Do you find yourself confused about which resale certificate to use when buying items for resale in other states? For example, can you use your New York resale certificate in California?
Most states accept out-of-state resale certificates, but some don't. You must be aware of this to avoid any hassles when buying items for resale outside of your home state.
What Is an Out-of-State Resale Certificate?
A resale certificate is a legal document that allows businesses to purchase goods intended for resale without paying sales tax at the point of purchase. The idea is that sales tax will be collected when the final consumer purchases the product, not during the intermediary sale between the supplier and the retailer.
When a business provides a resale certificate to a vendor, it certifies that the items bought are specifically for resale, not personal or business use. This allows the business to avoid double taxation, ensuring that sales tax is only applied to the end consumer.
In out-of-state transactions, a resale certificate can be used to purchase items tax-free even if the seller is located in a different state than the buyer. So, an out-of-state resale certificate allows businesses to purchase goods tax-free for resale when the seller is in a different state from where the buyer is registered.
This is crucial for businesses that operate across state lines, as it prevents double taxation and ensures smoother interstate transactions. Out-of-state resale certificates are usually used in the following scenarios:
Drop Shipping: When a third-party vendor ships products directly to the customer, and the purchase is made out-of-state.
Inventory Purchases Across States: If you operate in multiple states and buy inventory outside your primary business location.
Trade Shows or Pop-Up Shops: If you temporarily sell products in another state.
However, the rules for accepting out-of-state resale certificates vary by state:
Some states allow universal resale certificates, which can be accepted regardless of the buyer's business location.
Other states require specific documentation or may not accept out-of-state certificates at all.
Businesses may need to register for a sales tax permit in the state where they are making purchases.
How to Get an Out-of-State Resale Certificate
Here are some things to do when purchasing in a state that does not accept out-of-state resale certificates.
Register for a Sales Tax Permit. Register with the state's Department of Revenue. Apply for a sales tax permit in that state to qualify for resale tax exemptions.
Fill Out a Resale Certificate Form. This is a state-specific form detailing the business registration, address, and nature of purchase.
Present the Certificate to the Vendor. The vendor will verify the signed certificate to justify the tax-exempt purchase.
Keep the Document. States often require merchants to retain copies of resale certificates for audit purposes. So, make sure to keep them.
Which States Do Not Accept Out-of-State Resale Certificates?
Most states accept out-of-state resale certificates. However, the states below restrict them. These states typically require buyers to register and obtain a sales tax permit within their state if they want to make tax-exempt purchases, even if the transaction is intended for resale. Several make exceptions for buyers that aren't required to register there, especially when the goods leave the state.
| State | Requirement |
|---|---|
| California | Requires a California seller's permit number on the resale certificate. A buyer that makes no sales in California can instead explain on the certificate why it doesn't need a permit. |
| Florida | Requires you to register as a Florida dealer to issue a Florida Annual Resale Certificate. A nonresident dealer can buy tax-free without one only if the goods are transported out of Florida and it gives the seller a signed statement. |
| Hawaii | Requires a Hawaii-specific General Excise Tax Licence. |
| Illinois | Requires an Illinois registration number on Form CRT-61, unless you're not required to register in Illinois and will resell and deliver the property outside Illinois, in which case you can enter your other state's registration number. |
| Louisiana | Requires you to register for a Louisiana sales tax permit. |
| Maryland | Requires you to register for a Maryland sales tax permit. |
| Massachusetts | Requires you to register for a Massachusetts sales tax permit. |
| New Mexico | Requires a New Mexico nontaxable transaction certificate (NTTC). A buyer that isn't required to register in New Mexico can instead give the Multistate Tax Commission's Uniform Sales and Use Tax Certificate or, for qualifying resales of goods shipped across state lines, a Border States Uniform Sale for Resale Certificate. |
Understanding interstate commerce laws is crucial for businesses that operate across state lines, as it ensures compliance with varying sales tax regulations and prevents costly fines, penalties, and audits.
Using a solution like Kintsugi for sales tax automation software can simplify multi-state tax calculations, maintain up-to-date compliance, and streamline the process of managing out-of-state resale certificates effectively.
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