#What is a Resale Certificate?
A resale certificate is an official document proving that you are a legitimate retailer or purchaser and are buying products to either resell or use as component parts of products you plan to resell. To use a resale certificate, you generally need to be registered to collect sales tax in at least one US state. In some cases, resale certificates are also called “reseller’s permits” or the blanket term “exemption certificates”. In some states, you, as a retailer, can be issued to have a specific resale certificate to present to vendors.
#Why is a Resale Certificate Needed?
When a wholesaler sells to a retailer, the wholesaler doesn’t charge the retailer sales tax. The state of course wants to be paid the sales tax. The resale certificate provides documentation about the reseller and their business. Each state’s Departments of Revenue (or similarly named revenue agency) will audit businesses making tax-exempt sales to ensure they are making sales to businesses that are actually reselling the merchandise being sold. If there is an audit and a wholesaler is making tax-free sales without the proper documentation or selling to businesses that don’t reasonably appear to be in the business of selling the products being purchased, the wholesaler can face fines and be charged the full amount of tax on the sale.
#How to Apply for a Resale Certificate?
Each state has a different process for obtaining a resale certificate, but the process is one where the reseller will first obtain a sales tax permit from the state revenue agency and then fill out a resale certificate. Certificates are typically provided by each state, however in many cases as long as the required information is included, any form can be used. The certificate isn’t filed with any agency, however is kept on file with the seller in case of an audit. As companies increasingly start business across states, several states joined together to simplify sales taxes. The Multistate Tax Commission (MTC) developed a single resale certificate used among the participating states called the Uniform Sales & Use Tax Exemption Certificate.