As the distinction between products and services blurs, it’s more and more difficult to determine which is which for sales tax purposes. And states are all over the place, each enacting laws that seem logical but might be different from other states. You can buy any products that you intend to put up for resale or components to make items you intend to resell. For example, if you are a jewelry designer, you can purchase gemstones tax-free to fashion into jewelry for your customers. Each state has its own rules on transactions involving products and services sold by businesses. On the other hand, use tax compliance for businesses is closely scrutinized by the states.

In order to speed up the purchasing process for these types of customers, many state laws let purchasers use “blanket” resale certificates for purchases from their vendor. A blanket resale certificate is a resale certificate that you will keep on file which allows your steady customers to make multiple exempt purchases. You’ll find that most states allow for blanket resale certificates, but the states have various requirements for collecting (“harvesting”) and maintain a current file of valid resale certificates. Consumer’s use tax is a tax on the purchaser and is self-assessed by the purchaser on taxable items purchased where the vendor did not collect either a sales or seller’s use tax. The purchaser remits the consumer’s use tax directly to the taxing jurisdiction where the use or consumption occurred.

Sales Tax: Getting it Right

You can do this by presenting a resale certificate (sometimes called a reseller’s permit or by other names) to your vendor at checkout. However, just like with anything sales tax related, how to use a resale certificate varies from state to state. If you do choose to use multi-jurisdictional resale certificates, be sure you’re doing so correctly. If misused, you risk delaying your payment or shipment of the goods or being charged the sales tax you were trying to avoid. A common e-commerce business model is to purchase goods wholesale and then sell them online at a markup.

  • Long story short, you might owe sales tax in states where you don’t have any physical presence because you have made sales into that state.
  • Sales tax didn’t take off until the Great Depression, when state governments were having difficulty finding ways to raise revenue successfully.
  • This brings us to the next item related to where your sales occur… Do you have physical or economic nexus?
  • They will take this off of the amount you owe in sales tax when you file.
  • If your business produces products, component parts for resale, or if you buy materials that you make into products for resale, you may not have to pay sales tax on these purchases.
  • Sales tax is imposed on sales where the transfer of title or possession occurs within the taxing jurisdiction.

You can search your state’s department of revenue to see if you can find specifics. If you are registered to collect sales tax in your state, you should be able to receive updates. Just to show you an example of how complex this product/service issue is, consider the state of Connecticut. The state charges sales tax on computer and data processing services, differentiating between employees and independent contractors. In one example, the sale of prewritten software for website creation is taxable at 6% when “tangible personal property” is given to the purchaser, but is not taxable when delivered electronically.

Sales Tax by State: How to Use and Accept Resale Certificates

If you are purchasing a combination of items and some are for resale while others are not for resale, you must clearly indicate to the vendor which items will be resold and on which the vendor should not collect tax. When it comes down to it, you can purchase items with a resale certificate when you intend on charging sales tax on the items when you resell them. A sales tax is a consumption tax paid to a government on the sale of certain goods and services.

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Businesses or individual consumers who make purchasers of taxable items without paying sales taxes are treated as consumers of the items or services and owe the tax. You may be able to get a sales tax certificate or a seller’s certificate (same thing) which exempts your business from sales tax for purchases that will be turned into products for resale. The sales tax certificate doesn’t apply to products that you buy for use within your company, like copy paper and office equipment.

Local Government

To avoid the sales tax, the retailer furnishes the supplier with a reseller’s certificate, which allows the supplier to not charge the sales tax. Just keep in mind that you can’t purchase items you do not intend to resell—like equipment or office supplies—without paying a sales tax using a resale certificate. In this case, that would be considered tax fraud (Those items, however, can be income-tax deductions, but that’s a whole different tax matter). When you are harvesting resale certificates from your customers, you must maintain a file of properly completed and valid resale certificates that were accepted in good faith. The type of exemption that you’re most likely to see is a resale exemption.

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. Most of the time, a resale certificate and a sales tax permit are referring to the same thing. Sometimes the sales tax permit acts as a resale certificate, and sometimes you are required to have both a sales tax permit and a resale certificate.

Is it a Product – or a Service?

This specific resale certificate produces a lot of confusion for buyers and sellers, so make sure you read up on how to use one correctly before you pursue this type of resale certificate. Some of the most important guidelines when using multi-jurisdictional resale certificates are to be sure not to apply it to non-sales tax exemptions, such as agriculture or manufacturing. When you purchase inventory using a resale certificate, you agree to be responsible for paying and/or collecting sales or use taxes when the property is resold.