There are many types of taxes that businesses must pay and the amount and type of tax your business pays will vary based on its structure, industry, and revenue and a host of other factors. One of the most common taxes that businesses end up paying though is sales tax. If you buy new office chairs, snacks for the breakroom, new laptops for your sales staff, or any other item that is consumed or used by your company, you are most likely paying sales tax on that item. What happens though if you buy lumber for your company to turn into a fence that it then sells to a customer? In this case, you may not have to pay sales tax on that purchase. This is because most states have tax laws that allow an exemption from sales tax if the sole purpose of the purchase is to resell the goods. In order to qualify for this exemption, you must fill out the required forms in order to obtain a resale certificate.
How does a resale certificate work?
While this process will vary by state to another site I found that details the minor differences in each state), the general process is pretty straightforward. In order to obtain a resale certificate, you must go to your state’s website and find the required form. From there you need to fill it out with your information. This is typically your business name, address, sales tax number, business type, and other contact information. You will then have to fill out the contact information of the supplier you are purchasing from. At this point, you need to present this form to your supplier before the goods have been purchased.
Can a supplier deny a resale certificate?
Yes, it is up to the supplier whether they accept a resale certificate. They may deny your request for many reasons, but one of the main ones is that if it is found that the purchased goods were used for a purpose other then reselling the supplier could be punished as well. In order to avoid this, make sure you can show how the goods you are buying will be resold.
Can I use my resale certificate from one state to buy something for resale in another?
While it is always easier to source your supplies as close to home as possible, this is sometimes not possible for cost or logistical reasons. In that case, you may have to purchase supplies from suppliers in other states. In this case, your resale certificate from your home state will typically still work unless your suppliers are located in these states.
If you believe you may qualify for a sales tax exemption from some of your suppliers, we recommend learning more about the rules in your state and contacting a tax professional in order to make sure you comply with your state’s laws.