Resale Certificates: Pay vs. Request

Most of our customers in the United States are resale. Do I need to do anything other than request a resale certificate from them? If they are not resale, do I just need to pay sales tax to their state?

Thanks for reaching out! Technically speaking, some states require a seller to hold an account for them to accept resale certificates from a customer. Obtaining a valid certificate is the most important element, because that document substantiates the resale and protects the seller. The validity of the certificate, which form is provided, and what information it contains is where the inconsistency (and complexity) exists between various states.

In our experience, many sellers and buyers are unaware of the nuances in the rules between states. Therefore, the wrong forms are being provided or obtained. Upon audit, the certificates are ignored and a liability is assessed by the auditor. In most states, the burden to prove that a sale was for resale is on the seller.

Regarding your second question – yes, if a taxable item is being sold to a non-exempt customer, the seller must charge tax if they have nexus in the “ship-to” state. If there is nexus, the seller must register for a sales tax account, then collect and remit the appropriate tax to the applicable taxing jurisdiction(s). It is illegal to collect sales tax from a customer without having a sales tax account in the state where the tax is ultimately due.

As you can appreciate, there are a lot of traps for the unwary in the above rules. Making sure a resale certificate is valid, understating your own nexus, registration, collection and remittance duties. Feel free to contact me for a quick introductory conversation for more specific advice beyond the general rules outlined above.