Handbook / Licenses and permits

Resale certificates: buying inventory without paying sales tax

If you buy products to resell, such as inventory for a shop, materials that become part of products you sell, or items for an online store, you usually should not pay sales tax when you buy them. Sales tax is meant to be paid once, by the final customer. A resale certificate is how you show a supplier that a purchase is for resale.

How it works

1. You register to collect sales tax in your state.
2. You give your supplier a completed resale or exemption certificate.
3. The supplier does not charge sales tax on qualifying purchases and keeps the certificate on file.
4. When you sell the goods, you charge sales tax to your customer, where required, and remit it to the state.

If you later use an item yourself instead of reselling it, you may owe use tax on it.

Register first

In most states, you need a sales tax permit or registration before you can make purchases for resale. The SBA's guide to tax IDs explains that state tax registration is separate from your federal EIN. See sales tax permits for how to register.

Which form to use

Forms and rules vary by state.

Streamlined Sales Tax states. The Streamlined Sales Tax Governing Board explains that its Exemption Certificate and instructions are accepted by all 24 Streamlined member states. It also notes that you do not need to be registered through the Streamlined registration system to use the certificate. For specific exemptions, it advises contacting the state.

Other states. Many states have their own resale certificate forms, available from the state tax agency. Some accept certificates from other states under conditions; others do not.

Drop shippers and sellers whose products are shipped to customers in other states should check each state's requirements; the Streamlined board specifically flags this.

What a certificate usually includes

• your business name and address
• your sales tax registration number
• the type of business and the items you resell
• the reason for the exemption, such as resale
• the seller's name
• your signature and date

Some certificates cover a single purchase; others cover ongoing purchases from that supplier.

What qualifies

Generally:

• Goods you will resell in the same form.
• Materials that become part of a product you sell, in many states.

Generally not:

• equipment and tools
• office supplies and cleaning products used in the business
• items for personal use

Rules on items such as packaging vary by state, so check your state's guidance.

Records to keep

• copies of every certificate given to suppliers
• invoices showing tax-free purchases
• inventory records showing those items were sold
• sales tax returns

Suppliers keep the certificates too, and states may audit both sides.

Common mistakes

• using a certificate before registering for sales tax
• buying personal or business-use items tax-free
• using one state's certificate where it is not accepted
• not renewing certificates where a state requires updates
• poor records linking tax-free purchases to sales

Misuse can lead to tax, penalties and interest.

Selling online and in several states

If you sell into many states, you may need registrations, and possibly certificates, in each state where you have obligations. The guide to selling online taxes covers marketplace rules and remote seller obligations.

Accepting certificates from your customers

If you sell to other businesses that resell your products, they may give you resale certificates. Before accepting one:

• check that it is complete and signed
• check the buyer's registration number where your state allows it
• keep it on file with the sales records it covers
• renew or update it as your state requires

Without a valid certificate, you may be responsible for the uncollected tax.

Getting help

State tax agencies publish guidance and often answer questions by phone or online. If you sell in many states or have complex products, a sales tax professional can help you set up your registrations and records.

Register for sales tax first, give suppliers the right state or Streamlined certificate for goods you will resell, never use it for business supplies or personal items, and keep records that link tax-free purchases to sales.