U.S. BusinessTax Return
FORM 1040 + SCHEDULE C
FORM 1120 / 1120S
BUSINESS TAX RETURN
What is a resale certificate and who can use one?
A resale certificate is a signed document that indicates that the purchaser intends to resell the goods. It is usually provided by a retailer to a wholesale dealer. In addition, manufacturers issue resale certificates to suppliers of materials that become incorporated into the products they manufacture. In some states, resale certificates are also used to purchase taxable services that become a part of property for resale.
Resale certificates are usually provided in a “blanket” form. This means that the resale certificate applies to all items purchased from the vendor.
States that allow for resale exemptions either accept a state-issued resale certificate or, in some cases, a multi-state certificate. To find the resale certificate for a specific state, you can visit the Department of Revenue website for that state. Alternately, you can perform a Google search for the state’s resale certificate.
Some states will accept the Multistate Tax Commission’s Uniform Sales & Use Tax Certificate – Multijurisdiction Form or the Streamlined Sales Tax Exemption Certificate. Still others will allow a statement of resale on the purchase order.
A business which is registered for sales and use tax can use a resale certificate only when the merchandise being purchased is to be resold by the business. A business cannot use a resale certificate to purchase merchandise that they will use and consume in the conduct of business.
Any merchandise obtained upon resale certificate is subject to use tax if it is used or consumed by the purchaser in any manner, and must be reported and the tax paid thereon direct to the appropriate jurisdiction.
Most states require certain elements in order for the resale certificate to be valid. These elements are:
- Name and address of purchaser
- Name and address of seller
- Registration number of purchaser
- Description of property purchased for resale
- Reason for exemption
- Statement that if the property is put to use in a taxable manner that the purchaser will remit the consumer’s use tax
- Date and Signature and Title of authorized individual at the purchaser
Note that some resale certificates expire. It is important to update certificates on a regular basis. However, it is recommended to retain the prior certificate until the period it covers has been closed for audit purposes.
It is also important to realize the difference between a resale certificate and a resale license. A resale license is issued to businesses and individuals who sell goods and services subject to sales tax. A resale certificate is the form you issue to suppliers, and it includes a spot for your resale license number.