How to Get an Alabama Resale Certificate for your Business

If you run an Ecommerce or CPG business in Alabama, securing an Alabama Resale Certificate is a smart move to protect your margins and streamline operations. 

This certificate allows you to purchase inventory and raw materials tax-free, helping you lower upfront costs, stay competitive in pricing, and remain compliant with Alabama sales tax laws.

Understanding Resale Certificates in Alabama

What is an Alabama Resale Certificate?

In Alabama, a State Sales and Use Tax Certificate of Exemption (Form STE-1) is a document issued by the Alabama Department of Revenue that allows businesses to:

• Purchase goods without paying sales tax, provided these goods are intended for resale to their customers in the normal course of their business.
• Make tax-exempt purchases of inventory and materials that will become part of the products they sell by presenting a valid resale certificate to their suppliers.

The purpose is to prevent double taxation once at the wholesale level and again at the point of retail sale. 

However, an Alabama resale certificate is not a blanket exemption from all sales tax obligations. Businesses are still required to collect and remit sales tax on taxable sales to end consumers.

Why do you need a Resale Certificate in Alabama?

Obtaining a resale certificate in Alabama offers several significant advantages for businesses that purchase goods for resale. 

Here are some key benefits:

• Avoid Paying Sales Tax on Inventory: The most direct benefit is that you can purchase inventory and materials for resale without paying Alabama’s sales tax upfront. 
• Maintain Competitive Pricing: By not paying sales tax on the cost of goods, businesses have more flexibility in setting competitive prices for products in the Alabama market. This can be a crucial advantage, especially in price-sensitive industries.
• Legal Compliance: Possessing and using a valid resale certificate for eligible purchases ensures businesses comply with Alabama’s sales tax laws and regulations to avoid penalties.

In Alabama, the specific form required for a resale certificate is Form STE-1.

Resale Certificate vs. Sales Tax Permit: What’s the Difference?

An Alabama Sales Tax Permit authorizes your business to collect and remit sales tax on taxable sales to customers. An Alabama State Sales and Use Tax Certificate of Exemption (Form STE-1), on the other hand, allows you to purchase goods tax-free from suppliers if those goods are intended for resale. To use a resale certificate, you must have an active sales tax permit.

Who Can Use a Resale Certificate in Alabama?

Businesses that purchase goods for resale can use an Alabama Resale Certificate. To do so, the business must actively sell taxable tangible products.

How to Get a Resale Certificate in Alabama: A Step-by-Step Guide

Getting a resale certificate in Alabama is simple, but you’ll need to meet a few key requirements first. Here’s how to do it:

1. Make Sure You’re Eligible

To request a sales tax exemption in Alabama, you’ll need to submit the Application for Sales and Use Tax Certificate of Exemption Form (ST: EX-A1). This is the official application used by businesses like wholesalers and manufacturers to apply for a State Sales and Use Tax Certificate of Exemption (Form STE-1).

This allows you to make tax-free purchases of items meant for resale or to become a component part of products you sell.

2. Gather Your Business Information

You’ll need basic business details to complete the Application for Sales and Use Tax Certificate of Exemption. This includes:

• Your business legal name and any trade names.
• Your business address and contact information.
• Your Federal Employer Identification Number (FEIN)
• Your number of businesses in Alabama and the exact location of each (exact location shall include city, county, and street address; if the location is on the highway or rural route, exact location shall include details sufficient to allow Department personnel to find the place of business)
• Indication of the kind and class of business (i.e., wholesaler, manufacturer, etc.)
• Type of products manufactured or sold
• The reason the exemption is claimed
• Your business type (e.g., sole proprietorship, LLC, corporation) and the attached ownership information.

3. Submit Your Application

 Once your Form ST: EX-A1 is complete, you will typically mail it to the appropriate Taxpayer Service Center as listed in the form’s instructions.

4. Receive Your Certificate Form STE-1

Once the Department approves the Application for Sales and Use Tax Exemption Certificate, it will issue Form STE-1 to you, which includes the following information:

• Certificate holder’s exemption number
• Restrictions, if any, on the scope of your exempt status
• Nature of your business
• Statement of the duties and responsibilities of the vendor to whom you provide the certificate.
• Your sworn statement, made under penalty of false swearing, confirming the validity of your exemption claim
• Your name and address as the certificate holder
• Date of approval or issuance by the Department, and
• Signature of approval by the Department

You’ll present this form to your suppliers when making tax-exempt purchases.

5. Pay Any Applicable Fees

There’s no cost to use Form STE-1. However, to qualify for an Alabama resale exemption, you generally need to have a valid Alabama Sales Tax Permit (License), which is typically free to obtain. To see if there’s a cost for the permit, check out our guide on Sales Tax Permit fees.

6. Understand Renewal Requirements

In Alabama, you must renew your certificate annually before it expires. If your previous application is less than three years old and your business details haven’t changed, you can simply email stexemptionunit@revenue.alabama.gov to request a renewal. 

How to Use a Resale Certificate in Alabama

To properly utilize your resale certificate in Alabama when making tax-exempt purchases for resale, you’ll need to present a valid copy of your Alabama Sales and Use Tax Certificate of Exemption.

While Alabama generally does not issue its own sales tax licenses (and thus Form STE-1s) to businesses without a physical presence within its borders, there are important notes for out-of-state businesses making purchases for resale that are shipped into Alabama:

• If you are dropshipping to a customer in Alabama, the state allows you (the vendor/drop-shipper) to accept the reseller’s home-state resale certificate.
• Alabama considers the transaction between the drop-shipper and the reseller separate from the resale to the end customer in Alabama.
• Remote resellers can provide their home-state resale certificate when buying from a drop-shipper who ships to an Alabama customer.
• If the sale to the Alabama customer is taxable and you (the remote reseller) have economic nexus in Alabama (e.g., over $250,000 in retail sales in the previous calendar year), you are required to register with the Alabama Department of Revenue and collect sales tax. 

