If you run an Ecommerce or CPG business in South Dakota, securing a South Dakota 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 South Dakota sales tax laws
Understanding Resale Certificates in South Dakota
What is a South Dakota Resale Certificate?
In South Dakota, an Exemption Certificate is a document recognized by the South Dakota Department of Revenue (SDDOR) 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 South Dakota exemption 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 South Dakota Resale Certificate?
Obtaining an exemption certificate in South Dakota 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 South Dakota’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 South Dakota market. This can be a crucial advantage, especially in price-sensitive industries.
- Legal Compliance: Possessing and using a valid sales tax license and a properly completed exemption certificate for eligible purchases ensures businesses comply with South Dakota’s sales tax laws and regulations to avoid penalties.
In South Dakota, the specific form required for a resale certificate is the Form 2040.
To be specific, the South Dakota Form 2040 is a state-revised Streamlined Sales and Use Tax Certificate of Exemption. It may also be shortly referred to as “SST Exemption Certificate”.
When filling out the SST Exemption Certificate, purchasers must include their South Dakota tax ID number to identify that they’re registered with the SD DOR and authorized to make tax-exempt purchases for resale.
Unregistered out-of-state buyers without a nexus in South Dakota may provide their home state’s tax ID numbers instead. If they do not have a sales tax ID number from any state, the form instructions allow for the use of their Federal Employer Identification Number (FEIN). If they have neither, a driver’s license number may also be used.
Resale Certificate vs. Sales Tax Permit: What’s the Difference?
In South Dakota, “Sales Tax Permits” are preferably referred to as “Sales Tax Licenses.” This license permits you to remit sales tax on taxable sales to customers.
Meanwhile, the SST Exemption Certificate allows you to purchase goods tax-free from suppliers if those goods are intended for resale. To use this exemption certificate, you’re generally expected to have an active sales tax license.
If you’re not required to register (having no nexus) in South Dakota, using the SST Exemption Certificate is still allowed. However, you must meet specific qualifications as an out-of-state purchaser. This typically means providing your home state’s tax ID, FEIN, or another acceptable form of ID.
Who Can Use a Resale Certificate in South Dakota?
Businesses that purchase goods for resale can use a South Dakota SST Exemption Certificate. However, there are certain rules your business must follow to be eligible to use the SST Exemption Certificate.
Some businesses are generally required to have a Sales Tax License if they have a nexus in South Dakota. This rule is stated within South Dakota’s official tax laws and informational publications.
The following are South Dakota-based businesses that must have a Sales Tax License before using an exemption certificate:
- Manufacturers
- Wholesalers
- Retailers
- Lessors
- Service Providers
For businesses without a South Dakota sales tax license, see if the following options apply to you or your business.
- Out-of-State Buyers: Businesses not based in South Dakota that purchase taxable goods for resale can use the SST Exemption Certificate. However, the directions for its usage depend on your nexus standing with the state.
- No Nexus: Having no nexus in South Dakota means you aren’t required to register with the state’s taxing authorities. Due to this, you may provide your home state’s tax ID number to complete the SST Exemption Certificate.
- With Nexus: Having a nexus in South Dakota means you’re responsible for collecting and remitting sales tax. Thus, you’re required to register your business and hold a valid South Dakota Sales Tax License.To complete the SST Exemption Certificate form, you must provide a South Dakota tax ID or Sales Tax License number.
- Buyers Not Required to Register: This section applies to buyers from a state without sales tax or nexus in any state. Instead of providing a tax ID number, you can provide the following to use the SST Exemption Certificate:
- Your FEIN number,
- State-issued Business ID Number or
- Your Driver’s License number
- Dropshippers: If the purchased goods from a supplier are delivered directly to the customer, the transaction is considered drop shipping. South Dakota requires suppliers to collect and remit sales tax on these transactions unless the retailer provides a valid exemption certificate.Out-of-state retailers may use their home state’s tax ID when purchasing goods for resale from South Dakota suppliers. This applies only if the supplier accepts it and the retailer does not have nexus in South Dakota. If the out-of-state retailer has a South Dakota nexus, they must provide a South Dakota Sales Tax License number.
- Foreign Buyers: South Dakota is among the Streamlined Sales Tax Governing Board members that accept alternative IDs, such as VAT numbers. Foreign buyers may provide their VAT ID or any other equivalent when using the SST Exemption Certificate in South Dakota.
