If you run an Ecommerce or CPG business in Kentucky, securing a Kentucky 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 Kentucky sales tax laws.
Understanding Resale Certificates in Kentucky
What is a Kentucky Resale Certificate?
In Kentucky, a Resale Certificate is a document provided by the Kentucky Department of Revenue (KYDOR) that businesses complete and present to their suppliers, allowing them 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, first at the wholesale level and then again at the point of retail sale.
However, a Kentucky resale certificate is not a blanket exemption from all sales tax obligations. Businesses must still collect and remit sales tax on taxable sales made to end consumers.
Why do you need a Kentucky Resale Certificate?
Obtaining a resale certificate in Kentucky 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 purchasing inventory and materials that will be resold to customers without paying Kentucky’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 Kentucky 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 Kentucky’s sales tax laws and regulations to avoid penalties.
In Kentucky, the specific form required for a resale certificate is the Form 51A105.
When filling out Form 51A105, a purchaser must include their Kentucky Sales and Use Tax Account Number to identify that it is registered with the KYDOR and authorized to make tax-exempt purchases for resale.
Resale Certificate vs. Sales Tax Permit: What’s the Difference?
A Kentucky Sales and Use Tax Permit authorizes businesses to collect and remit sales tax on taxable sales to customers.
Meanwhile, a Kentucky Resale Certificate (Form 51A105) allows you to purchase goods tax-free from suppliers if you intend to resell those goods. To use a resale certificate, you must have an active sales tax permit.
Who Can Use a Resale Certificate in Kentucky?
Businesses that purchase goods for resale can use a Kentucky Resale Certificate. To do so, the business must actively sell taxable tangible products and hold a valid Kentucky Sales Tax Permit.
Out-of-state businesses not required to hold a Kentucky Sales and Use Tax Permit can still make tax-exempt purchases for resale in the state.
However, there are specific conditions they must follow when presenting a certificate to a Kentucky supplier:
- Provide their home state’s sales tax permit number and
- Buyers must include a clear statement on the certificate declaring why they are not required to hold a Kentucky Sales and Use Tax permit (e.g., no nexus in Kentucky)
- Utilize multi-jurisdictional resale certificates (such as the Streamlined Sales Tax Exemption Certificate or the Multistate Tax Commission’s Uniform Sales & Use Tax Certificate – Multijurisdiction Form) instead of Kentucky’s dedicated Form 51A105
How to Get a Resale Certificate in Kentucky: A Step-by-Step Guide
Getting a resale certificate in Kentucky 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: Your business must sell taxable goods or services and be registered with the Kentucky Department of Revenue (KYDOR). Businesses with a valid Kentucky Sales Tax Permit can use resale certificates with more ease, as opposed to unregistered businesses.
2. Get a Kentucky Sales Tax Permit: If you don’t already have one, apply for a Kentucky Sales Tax Permit through the Kentucky Online Gateway. This permit is essential to issuing a resale certificate in Kentucky with ease.
Need help? Read our blog: How to Get a Seller’s Permit in Kentucky
3. Out-of-State Buyers: Unregistered businesses without a Kentucky nexus aren’t required to hold a Kentucky Sales Tax Permit. Such buyers typically use a multi-jurisdictional resale certificate. However, if you’re using Kentucky’s Form 51A105, you must follow the state’s guidelines under Kentucky’s administrative code 31:111:
- Write a valid reason on the resale certificate form: Briefly explain why you have no Kentucky sales tax permit. This may also work if you don’t possess any valid sales tax permit, meaning you’re not registered in any state.Note: A valid sales tax permit from any state is generally required for a business to legitimately claim a resale exemption.These cases typically apply to businesses without a nexus, indicating they have no sales tax obligations in the state. A business establishes a sales tax nexus only when it meets a state’s standard nexus thresholds.
- Consider using multijurisdictional forms (SST Certificate of Exemption or the MTC Resale Certificate): With these alternative forms, you’re allowed to provide your home state’s sales tax permit number instead.
Despite these options, beware that Kentucky vendors can still decline resale certificates from unregistered out-of-state buyers based on their discretion. To ensure you can smoothly issue the Form 51A105, registering your business in Kentucky is a recommended action.
Note that registering in Kentucky is generally only necessary if you establish nexus or have a sales tax liability in the state. Do not register solely to streamline Form 51A105 if not otherwise required.)
You can register your business in Kentucky, regardless of whether you have a sales tax liability or not. Obtaining a Kentucky sales tax permit streamlines your use of Form 51A105, facilitating easier future transactions within the state.
4. Gather Your Business Information: You’ll need basic business details to complete the resale certificate, including:
- Your business’s legal name and any trade names.
