A resale certificate is one of the most essential pieces of documentation that a retailer needs. When you open a retail business, you will be purchasing goods from wholesalers and reselling those goods to consumers at a higher price point to generate profit. A resale certificate is essential in this buying process because it proves you intend to resell the goods you purchase at wholesale prices and exempts you from paying taxes on those goods.
Obtaining reseller credentials and providing resale certificates is just a part of all the legal steps retailers need to take as they set up shop. We know you have a lot on your plate as you start your retail business, so we’ve outlined everything you need to know about resale certificates.
What is a resale certificate?
A resale certificate is documentation that identifies you as a legal reseller and enables you to buy wholesale items for resale without paying sales tax. The document may have a different name depending on where you’re located. It may be referred to as a tax exemption certificate in certain U.S. states, or called a uniform sale and use tax certification if you’re operating in Canada. It’s a critical legal document for retailers who plan to buy items to sell in their storefront, and wholesalers may request a resale certificate during the purchasing process.
The certificate includes information like the purchaser’s name and address, the wholesaler’s permit number, and an explicit statement confirming that any goods purchased are being used for resale only. Here’s a resale certificate form for California and a form for Georgia as an example. It’s important to note that you can’t use a resale certificate to buy items for yourself or items you don’t intend to resell, like office supplies or furnishings for your store.
Retailers should be careful not to confuse a resale certificate and a seller’s permit. A seller’s permit allows you to make sales and collect sales tax from your customers, while a resale certificate allows you to purchase from a wholesaler tax-free with the promise you’ll collect that sales tax from customers. That’s why having a sales permit (which facilitates tax collection) is a prerequisite for obtaining a resale certificate. In other words, a seller’s permit empowers you to sell, while a resale certificate allows you to buy. Some marketplaces like Faire might refer to both these documents collectively as reseller credentials or reseller IDs.
Why is a resale certificate important?
A resale certificate legitimizes retail businesses and proves they can legally purchase wholesale goods, indicating they’ll be reselling those goods and collecting applicable sales tax at a later date from consumers. Additionally, a retail certificate can be thought of as a cost-saving measure for retailers as it exempts them from paying sales tax on wholesale purchases. It ensures that you aren’t being double-taxed on products you buy to sell.
How does a retailer get a resale certificate?
You’ll need to fill out a resale certificate for each supplier you wish to buy from. If you’re buying from an out-of-state wholesaler, you’ll need to fill out the certificate form that’s specific to that state. Unfortunately, there’s no universal resale certificate that’s accepted in every state and only a few states accept multistate certificates. The good news is that while laws and policies can vary from state to state, most retailer certificates can be submitted through a digital portal. Applying for a resale certificate can take only a few minutes if you have all the necessary information on hand. Here’s a non-exhaustive list of what you might need to do.
- Make sure you have a valid seller’s permit. If your retail business has been operating for some time, you might already have this. But you must be registered to do business in whichever state you’re hoping to get a resale certificate. When you use a resale certificate, you’re agreeing to collect tax from customers, but in order to legally collect tax, you need a seller’s permit. This requires filing more state and federal paperwork in order to get an employer identification number and a tax identification number. You can typically complete this online.
- Gather all the documents you might need. This is likely the most time-consuming part of the process. You need a seller’s permit to start, which we talk about more in the next step, along with these other items listed below:
- Articles of incorporation
- Driver’s license
- Bank account information
- Suppliers’ names and addresses
- Complete the resale certificate form for each supplier purchase. You can likely find the forms for this online depending on your state. The form will ask for your information, the information of the vendor, and the description or purpose of what you’re purchasing. Some states might require you to mail these into your tax commission, while others will have you just keep the form for your personal records.
- Present the certificate to wholesalers when making a purchase. As mentioned before, wholesalers might expect you to have this certificate available before they agree to sell you bulk goods. Have a copy of the certificate handy to show to wholesalers you might connect with online or in person.
- Collect sales tax from shoppers who buy the goods. You avoid paying taxes with a resale certificate, but those taxes still must be paid by someone. By using a resale certificate, you’re agreeing to collect that sales tax from customers. So your state will be expecting that money. Keep records of every transaction with a customer and ensure that you’re charging customers a sales tax to avoid potential legal penalties. If your business is ever audited, you’ll need to be able to prove you were exempt from paying taxes on items you bought.
- Renew the certificate regularly, if required. For some states, retailers only need to get a wholesale certificate once. In other states, your resale certificate can be good for up to five years. But check the states you operate your business in to see if resale certificates expire. If so, make sure to complete the process again to avoid a lapse in your certificate. If your certificate is no longer valid, you could be responsible for paying sales taxes on items you’re buying.
What resources are available to you?
- Sales tax software: Some retailers take advantage of tax software that can help them calculate how much sales tax they owe to the state or how much sales tax they should be charging customers. Cloud-based tools like TaxJar, Avalara, Fonoa, and Vertex can keep you in compliance with sales tax laws and take complicated to-dos off your plate for a subscription fee.
- Tax planning services: There are third-party organizations that specialize in helping retailers navigate the processes for different business permits. These companies can be great resources for retailers that are new to the process and need guidance. Local accountants, tax lawyers, and compliance consultants will be well-versed on the policies that impact retailers in your area.
- Certificate forms: Your resale certificate process can vary slightly depending on where you apply. As we mentioned, each state has its own form. To help you get started, we’ve linked to resale certificate forms for different states below. Note that Alaska, Delaware, Montana, New Hampshire, and Oregon do not require resale certificates because these states don’t currently have a statewide sales tax.
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- West Virginia
We know that taxes can be overwhelming and complex. But with a resale certificate, you can lessen your tax burden, which allows you to put more resources and effort into your business. By taking care of legal requirements like this certificate, you’re setting yourself up for smooth sailing as you launch your business.
Are you opening a new retail business? Read more about Open with Faire and learn how to apply for up to $20,000 to use toward buying products on Faire.