Resale Certificates Explained
It’s easy to confuse a resale certificate with a sales tax license, registration, or resellers permit number. They are two different things!
- tax registration number
- Shows that the customer has registered with the state to collect sales tax
- resale certificate
- applies to the purchase(s) of goods for resale and proves that sales tax does not need to be collected; the purchaser must collect sales tax when the goods are resold
Even though a customer has a tax registration number, they must still provide a resale certificate so that you can document why a sale to them was tax exempt. Having the tax registration number on file is not enough.
Each state has its own laws governing taxable sales. A transaction that is exempt in one state, may not be in another. In addition to sales tax, or in place of it in some cases, there could be a use tax levied.
You are required to have on file a valid resale certificate for each customer that makes a tax-exempt purchase. If your documentation is not current, you could be responsible for some hefty fines and penalties.
Unfortunately, there is no one form that can be used in all states. You should have a resale certificate for each customer for each state, and you may have multiple resale certificates for a customer. Some certificates expire, so you must monitor the validity and be certain that your certificate is current.
Only goods purchased for resale are exempt from sales tax. If you believe that the good or service being purchased may not be for resale, you are required to charge sales tax, even if the customer presents a resale certificate.
You may document the purpose of purchases on customer purchase orders by including language such as "purchased for resale". You may not need a resale tax certificate for each purchase, simply maintain a current certificate that “refers to the purchase order” in the description of goods category.
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