- Your business address and contact information.
- Your Federal Employer Identification Number (FEIN) or Social Security Number (SSN) if you’re a sole proprietor.
- Your Kentucky sales tax permit number (if already obtained)
- Your business type (e.g., sole proprietorship, LLC, corporation).
5. Complete the Form 51A105: Download and fill out the Kentucky Resale Certificate (Form 51A105) from the KYDOR’s website. You’ll present this form to your suppliers when making tax-exempt purchases.
6. Submission: No submission required in Kentucky. You don’t submit the resale certificate to the state. Instead, give the completed form directly to your suppliers when buying items for resale.
7. Pay Any Applicable Fees: There’s no cost to use Form 51A105, but you’ll need a valid Kentucky Sales Tax Permit. Registering for a Kentucky Sales Tax Permit is free.
8. Understand Renewal Requirements: The Kentucky resale certificate itself has no specified expiration date. However, a Kentucky blanket resale certificate’s validity solely depends on 2 essential factors:
- Your sales tax permit – an inactive or revoked permit means your resale certificate becomes invalid. For buyers with a Kentucky sales tax permit, you do not need to renew your license. However, the KYDOR can still revoke it under applicable circumstances.
- Your business or transaction details – if there are significant changes to your business details, you must update your resale certificate. These changes typically refer to a shift in the business’s structure or a change in the nature of the transaction.
Updating your resale certificate based on these variable aspects is crucial to keep your Kentucky suppliers up to date. By updating your records accordingly, you and your supplier can stay compliant with Kentucky’s sales tax regulations and prevent audits.
How to Use a Kentucky Resale Certificate
To properly utilize your resale certificate in Kentucky when making tax-exempt purchases for resale, you’ll need to present a valid copy of your Kentucky Resale Certificate to your supplier at the time of purchase.
Kentucky generally accepts resale certificates issued by other states. This means out-of-state sales tax permit numbers for buyers without nexus in Kentucky are considered valid for the state’s standards.
Kentucky vendors may only accept your out-of-state resale certificates under the following conditions:
- Good Faith Acceptance: Vendors in Kentucky will typically accept an out-of-state resale certificate in good faith, provided it contains all the necessary information (buyer’s name, address, seller’s permit number from the issuing state, reason for exemption, etc).
- Meet Compliance Requirements: If you wish to use out-of-state resale certificates in Kentucky, you must comply with each certificate’s specified rules. Kentucky states that businesses can specifically use the Uniform Sales & Use Tax Resale Certificate – Multijurisdiction Form for resale purposes, not as a general exemption certificate.
If you run an out-of-state business and plan to buy from a vendor in Kentucky using your home state’s resale certificate, be ready to present it at the time of purchase.
Despite these accommodating factors, keep in mind that Kentucky vendors have the option to decline any resale certificate. Vendors may reject out-of-state resale certificates to avoid being subject to a greater burden of proof under KRS 139.270.
To ensure a seamless transaction, confirm the vendor’s policy on accepting out-of-state certificates beforehand. This practice also helps prevent potential audit issues.
For more information regarding sales tax exemption laws in Kentucky, you may read the Kentucky Administrative Regulations 31:111.
Multi-Jurisdictional Resale Certificates
A standardized multi-jurisdictional resale certificate simplifies 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 seeks recognition and acceptance by multiple states as valid proof that the buyer intends to purchase the goods for resale and is 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 Kentucky might encounter:
- Uniform Sales & Use Tax Resale Certificate – Multijurisdiction Form: This is a widely recognized form accepted by a significant number of states, and Kentucky is among those states. If you have a Kentucky Sales Tax Permit, you must include that number to complete this form.For unregistered out-of-state buyers without a Kentucky nexus, you can use your home state’s sales tax permit number instead.To use this multijurisdiction certificate appropriately, you must abide by the following rules:
- You cannot use this multijurisdiction form as an exemption certificate for purposes other than resale of tangible personal property or to claim a resale exemption when purchasing taxable services, such as admissions.
- The issuance of this multijurisdiction resale certificate aligns with a Kentucky blanket resale certificate, as stated in KAR 31:111.
- Acknowledge that this multijurisdiction form’s usage is limited and subject to the regulations declared under Kentucky Revised Statutes 139.270.
You can check which states officially accept this form by visiting the Multistate Tax Commission (MTC) website.
