A resale certificate also known as a tax exemption certificate is a written document confirming the purchaser’s intention to resell the products. A wholesaler provides it to a manufacturer while purchasing its products to resell them. Similarly, a retailer provides it to the wholesaler.
This certificate functions as a blanket and covers all the products purchased from the dealer. Hence, you do not have to show for each product you purchase. It is also used for taxable services that are required for the production of final products.
Remember you cannot use a resale certificate for products you intend to use for conducting your regular business activities. These certificates are only issued for resale items.
Because items purchased on the resale certificate are subject to taxation, if in any case, they are utilized by the purchaser himself, he has to report in the respective jurisdiction and pay the tax thereon.
Elements of a Resale Certificate
To use a resale certificate, it must have the following elements.
- Purchaser’s name and location
- Sellers name and location
- Purchaser’s registration number
- Details of the property to purchase
- Cause of exemption
- A statement confirming that in case of taxable transactions the purchaser will cancel out the customer’s use tax
- Date of purchase
- Title and signature of the authorized person
If your certificate misses out on any of these factors it will be considered invalid. Moreover, these certificates have a validation period after which they cannot be used unless renewed. Therefore you have to check their expiry and update them timely. Remember to retain the old certificate until it’s audited.
Why Do I Need a Resale Certificate?
Through a resale certificate, you exempt yourself from paying local tax, and instead of collecting it from your customers to whom you resale the products. This leaves you with a considerable profit margin as you do not have to pay the sales tax on your purchase. Since each state has a different tax criterion you can benefit from your resale certificates in each state. For example, if you are to buy in bulk while each product’s worth $100 with a sales tax of about 7%. You’ll have to pay a large sum in tax only.
By reducing the purchasing cost you can easily allocate your budget on other business activities like marketing and distribution that are also quite demanding.
How to Get a Resale Certificate?
Reach out to your state’s tax department to register for a resale certificate. Upon the activation of the certificate, you’ll start receiving periodic statements from the authorities.
States allowing for tax exemptions may accept multi-certificate or state-issued certificate. You can confirm it from the Department Of Revenue of the state, which is easily accessible on the internet.