As a general rule, sales tax is usually collected and remitted when you sell the product to a consumer, rather than when you purchase the goods from a supplier. This means that you may be exempt from paying sales tax when buying.
However, states and other tax governing bodies still need to ensure that eCommerce companies selling taxable items are licensed to collect and remit the tax back to the state. Additionally, manufacturers that sell wholesale products need to be certain that their customers – marketplace sellers – are not buying for their own use.
This means that marketplace sellers may need to obtain a resale certificate for their eCommerce businesses. The license is used to demonstrate that sellers can legally collect and remit sales tax associated with their business sales.
Obtaining a resale certificate and ensuring long-term tax compliance can be complex and overwhelming for a busy entrepreneur. Luckily, plenty of companies offer help to lighten the load and get business rolling. In short, here’s what to do:
What is a Resale Certificate
A resale certificate allows you to purchase items for resale without having to pay local sales tax on the items. They transfer tax collection and remittance responsibilities onto you – the seller – rather than the supplier where you bought the goods.
There are many reasons marketplace sellers need tax-exemption documentation. For example, businesses engaging in retail arbitrage (purchasing items at retail with the intention to resell them) can save money, since they do not have to pay sales tax on items when buying them. It also serves to reassure wholesalers that they are doing business with a marketplace seller that will genuinely resell their goods, instead of buying for their own use.
On the contrary, without a tax-exemption document, an eCommerce business must pay sales tax on the items purchased for resale. Often, you cannot open a wholesale account unless you have a resale certificate. So let’s see how you can obtain a resale certificate for your eCommerce business.
How To Apply For A Resale Certificate
You can apply for a resale certificate with a state’s tax department. Typically, you’ll need to apply to the state where your eCommerce company has a business location or address. If you intend to purchase items for resale from multiple states, it’s necessary to obtain a resale certificate for each of those states.
In a nutshell, you’ll need to present a valid resale certificate in every circumstance where you use one. For example, if you do multiple channels of business with various wholesalers, you’ll need to have a copy for each one.
Note that retailers are not legally obligated to accept your resale certificate. If your resale certificate is rejected, you’ll need to pay sales tax on your purchases and reclaim the amount paid on your next sales tax return filing.
How Often Does My Resale Certificate Need To Be Renewed?
In the majority of states, tax exemption certificates eventually expire. If you require an eCommerce resale certificate for multiple states, you may find their validity periods differ. For most states, their resale certificates are valid for a period between one to five years – which may be subject to change as local laws evolve – making it essential to regularly check state websites for updates.
Sales Tax Support For Your eCommerce Business
Keeping on top of your resale tax exemption requirements is a time-consuming and complex undertaking for entrepreneurs with pressing business matters to take care of. Fortunately, a range of providers offer tax exemption services, facilitating hassle-free tax compliance for eCommerce merchants.
Here is a list of our top picks:
Not only do Prestige Auditors assist with sales tax exemption certificate solicitation, but they can also negotiate with states where you have a nexus to waive any previous late filing fines. Prestige Auditor’s professionals handle all your fillings, including monthly sales tax calculations and returns. Additionally, you can access 24/7 support from tax professionals to avoid IRS penalties, late deadlines, and cutting into your profits by paying unnecessary sales tax.
If you have an emerging business, Prestige Auditors will help you form your LLC online, guiding you through the process of picking a business entity and taxation type that reflects the core needs of your business. With over 10 years of business and tax management experience, online sellers can receive legal support and tax obligation consultations, regardless of their business models.
If you need sales tax exemption certificates, TruTax Co provides these in all the states you hold nexus. These certificates can save you 6-8% in profit margins, and ensure you are sales tax compliant in all the states you transact business. The company serves Amazon and Walmart marketplaces, as well as provides FBA sales tax certificates at various price points.
TruTax Co offers additional filing services for the states you have a nexus in – even when there is a $0 return – deflecting late fees and interest penalties.
DBC Limited is a sales tax exemption service provider that assists e-commerce sellers with tax registrations and calculations, as well as submitting returns and remitting taxes back to the state. The provider stays on top of ever-changing tax regulations, preventing entrepreneurs from getting stung by unexpected tax penalties at the end of the month.
Unlike providers that offer tax exemption services priced by the state or total sales volume, DBC Limited charges a flat rate keeping your expenses predictable month after month. Automated sales tax filing services can be integrated with your marketplaces to allow accurate sales tax rate calculations and reports.
The platform supports Facebook and Amazon marketplaces. It serves the fulfillment by Amazon (FBA), fulfillment by merchant (FMB), and dropshipping clientele. Additionally, DBC Limited offers ‘done-4-you’ packages while eCommerce merchants maintain full real-time visibility of their online stores.
Should Your Business Be On This List?
If you are a sales tax exemption service provider or software company that adds value to eCommerce merchants’ tax certificates, filing, and compliance processes, get in touch with us so we can connect you with the eCommerce merchants who need your help!
You can contact us here.
Frequently Asked Questions
What's The Difference Between a Resale Certificate and a Sales Tax Permit?
A sales tax permit allows you to collect and remit sales tax in a state. Sole proprietors, LLCs, partnerships, and corporations must hold a sales tax permit to sell tangible property as a retailer or wholesaler.
Resale certificates allow a marketplace seller to make non-taxed purchases on goods intended for resale. You’ll need a unique resale certificate for every seller you conduct business with.
Where Can a Resale Certificate Be Used?
The majority of retailers will accept your resale certificate, though none are obliged to accept it. Retailers are solely liable to pay lost sales tax if your certificate is expired or illegitimate, so some are unwilling to take the risk. If this is the case, you collect sales tax on the resale of a product and then remit sales tax to the state when you next file.
Under different circumstances, a supplier may refuse resale certificates to discourage eCommerce merchants from buying rare items and reselling them with a high markup.
What Is a Multi-Jurisdictional Resale Certificate?
If your eCommerce business purchases goods for resale in multiple states, a multi-jurisdictional resale certificate (also known as a uniform sales tax certificate or a blanket retail certificate) can help you avoid acquiring numerous resale certificates for various vendors and states.
While they are designed to streamline your process, multi-jurisdictional resale certificates come with many regulations and guidelines. In addition, states can discontinue accepting these certificates or alter their requirements at any time without notifying the Multistate Tax Commission. It pays to be well-versed in the guidelines and small print if you plan to use one of these.
What Can I Purchase With a Resale Certificate?
A resale certificate allows you to purchase any goods intended for resale or materials used to make items you intend to sell without paying sales tax. For example, you could purchase clothing material tax-free that you then sew into garments for your consumers.
Items not intended for resales, such as equipment or stationery supplies, are not tax-exempt purchases. Using a resale certificate to avoid paying taxes on goods that will not be commercially resold is considered tax fraud.