- Streamlined Sales Tax (SST) Certificate of Exemption (Form 51A260): Kentucky is a member of the Streamlined Sales Tax Governing Board. Therefore, Kentucky vendors will generally accept a properly completed SST Certificate of Exemption. This alternative certificate is officially recommended by the KYDOR if you are unregistered in Kentucky.The SST Certificate of Exemption allows you to use your home state’s seller’s permit number. However, keep in mind that if your business has nexus in Kentucky, you must still register for a sales tax permit in the state.Beware that misusing this certificate is subject to the regulations of KRS 139.270. Visit the state’s official page dedicated to its SST membership for more details.
For a seamless transaction, inquire about your Kentucky supplier’s policies on accepting various types of resale certificates beforehand. This practice also helps prevent potential audit issues.
Responsibilities When Using or Accepting a Kentucky Resale Certificate
Buyer Responsibilities
Using a Kentucky resale certificate means you’re responsible for ensuring you use it 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.
- Kentucky-based buyers: Provide a fully completed Kentucky Resale Certificate to your suppliers for qualifying purchases. Alternative resale certificates can also be used as long as they are properly completed.Generally, contractors or businesses engaged in contracting services cannot use the Form 51A105 for materials incorporated into real property, as they are considered the end consumers.However, ‘contractor-retailers’ who also sell tangible personal property at retail can obtain a sales tax permit and issue Form 51A105 for items purchased for resale in their retail business.
- Unregistered out-of-state buyers: If your business has no nexus in Kentucky, you can take advantage of the state-mandated options below.
- Use the SST Certificate of Exemption: Provide your home state’s sales tax permit number instead. (Recommended by the KYDOR.)
- Utilize the Uniform Sales & Use Tax Resale Certificate – Multijurisdiction Form: Provide your home state’s sales tax permit number instead. Refer to the “Multi-Jurisdictional Resale Certificates” section for more guidance on how to use this form.
- Write a note as a non-resident purchaser when using the Form 51A105: Briefly explain why you’re not required to hold a Kentucky sales tax permit or any state’s sales tax permit. For example, not having a Kentucky nexus is a valid reason.A valid sales tax permit from your home state is generally required for a business to legitimately claim a resale exemption.Note that Kentucky vendors may still decline your resale certificate.
- Out-of-state buyers with a Kentucky nexus: You are required to register your business with the KYDOR if you meet the state’s nexus thresholds. Registering your business ensures you stay compliant with Kentucky’s sales tax laws. This step will also allow you to use the Resale Certificate Form 51A105 with ease.
Buyers must know that misusing a Kentucky resale certificate leads to penalties subject to the rules of KRS 139.990.
Seller Responsibilities
As a seller in Kentucky, accepting a resale certificate comes with the responsibility of verifying and retaining proper documentation for tax-exempt sales. You must ensure the issuance of the resale certificate meets Kentucky’s standards as stated in KRS 139.270.
With that conveyed, Kentucky sellers 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)
- Ensure that the purchaser does not use the resale certificate Form 51A105 for materials that the contractor will incorporate into real property and consume. This rule applies unless the purchaser is a ‘contractor-retailer’ purchasing items for resale in their retail business.
Keep records for at least 4 years: A properly completed resale certificate is your official proof of why sales tax wasn’t collected. You must retain it in your records for at least four years according to KRS 139.720. Keeping records is crucial in case of a sales tax audit by the KYDOR.
Frequently Asked Questions About the Kentucky Resale Certificate
Are There Penalties for Misusing a Kentucky Resale Certificate?
Yes. Misusing a Kentucky resale certificate Form 51A105 leads to a Class B Misdemeanor charge according to the KRS 139.990. The following offenses result in the aforementioned penalty:
- Intentional tax evasion using a resale certificate or certificate of exemption
- Using a resale certificate or exemption certificate despite not being eligible for an exemption
- Falsifying reports or any statements made in securing certain tax credits (e.g., motion picture production tax credit under KRS 139.538) may also be subject to a Class D Felony charge
Learn more about Kentucky resale certificate penalties via the KRS 139.990.
Does a Kentucky Resale Certificate Expire?
The resale certificate (Form 51A105) has no specified expiration date. However, it is only valid while your Kentucky Sales Tax Permit remains active. If the KYDOR revokes your permit or it becomes inactive, your resale certificate also becomes invalid. Blanket certificates must also be updated accordingly to keep the resale certificate valid.
How Do I Verify a Resale Certificate in Kentucky?
The primary way to verify a Kentucky Resale Certificate is by contacting the Kentucky Department of Revenue (DOR). Currently, online verification is not an option. You may call the Kentucky sales tax department at (502) 564-5170 for assistance.
How TaxHero Can Help
You don’t have to complicate managing sales tax compliance and resale certificates in Kentucky. TaxHero simplifies the process. From keeping your Kentucky Sales and Use 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 resale certificate in Kentucky process today!