authority (usually called the “[State] Department of Revenue”) or view this list of resale certificate rules in each state.
Depending on your state, to buy items tax free with a resale certificate, you will either be required to print out a specific form from the state’s website or use a generic form that you can find online.
When making the purchase for resale, you will simply provide a fully completed resale certificate to your vendor.
Staying Legal when Using a Resale Certificate
It’s important to note that resale certificates should only be used to purchase items that you truly intend to either resell or use as a component part of an item you intend to resell.
For example, it’s lawful to use a resale certificate to purchase that hot new holiday toy that you intend to sell in your Amazon store, or to purchase beads you intend to use as a component of jewelry that you sell in your Etsy store.
It is, however, unlawful to use a resale certificate to buy staples and office paper for your office. While these may be items you intend to use in your business, you are not reselling these items to your customers, therefore you are still required to pay sales tax when purchasing them.
When a Vendor Won’t Accept your Resale Certificate
A vendor is not required to accept your resale certificate, and your vendor can refuse to accept your resale certificate for any number of reasons. Perhaps they don’t want a competitor reselling their products. Or perhaps they see a problem with your resale certificate.
I hope this post has explained the ins and outs of resale certificates for online sellers. If you have questions or something to say, start the conversation in the comments!
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