Suppose you are a new ecommerce business hoping to become successful by selling products to your customers. One of your main concerns is how to save money when buying the products or raw materials you need. That’s where the multijurisdiction resale certificate comes in handy.
With this certificate, you can purchase products without the additional hassle of paying sales tax, especially if your vendors are located in different states.
To learn more about how this certificate can help your business, read this article.
Key Takeaways
- Not all states accept multijurisdiction resale certificates.
- The validity and usage of a multijurisdiction resale certificate depend on each state’s rules.
- There are two kinds of multijurisdiction resale certificates. First is the Streamlined Sales Tax (SST) Exemption Certificate, and the second is the Uniform Sales and Use Tax Exemption Certificate. The SST is ideal for remote sellers, while the MTC form is most suitable for businesses already registered across multiple states.
- Resale certificates cannot be used interchangeably with exemption certificates. These two documents generally have different purposes.
- Improper use of resale certificates, whether intentional or not, may result in serious fines and additional penalties.
How is a Resale Certificate Utilized?
Resale certificates are typically used to exempt registered businesses from paying sales tax on items intended for resale. Essentially, it’s a way for businesses to avoid double taxation – paying sales tax when purchasing products and then charging sales tax when selling them to customers. One of the primary ways businesses use resale certificates is when buying inventory or raw materials for their products. For instance, imagine you run an online store selling custom clothes. With a resale certificate, you can buy the clothes and materials needed to make them without getting hit with sales tax on those items, helping you save money and maintain competitive pricing. When dealing with wholesale suppliers or distributors, providing a resale certificate is often a standard procedure. It simplifies transactions and ensures you’re not charged sales tax on items you intend to resell. This also helps establish a professional relationship with your suppliers. A resale certificate is almost interchangeably called a reseller’s permit. It is also typically provided in a “blanket” form, which applies to all items purchased from the vendor. A resale certificate is interchangeably called a reseller’s permit. It is also typically provided in a “blanket” form, which applies to all items purchased from the vendor. Different states have different rules concerning resale certificates. While some states only take a state-issued certificate, others accept a multi-state certificate, also known as the multijurisdiction resale certificate.What is a Multijurisdiction Resale Certificate?
A multijurisdiction resale certificate, also known as a uniform sales tax certificate, streamlines the process and allows businesses to obtain sales tax exemptions for multiple states simultaneously. There are two options for this:- Streamlined Sales Tax (SST) Exemption Certificate
- Multistate Tax Commission (MTC) Uniform Sales and Use Tax
Streamlined Sales Tax Exemption Certificate
Since there are different types of multijurisdiction resale certificates, here’s the difference between the two. First is the Streamlined Sales Tax Exemption Certificate. This certificate is issued by the Streamlined Sales Tax Governing Board (SSTGB). The SSTGB was created to simplify the complex process of sales tax compliance. At the same time, the organization also helps reduce compliance costs. Now, when is the best time to use the SST Exemption Certificate? What makes it different from the Uniform Sales and Use Tax Exemption Certificate? Using the SST Exemption Certificate is primarily beneficial when you are purchasing taxable goods for resale in one of the SSTGB’s member states. As stated above, there are currently 24 member states in the SSTGB. Those states are:- Arkansas
- Georgia
- Indiana
- Iowa
- Kansas
- Kentucky
- Michigan
- Minnesota
- Nebraska
- Nevada
- New Jersey
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Rhode Island
- South Dakota
- Utah
- Vermont
- Washington
- West Virginia
- Wisconsin
- Wyoming
- Tennessee
Benefits of the SST Exemption Certificate
For example, if you don’t have a sales tax nexus in another member state, you can still use the SST Exemption Certificate and provide your home state’s sales tax ID to make a tax-free purchase for resale in another member state. That’s because the SST Exemption Certificate allows you to use your existing IDs, so you won’t have to unnecessarily register in another state unless you have a nexus in that state. Moreover, other member states, such as Wyoming, also accept the SST Exemption Certificate from unregistered businesses without a sales tax ID as long as:- The buyer has no nexus in any state and, therefore, is not required to register
- The buyer can provide the following alternative documents for identification purposes:
- Business license or business ID number
- FEIN (Federal Employer Identification Number)
- Driver’s license number (if no FEIN or business ID)
- VAT ID number or any equivalent (for foreign purchasers)
- Entity-based purchases for nonprofit organizations
- Manufacturing exemptions for purchases of raw materials or components
- Purchases meant for specific industrial use, such as agricultural supplies or equipment
Uniform Sales & Use Tax Exemption Certificate
The Uniform Sales & Use Tax Exemption Certificate is issued by the Multistate Tax Commission (MTC). Similar to the SSTGB, this organization’s goal is to simplify sales tax compliance. While it primarily serves the same functionality as the SST Exemption Certificate, the difference is that the Uniform Sales & Use Tax Exemption Certificate is mainly designed for resale transactions only and is accepted by 36 states. However, while it’s widely accepted in more states, this certificate generally requires you to provide a sales tax ID in the state where you have a nexus. Otherwise, vendors may not accept the certificate. This makes the MTC exemption form less viable for remote sellers but beneficial for businesses already registered across multiple states.Resale Certificate vs Exemption Certificate
Businesses must also know the distinction between resale certificates and exemption certificates. Resale certificates are typically only used for resale transactions. This means you can only claim sales tax exemption through resale purchases. Meanwhile, exemption certificates can be used for other tax exemptions, such as when claiming exemption as a non-profit organization. It’s important to know that some states strongly define these two documents differently, depending on their rules. For example, Connecticut explicitly states that it can accept multijurisdictional resale certificates. However, the document is not valid or recognized as an exemption certificate in the state. That’s because you can only use multijurisdictional resale certificates for resale purposes only. It cannot be used to claim exemptions for manufacturing or nonprofit organizations. Therefore, as a general practice, businesses must know that these two documents cannot be used interchangeably.Which States Do Not Accept a Multijurisdiction Resale Certificate?
