Resale certificates: buying inventory without paying sales tax

Sales tax is meant to be paid once, by the final customer. A resale certificate is how a business buying inventory tells its supplier not to charge it.

How it works

You give the supplier a certificate saying you're buying for resale. The supplier doesn't charge sales tax and keeps the certificate on file. When you sell to your customer, you collect the tax.

You usually need a permit first

Most states expect you to hold a sales tax permit before you issue a resale certificate. If you aren't registered anywhere, a supplier may refuse your certificate. Registration, licensing, and tax nexus are separate questions, and this is where they meet.

Which state's certificate

The answer turns on where the supplier delivers and which state's tax applies. Many states accept a uniform multistate certificate or the Streamlined Sales Tax certificate; others insist on their own form. Some accept an out-of-state permit number; some require you to register with them.

Drop shipping

When your supplier ships directly to your customer in a state where you aren't registered, the supplier may need a certificate valid in that state, or may charge you tax. This catches online sellers constantly.

Misuse

Using a resale certificate for things you'll use yourself, such as equipment, supplies, or personal items, is improper. You owe the tax, and many states add penalties.

Keep records

Keep copies of every certificate you issue and accept, and track expiration dates. In an audit, a missing certificate means the tax is due.

What to do

Register where you're required to collect, then match the certificate to each supplier and ship-to state. Your company does business where you do, and the sales tax follows.

This is general information, not legal advice for your situation. If you want an answer for your business, book a consultation.