A resale certificate is an official document that easily instills confusion in many online resellers. Depending on the state you live in, it can also be called a reseller’s permit, reseller’s license, reseller’s certificate, resale license, sales tax ID or sales tax permit.
Whatever you call it, it serves the same purpose – it helps you avoid paying tax that you do not need to pay. Needless to say, that makes it very important. The resale certificate works in favor of the reseller, which is why we require that you have one in order to do business with us.
What is a resale certificate?
First, let’s start with what sales tax is. Sales tax is a form of tax collected by a governing body for the sales of certain goods. Each state has its own sales tax laws and therefore rates differ from state to state.
US-based resellers do not need to pay sales tax for the products that they purchase (from wholesalers, etc.) and sell to their customers. Instead, the sales tax is paid by the customers when they buy the product. The reseller collects the money and sends it to the state according to a predetermined schedule, usually monthly, quarterly or annually. In order to get exempt from paying sales tax when buying from 888 Lots, for example, you need a resale certificate.
Sales tax nexus
A sales tax nexus “also known as sufficient physical presence, is the determining factor of whether an out-of-state business selling products into a state is liable for collecting sales or use tax on sales into the state”.
The term “sufficient physical presence” is what confuses most people and with reason – this rule can also vary between states. The simple rule to remember is that you have a nexus in a state if you do any of the following in that state:
- have an office
- have a warehouse
- have an employee
- have an affiliate
- store inventory
- temporarily do physical business – trade show, fair, etc.
- dropshipping from a 3rd party provider
The rule to abide by is that you should collect sales tax for a state if you have a nexus present there. Take a look at TaxJar’s extremely helpful list of states and what creates a nexus in each.
As mentioned before, it is the customers who pay the sales tax. The question here is which state’s tax rates should you charge?
There are two types of states in this case – origin- and destination-based sales tax states. The name pretty much explains it. If you are located in an origin-based state you would collect sales tax at the rate of where your office/warehouse is (the origin of the sale). The sales tax could be the sum of state, county, city and district rates.
If you are located in destination-based state, you would collect sales tax at the rate of where the buyer is (the destination of the sale). The sales tax could be the sum of state, county, city and district rates.
Look at where you are located on the map to find out which type of tax you need to collect.
Things are a little different for Amazon FBA sellers. They are considered ‘remote sellers’. This is if you are based in one state but also have a nexus in another state, without being based there. This happens when you ship to Amazon FBA centers located in states other than where you are.
In this case, only 3 states are considered origin-based: Arizona, California and New Mexico.
In this set of rules, you need to look at which state your FBA center that you ship to/from is located, and not where your business is located.
Applying for a resale certificate
So, how do you apply for such a certificate? Unfortunately, there is no single and easy answer to this question. As mentioned previously, the laws vary from state to state. The best thing to do is turn to your local tax office or your lawyer.
By rule, you need a resale certificate for every case where you need to collect sales tax. You need to collect sales tax for every state where you have a nexus. So, accordingly, you need to have a resale certificate for the state you are based in and every state that you ship inventory to Amazon Fulfillment centers.
Again, it is best to turn to your lawyer and/or local tax office.
There are five states that do not have sales tax and do not require (or sometimes do not even issue one). These are Alaska, Delaware, Montana, New Hampshire and Oregon. However, it is important to note that Alaska and Montana allow localities to charge sales taxes.
If you live in any of the other states, click the link to find out more.
- District of Columbia
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Puerto Rico
- Rhode Island
- South Carolina
- South Dakota
- Virgin Islands
- West Virginia
Some of these states require you to renew your certificate after a certain amount of time, while others do not. TaxJar have an extensive and very useful list with all the information.
At 888 Lots we require a valid resale certificate from the state you are located in. We will keep you certificate on file after your first purchase with us, so you do not need to present it every time.