What is a Resale Certificate?

A resale certificate is a government issued document. The rules depend on the state in which you live. Other names for the same thing include: a reseller’s permit, reseller’s license, reseller’s certificate, resale license, sales tax ID or sales tax permit. (Dec 18, 2015 Google Definitions). The document by any other name helps you avoid paying tax that you do not need to pay. It is very important.

The resale certificate works in favor of the reseller. Tax websites describe recent changes in the law, provide due dates, and methods of applying. New businesses need to register for local and state taxes. Tax changes happen all the time; therefore, websites are developed to keep business up to date.

In 2017 there was a total solar eclipse which prompted many people to sell goods, services, and rent land or house space to celebrate the event. In Idaho if you sell for one day you need a temporary resale certificate.  These are available online and may take 10 days to receive your certificate number.

Sales tax is a form of tax collected by a governing body for the sales of certain goods. Rates differ from state to state. In addition there are local city/area taxes and auditorium or recreation taxes. Visit the state sites for more information.

US-based resellers do not need to pay sales tax for the products that they purchase (from wholesalers, etc.) and sell to their customers. Instead, the sales tax is paid by the customers when they buy the product. The reseller collects the money and sends it to the state according to a predetermined schedule, usually monthly, quarterly or annually using a special form.

A nexus “also known as sufficient physical presence, is the determining factor of whether an out-of-state business selling products into a state is liable for collecting sales or use tax on sales into the state”. For example, online sales cross state borders and owners may be confused about whether or not they must collect sales taxes for all the states.

The term “sufficient physical presence” is what confuses most people and with reason – this rule can also vary between states. The simple rule to remember is that you have a nexus in a state if you do any of the following in that state:

• have an office
• have a warehouse
• have an employee
• have an affiliate
• store inventory
• temporarily do physical business – trade show, fair, etc.
• dropship from a 3rd party provider

The rule to abide by is that you should collect sales tax for a state if you have a nexus present there. TaxJar’s extremely helpful list of states provides nexus definitions for each state. Determining  how much to pay can also be complicated when one does online business. There are two states to be concerned with: The origin state of the state your business office or warehouse resides and the state where the customer resides. The tax owed could be the sum of state, county, city and district rates.

If you are located in destination-based state, you would collect sales tax at the rate of where the buyer is (the destination of the sale). The sales tax could be the sum of state, county, city and district rates. The internet provides maps with the percentages owed.

If you sell for Amazon the rules are different and you need to read their terms and conditions.

Where do I obtain one?

Since the laws differ from state to state, applicants for a resale certificate need to be studies online. Your local tax office, public accountant or lawyer can assist with most questions.

By rule, you need a resale certificate for every case where you need to collect sales tax. You need to collect sales tax for every state where you have a nexus. So, accordingly, you need to have a resale certificate for the state you are based in and every state that you ship inventory to. Your lawyer and tax office can help.

Five states do not have sales tax and do not require a certificate.These are Alaska, Delaware, Montana, New Hampshire and Oregon. However, it is important to note that Alaska and Montana allow localities to charge sales taxes.

Definitions

A sale is the transfer of title of any tangible personal property for payment of goods and services. The word sale includes exchange and barter. A sale occurs when title passes. Title passes to the buyer when the seller delivers the goods, even if a title document is delivered at a different time or place.

“Each state has a different definition of “Sales Tax”. In Idaho, “sales tax applies to the sale, rental, or lease of tangible personal property and some services. Food is taxed in Idaho, but prescription drugs are not. Temporary lodging (30 days or less) — including vacation rentals by owner — is taxed.”

When you buy goods in Idaho, the retailer should charge sales tax. When you buy goods on the Internet, by telephone, or from a mail-order catalog, the retailer won’t charge sales tax if he’s not an Idaho retailer. In that case, you owe use tax.

Every state with a sales tax also has a use tax. Use tax is a tax on goods that you put to use or store in Idaho, if sales tax wasn’t paid on the purchase of the goods. Most Idaho sales tax exemptions also apply to use tax. The use tax rate and sales tax rates are the same. Use tax is paid directly to the state, instead of to the seller of the goods.

Can I avoid having a certificate or collecting tax?

Your lawyer or public accountant  are the best for answering this question. The website for each state is pretty clear about the characteristics of what is required of a business to pay sales or use tax.

Do I need to renew my resale certificate? 

Ask your state tax commission. Some states do and others do not require renewals and for different reasons.

If I sell my stuff to an online company who sells to the customer, who has to pay tax?

The retailer. The person who sends the goods or services to the customer pays the tax.

References:

TaxJar  https://blog.taxjar.com/renew-sales-tax-permits/

Taxjar https://blog.taxjar.com/renew-sales-tax-permits/

Idaho State Tax Commission: https://tax.idaho.gov/s-results-form.cfm?doc=EIN00004