Sometimes it seems that Resale Certificate and Tax Exempt are synonymous terms, however, they are not. Each means something different. So, we created this article in an effort to make sure our customers have the most up to date information possible on what a Resale Certificate actually is.
- Does a resale certificate mean I am tax exempt?
Not necessarily. A resale certificate is more akin to a sales tax permit. Unless you’re living in a state that doesn’t have a sales tax or there are other special circumstances, you’re going to be required to have a sales tax permit to use a resale certificate. It’s not uncommon for states to issues you a separate document or ID number to use as a resale certificate. Sometimes you’ll be able to just print out the form and fill it out.
- Who governs resale certificates?
Just like with the Sales Tax permits, the states govern their own resale certificates. Each state has slightly different rules and regulations when it comes to using and accepting resale certificates. If you’re using a resale certificate in another state (outside of the state where your business operates), be sure you know that state’s rules and regulations when it comes to using those resale certificates.
- Can I use a resale certificate for all my purchases?
No! Despite each state having different regulations on this, the best rule of thumb is you can only use Resale certificates to buy items you intend to RESELL, or component parts you plan to use directly in the items you intend to resale.
As an example, you could use a resale certificate to buy clothing you intend to resell, or fabric you intend to use to make clothing you intend to resale. But, you could not use a resale certificate to purchase clothing you intend to wear or the scissors you plan to use to create clothing to sell. (These items can usually be written off on your business income taxes).
- If I submit a resale certificate, is the Vendor required to accept it?
Negative, Ghostrider. A seller doesn’t ever have to accept your resale certificate. They’re allowed to refuse resale certificates.
- So, just having a resale certificate DOES NOT mean I am tax exempt on every purchase I make?
That’s right. If you’re buying pieces that you are going to sell at a show, those would likely be covered under the resale certificate, but let’s say a customer buys a piece from your site and you charge them tax and in return, your vendor must charge you tax on the order because of state laws. You won’t be exempt from those taxes regardless of whether you have a resale certificate or not.