Although many states allow the use of an out-of-state resale certificate for sales tax exemption documentation, the following 10 states generally require a valid state-specific sales tax permit registration before accepting multijurisdiction resale certificates from out-of-state businesses:- Alabama
- California
- Florida
- Hawaii
- Illinois
- Louisiana
- Maryland
- Massachusetts
- Washington
- Washington D.C
What Should I Keep in Mind When I Use a Multi-state Resale Certificate?
Here are some of the tips you may want to remember when using the multijurisdiction resale certificate:- Use the document for its intended purposes only – Multijurisdiction resale certificates are to be used as a “blanket” resale certificate and for other similar purposes only, and not as a way to circumvent different exemption types on goods.
- Recheck if the state accepts the form – As we’ve established above, some states don’t accept the multijurisdiction resale certificate, so make sure you only use it in states that accept it.
- Read the document’s fine print diligently – Although some states accept the form, some have caveats or attached conditions. So make sure you are aware of all of this before using it.
- Keep records – Always keep a copy of your resale certificate, both as a buyer and a seller. Your records can help prove the authenticity of your transactions in case of a sales tax audit. Generally, most states require you to keep records for at least 3 years. However, some states may recommend a longer timeframe.
- Blanket Certificates vs Single-Purchase Certificates – Know the difference between blanket certificates and single-purchase certificates. The first one is used for consistent purchases. Thus, you only need to provide one resale certificate to your supplier. A blanket certificate should cover all future transactions, provided that there won’t be any major changes in the transaction details. Meanwhile, single-purchase certificates should be used for individual transactions. However, this means you have to provide another resale certificate in the future in case you purchase again from the same vendor. A single-purchase certificate cannot be converted into a blanket certificate. Therefore, you should carefully consider your business plans when transacting with vendors.
Common Mistakes When Using a Multi-state Resale Certificate
Being aware of the common mistakes when using a multi-state resale certificate is also another thing you must keep in mind. Here are the common issues you might encounter:- Missing Details in the Form – When your resale certificate is missing crucial information, it won’t be considered properly completed. At times, vague details about your business can also lead to invalidation of your resale certificate. To prevent this, ensure your resale certificate contains the following information, especially when it is required in the form you are completing:
- Full legal name and address of the seller
- Complete details of your business, such as your legal name, address, and business type
- Valid state registration number, make sure the digits are correct
- The description of your business and the products you’re buying for resale
- A properly signed and dated authorized signature
- Improper Use – Different states have different rules when it comes to the usage of resale certificates. Researching each state’s specific rules can help you avoid legal errors that may result in penalties. As a general rule, using resale certificates means the items purchased must be guaranteed to be intended for resale and not for any other purposes.
- Failing to Keep Records – Not having copies of your resale certificate can result in difficulties during audits. You may have a hard time proving your reason for claiming a sales tax exemption without proper records.
- Skipping Verification – Some vendors trust their regular buyers. Therefore, they may choose to skip verifying resale certificates. However, single-purchase resale certificates should always be verified as proof that both sides did their part in abiding by the rules.
What Happens When A Multi-state Resale Certificate is Misused?
The improper use of any resale certificate can result in fines and other penalties. Depending on the severity of an offense, here are the penalties charged for misusing resale certificates:
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Let TaxHero Help With Your Resale Certificate Concerns
If you operate an ecommerce business and are looking to save money through sales tax exemption on products you plan to resell, TaxHero is here to assist you with your resale certificate. Schedule a time with our CEO, who will personally guide you through your questions or concerns. You don’t have to handle everything all on your own. We’ve got your back.Frequently Asked Questions
1. What should I do if my supplier won’t accept my multijurisdiction resale certificate?+
Unfortunately, accepting a resale certificate is at the discretion of suppliers, as they are the ones running the risk of doing so. One recourse you may take is to comply with their requirements, which might be time-consuming and complicated.Alternatively, you can sign up for TaxHero, as this is part of our all-inclusive, full-stack services, and we will handle everything for you!
2. Who is responsible for covering the cost of a resale certificate?+
Sellers typically pay for the resale certificate at the time of the application. However, businesses can generally obtain resale certificates for free by downloading the forms from the respective state websites.
3. How to get a US sales tax exemption certificate?+
To get a US sales tax exemption certificate, you must first know which certificate you need. An exemption certificate is different from a resale certificate. If you’re a business making taxable purchases for resale purposes, you need a resale certificate to claim a resale exemption on sales tax.
To obtain a resale certificate, you have two options:
- Get a resale certificate form from the appropriate department of any state.
- Use the multijurisdictional resale certificates found on each organization’s website