Resale Certificates — Do I Need One?
Figuring out resale certificates can be difficult, as each state has different requirements and uses a different application process. However, before you dismiss them as an unnecessary complication, know that a resale certificate will help you avoid paying sales tax and could help you save a significant amount of money.
Resale Certificates Explained –
Resale certificates go by numerous names: reseller’s permit, resale license, sales tax ID — the list goes on. It is important to note that they are all exactly the same: they all allow you to shift the responsibility of paying sales tax to the customer.
As a reseller, you are exempt from paying sales tax on products you purchase to sell through your business, including merchandise from shelf pulls, lots, pallets, and loads. However, you do need to collect the tax and send it to the state, usually on a monthly, quarterly, or annual basis. A resale certificate enables you to do this.
Sales Tax Nexus –
If you conduct business in other states, you may also need to collect sales tax for these states, called sales tax nexus. Whether this applies to you will depend on your physical presence in the state. If you have an office or warehouse, store inventory, hire employees, work with affiliates, conduct physical business (for instance, by attending trade shows), or drop-ship with third-party providers, you have nexus and need to collect sales tax.
Determining Sales Tax Rates –
For out-of-state transactions, you’ll need to determine the type of sales tax your customers must pay. Most states use destination-based sales tax, meaning they collect sales tax according to the location of the buyer. Other states use origin-based tax, collecting tax according to where the business is located. In both cases, the rate is the sum of the state, county, city, and district rates.
Five states have no state sales tax — Alaska, Delaware, Montana, Oregon, and New Hampshire.
Amazon FBA Sellers –
For Amazon FBA sellers, the type of sales tax you must collect changes. If you are based in one state with a nexus in another, you’ll be classified as a remote seller. Only Arizona, California, and New Mexico are origin-based; the remaining are all destination based, excluding the five with no state sales tax.
To apply for resale certificates in all the states where conduct business, visit your local tax office or talk to your lawyer. For more information about the requirements of each state, check out this resource from TaxJar
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