Due diligence is still expected. If an Alabama customer claims a resale exemption, you should verify their Alabama Sales Tax License (or their home-state equivalent if they are buying for resale into Alabama).

Simplified Seller Use Tax (SSUT)

The Simplified Seller Use Tax (SSUT) program is designed for eligible out-of-state sellers with no physical presence in Alabama, allowing them to collect, report, and remit a flat 8% seller’s use tax on all sales into the state. This flat rate simplifies compliance by removing the need to track local tax rates.

While sellers generally apply the 8% tax to retail sales, wholesale transactions for resale, where the buyer provides a valid Alabama resale certificate, are excluded from the $250,000 sales threshold that determines SSUT registration requirements. As a result, these bona fide resale transactions remain tax-exempt under the program.

For more information regarding sales tax exemption laws in Alabama, you may visit the state website.

Multi-Jurisdictional Resale Certificates

A multi-jurisdictional resale certificate is a standardized form to simplify tax-exempt purchases for businesses that operate and make purchases for resale across state lines. 

Unlike a standard resale certificate issued by a single state, a multi-jurisdictional certificate aims to be recognized and accepted by multiple states as valid proof that the goods being purchased are intended for resale and are therefore exempt from sales tax at the time of purchase. 

However, it’s crucial to understand that not all states accept these multi-state forms, and acceptance can come with specific conditions.

There are two primary types of multi-jurisdictional resale certificates that a business operating in or selling to vendors in Alabama might encounter:

• Uniform Sales & Use Tax Resale Certificate – Multijurisdiction Form: This is a widely recognized form accepted by a significant number of states (though not all). Alabama accepts this form, provided it is properly completed. For Alabama-based buyers, it should include their Alabama Sales Tax Permit number. You can find this form on the Multistate Tax Commission (MTC) website.
• Streamlined Sales Tax (SST) Certificate of Exemption: Alabama is not a member of the Streamlined Sales Tax Governing Board. It is categorized as an Advisory State, meaning they have not complied with the requirements to become a Streamlined Member State.

Businesses need to verify whether Alabama accepts these multi-jurisdictional certificates and if there are any specific requirements or limitations on their use within the state. This is to avoid any audit issues.

Responsibilities When Using or Accepting a Resale Certificate in Alabama

Buyer Responsibilities

If you’re using an Alabama resale certificate, you’re responsible for ensuring it’s used only for purchases of goods or services you intend to resell. Using it for personal or operational items (like office supplies or equipment) is illegal and may lead to penalties.

• Alabama-based buyers: Provide a fully completed Form STE-1 to your suppliers for qualifying purchases.
• Out-of-state buyers:
  • Alabama does not issue sales tax licenses or resale certificates to businesses that operate remotely and have no physical presence in the state. However, they can still claim exemption through the following:
    • Home State Resale Certificate:  Out-of-state buyers can present their own state’s resale certificate or sales tax license. Alabama sellers are generally allowed to accept these if the purchase is clearly for resale and the seller accepts it in good faith.
    • Shipping the Items Outside Alabama: If the Alabama seller delivers the goods outside the state, or ships them via the U.S. Postal Service or a common carrier to a non-Alabama destination, the sale is typically treated as tax-exempt.
    • Special Exemptions: Limited exemptions exist for non-residents, such as certain vehicle purchases intended for immediate export. But for most resale transactions, exemption is claimed through a home-state certificate or out-of-state delivery.

Seller Responsibilities

As a seller in Alabama, accepting a resale certificate comes with the responsibility of verifying and retaining proper documentation for tax-exempt sales. You must:

• Accept the certificate in good faith
• Ensure it includes all required information: buyer’s name, address, sales tax permit number (or equivalent), reason for exemption, and signature.
• Reject the certificate if the items aren’t for resale (e.g., personal or business use)

Keep records of your transactions: A properly completed resale certificate is your official proof of why sales tax wasn’t collected. You must retain it in your records in case of a sales tax audit by the Alabama Department of Revenue. 

Frequently Asked Questions About the Alabama Resale Certificate

Are There Penalties for Misusing a Resale Certificate in this State?

Yes. Improper use of a resale certificate, such as using it for personal or non-resale purchases, can result in serious penalties. Offenders may face a civil fine of at least $2,000 or double the tax due, whichever is greater.

In some cases, they may also lose the right to use a resale certificate for up to two years. Always use Form STE-1 correctly and only for qualified resale purchases to avoid issues.

Does an Alabama Resale Certificate Expire?

The resale certificate (Form STE-1) is valid for one year from the date it’s issued. Any person or company that fails to obtain or renew a certificate of exemption before its expiration will no longer be allowed to make tax-exempt purchases until such time as the application for renewal is made and the certificate is reinstated.

How Do I Verify an Alabama Resale Certificate?

If you’re a seller in Alabama, here’s how to validate a buyer’s resale certificate:

1. Request a completed Form STE-1 from the buyer.
2. Visit the My Alabama Taxes homepage.
3. Scroll down and locate the Business section. Under this section, select Verify an exemption certificate.
4. Enter the required information and click Search.
5. Click the Account Status to view the status of your Exemption Certificate.

How TaxHero Can Help

Managing sales tax compliance and resale certificates in Alabama doesn’t have to be complicated. TaxHero simplifies the process, from keeping your Alabama Sales Tax Permit active to ensuring you use resale certificates correctly.

Save time. Avoid penalties. Stay compliant.

Schedule a Demo to see how TaxHero can streamline your Alabama resale certificate process today!