Resale Certificates and Sales Tax
- Oct 18, 2014 | Ryan O'Donnell
If a business is acquiring inventory for the purpose of resale in its original form they may qualify for a resale exemption. This exemption removes the state requirement to pay sales tax on the purchase price of the item(s). It should be noted that a buyer is forbidden from applying a resale certificate if they are unsure of whether an item will be resold or used for another purpose.
Businesses should provide a signed copy of their most current Annual Resale Certificate to each Seller when purchasing or renting inventory or services intended for resale or re-rental as part of day-to-day business operations. Original resale certificates should never be given out.
Multistate Exemption Certificates
The Multistate Tax Commission has created a Uniform Sales and Use Tax Certificate that is accepted by 38 states for use as a “blanket” resale certificate. States vary in their policies for use of this certificate. If you have questions regarding your eligibility to use this certificate, direct them to the revenue department of the relevant state.
Examples of Inventory Commonly Purchased Tax-Free
The following table showcases examples of common businesses and the types of inventory and use cases that lead to taxable and non-taxable business situations. The table is far from complete and only meant to help clarify what a resale certificate is and how it might be applied.
|Business Type||Resale Exempt Inventory||Taxable Inventory|
|Auto repair shops||Items resold for use off-premises or incorporated into auto repairs such as tires, oil, transmission fluid, batteries, autotive parts, paint, antifreeze, nuts, bolts||Items used on-site to serve customers such as tools, machinery, tape, sandpaper, lubricants, cleaning supplies, delivery vehicles, wreckers, hydraulic lifts, diagnostic equipment, office supplies, office equipment|
|Beauty Salons||Items resold for use off-premises such as shampoos, hair tonics, combs, and make-up||Items used on-site to serve customers such as shampoos, combs, make-up, cleaning supplies, hair dryers, flat irons, razors, scissors, combs, shears, office supplies, office equipment|
|Convenience stores||Items resold for use off-premises such as food, drinks, clothing, candy, household supplies, cleaning supplies, car supplies||Items used on-site to serve customers such as cleaning supplies, gas pumps, credit card machines, ATMs, office supplies, office equipment|
|Florists||Items resold for use off-premises such as fertilizers, plants, specialty soils, garden tools||Items used on-site to serve customers such as hoses, tools, lawn care equipment, delivery vehicles, office supplies, office equipment|
|Pet shops||Items intended for resale rather than use in business operations, including pet food, pet litter, brushes, and pet dishes||Items used on-site to serve customers such as pet food, pet litter, pet dishes, cleaning supplies, office supplies, and office equipment|
|Restaurants||Items resold for use off-premises such as disposable food containers, straws, disposable napkins, disposable eating utensils, beverages||Items used on-site to serve customers such as dishes, flatware, kitchen utensils, cleaning supplies, delivery vehicles, kitchen equipment, menus, office supplies, office equipment|
|Service providers (attorneys, accountants, doctors, daycare centers, etc.)||None. In general, such businesses are considerd to be the end user of the inventory they purchase.||Items used on-site to serve customers such as electronics, service vehicles, appliances, cleaning supplies, office equipment, office supplies, books, stationery|
Unique Resale Tax Situations
Occasionally, a business may find itself in a situation where an item originally purchased for resale (and therefore tax-free) is pulled out of inventory and used by the business. In such a situation, the company will now owe use tax on the purchase price of the inventory.