Do you need a reseller certificate to be a reseller?
Short answer? Yes.
But if you have a moment, please read on.
Disclaimer: I am not a legal or financial advisor. This post gives you a starting off point for information. I highly suggest contracting your legal or financial advisor when making decisions for your own business. The Family Flips is not liable for the success or failure of your business.
What is a Reseller Certificate, anyway? Why is it important?
A reseller certificate, also known as a reseller permit, reseller certificate, or exemption certificate, is a document that proves that you are a legitimate purchaser of goods with the intent to sell them or use the parts that you purchase to resell.
The main benefit of this certificate in reselling is that it allows you to purchase products for resale without paying sales tax. You would collect and pay the sales tax by charging the buyer when they pay for the items you resell.
Some liquidators will only sell to buyers who have a resale certificate. Others may provide discounts or “wholesale prices” for those who can produce a certificate. This is yet another benefit of having a reseller certificate.
Reseller Certificates vs. Business License vs. Sales Tax Permit?
Business License
Business licenses are permits issued by government agencies that allow individuals or companies to conduct business within the government’s geographical authority. It is the authorization to start a business issued by the local government.
Resale Certificate
A resale certificate is a document proving that you are a legitimate retailer or purchaser. It states you are intending to purchase goods or parts of goods to resell. To use a resale certificate, you need to be registered to collect sales tax in at least one US state.
Tax Exemption Certificate
A document used by the Internal Revenue Service (IRS) to grant a tax-exempt status to certain non-profit or charitable organizations. The certificate must be presented to the organization or institution for them to be recognized as tax exempt.
For many states, all of these can be the same document. They may be used interchangeably depending on the rules of your governing ordinance. It’s important to find out your business’ individual needs by looking up the requirements of your local governing ordinance.
You can look up your state’s tax requirements for resale certificates by clicking here. Also consider checking out your state department’s website for specific business information.
Not All Permits and Certificates Are Created Equal–
A business license is a document that registers every type of business, not just ones who buy and sell goods. Not all businesses would require a reseller certificate. If you were providing a counseling service then you would require a business license, but not a reseller certificate.
However, if you were a restaurant and planned to sell ingredients to make into dishes and then sell those dishes for profit, then you would need a resale certificate to purchase those ingredients from a wholesaler, tax free, then sell the products to your customers and charge tax for that product and service. You would pay the collected sales tax directly to the government.
Tax-exemptions are granted to government, non-profit, or charitable organizations. If your business qualifies, these can all be considered as the same document. Individual states can determine if they accept tax exemptions, so you would have to be knowledgeable with your individual states’ requirements and exceptions. The best way you can find that information is to talk to a financial professional.
The first place I would check with is your local bank. Many banks have advisors you are free to use if you have an account with them and may be able to give you specific information for your region. Tax professionals and financial lawyers would also be great sources to contact.
How can I use a reseller certificate?
A good rule of thumb is to ONLY use your permit to purchase items or parts for items that you intend to resell. You should not use your permit to purchase supplies for your business.
It would be difficult to track these purchases and prove that you did not abuse your certificate. But, if caught… it could be a hefty fine and, in some cases, you could be facing criminal charges.
Ultimately?
If you were cleaning out your closet, and you wanted to have a garage sale, you would not need to get a reseller’s permit for that. You paid sales tax when you purchased those items, therefore, you do not have to collect sales tax on those items.
If you are not sure that reselling is right for you, then you can try it for a little while without a reseller certificate to see if this is something you want to do regularly. You will have to pay sales tax on the items that you purchase anyway, since you are purchasing them without a certificate from the beginning. If you find yourself regularly purchasing product to resell, or you’ve decided to “put a ring on it” or marry the profession and do it regularly (even if only part time), it would be in your best interest to your profits (because sales tax adds up) as well as your legal obligation to go ahead and get a reseller’s certificate.
Interested in learning how to buy and sell pallets?
Don’t know how to get there?
Consider purchasing my latest e-book,
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