What Resellers Need to Know About Resale Certificates
If you plan to deal with wholesale items in any fashion, chances are you’re probably going to get familiar with the term 'resale certificate.'
So what is this certificate we talk about?
A resale certificate is a document that exempts the buyer from paying sales tax on items they plan to resell.
It’s also commonly referred to as a resale license, reseller’s license, sales tax permit, or sales tax ID.
Let’s say you want to buy various clothing items at wholesale to resell at higher prices on your ecommerce site.
Presenting a resale certificate proves that you intend to resell the items and instead, pass the sales tax burden onto your buyers.
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Why do you need one of these resale certificates?
Without one, you’ll have to pay the sales tax upfront. Which, depending on the number of items you’re purchasing, could be a hefty fee.
Although it’s possible to get reimbursed for this, it’s more annoying than anything.
How to Use a Resale Certificate
Sales tax is monitored at the state level, so variations will occur depending on which state you live in.
But a rule of thumb is to only use a resale certificate for items you plan on reselling. It’s illegal to use on items you plan to consume yourself.
Vendors have the right to accept your certificate or deny it, for whatever reason they may have.
If your certificate isn’t accepted and you pay sales tax, some states allow you to recover that sales tax later.
If you decide to keep an item for yourself, you are still required by law to pay the “use tax.” This is the tax paid by the ultimate end-user.
How to Accept a Resale Certificate
Depending on what type of products you sell, you may be presented with a resale certificate at some point, too.
Unfortunately, if sales tax goes unpaid, the burden usually falls back on the original seller. But there are a few ways to protect yourself in this type of situation.
Make sure all the information is filled out on the resale certificate upon accepting it. You can even go online and verify that the sales tax ID is valid. Then keep the certificate on file in case you are audited in the future.
While we may be ecommerce geniuses at Listing Mirror, we are in no way claiming to be sales tax experts. But these are basic rules to live by when dealing with resale certificates.
You will obviously want to research your state-specific regulations if dealing with this on a regular basis.
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