- Buyers Without Any Valid ID: In case you have no tax ID number, FEIN, VAT, or Driver’s License, South Dakota gives you an exception. In South Dakota, you may write “Not Required” and your reason for exemption in the SST Exemption Certificate.Note: While the state is permissive in such cases, beware that your exemption claim is still primarily under the seller’s approval. If you do not provide valid IDs, South Dakota vendors may decline your SST Exemption Certificate, even if you have completed it correctly.
- Agricultural Purchases: When purchasing goods or specific services solely for agricultural purposes, you’re entitled to South Dakota’s agricultural exemption. You do not need to provide any tax ID number. Regardless, the state recommends that you include other proper documents or IDs, such as your FEIN or Driver’s License, on the Certificate of Exemption.This is recommended for cases where your purchased goods are delivered to another state where such IDs may be required.
For other entities that may want to use the South Dakota SST Exemption Certificate, read all the exemptions allowed here.
How to Get a Resale Certificate in South Dakota: A Step-by-Step Guide
Getting an exemption certificate in South Dakota 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 South Dakota Department of Revenue if you have nexus in the state. Generally, businesses with a valid South Dakota Sales Tax License can use the state’s exemption certificate with ease.
However, other businesses also qualify to use the Streamlined Sales and Use Tax Certificate of Exemption, as outlined in the previous section. To summarize, those qualified businesses are:
- Out-of-state retailers engaged in drop shipping
- Out-of-state buyers registered in their home state
- Foreign buyers with a valid VAT ID number or other equivalent
- Buyers without any valid tax ID, VAT, FEIN, or Driver’s License
- Buyers who purchase goods and services for agricultural purposes
- Buyers from states without sales tax or that have no nexus in any state
- For more details, head back to the “Who Can Use a Resale Certificate in South Dakota?” section. You may also read South Dakota’s official tax laws and informational publications as a guide.
2. Get a South Dakota Sales Tax License: If you don’t already have one, apply for a South Dakota Sales Tax License through the SDDOR’s online Tax License Application page. This license is generally required for South Dakota-based businesses, especially the ones listed in the prior heading.
Those specific businesses are manufacturers, retailers, wholesalers, lessors, service providers, and contractors. Out-of-state vendors that have a nexus in South Dakota must register for a Sales Tax License.
Need help? Read our blog: How to Get a Seller’s Permit in South Dakota
3. Buyers Without a South Dakota Sales Tax License: As mentioned, not all businesses are required to have a South Dakota Sales Tax License. As long as you have no sales tax nexus in South Dakota, you have no reason to register in the state.
In this case, you can provide other documents to get and complete the SST Exemption Certificate. However, the requirements vary depending on your business.
- Out-of-state buyers with no South Dakota nexus: Provide your home state’s sales tax ID number.
- Buyers not required to register (or come from a state without sales tax): Provide either another state’s tax ID number, your FEIN, or your Driver’s License number. VAT ID numbers may also be accepted.
- Foreign buyers: Provide a valid VAT ID (or any equivalent from your home country).
- Buyers without any valid ID: If you have no FEIN, VAT, tax ID number, or Driver’s License, write “Not Required” in the SST Exemption Certificate. You must detail the reason for your exemption. However, South Dakota vendors may request additional documents to verify that you qualify for the resale sales tax exemption.
4. Gather Your Business Information: You’ll need basic business details to complete the resale certificate, including:
- Your business 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 reason for exemption.
- Your home state’s tax ID number (for out-of-state buyers).
- Your South Dakota sales tax license number (if already obtained).
- Your driver’s license or VAT ID number (for qualified buyers without tax ID numbers).
- Your business type (e.g., sole proprietorship, LLC, corporation).
5. Complete the Streamlined Sales and Use Tax Certificate of Exemption: Download and fill out the South Dakota-revised SST Certificate of Exemption from the SDDOR’s website. You’ll present this form to your suppliers when making tax-exempt purchases.
Alternatively, you may also opt to use the non-South Dakota-revised SST Exemption Certificate. It’s the general Streamlined Sales and Use Tax Certificate of Exemption form available on the SSTGB website.
6. Submission: No submission required in South Dakota. You don’t submit the exemption 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 the Streamlined Sales and Use Tax Certificate of Exemption. However, you may need a valid Sales Tax License once you have a nexus in South Dakota. If you need one, know that registering for a South Dakota Sales Tax License is free.
8. Understand Renewal Requirements: The South Dakota Exemption Certificate (the Streamlined Sales and Use Tax Certificate of Exemption) itself has no specified expiration date. Meanwhile, blanket exemption certificates are typically valid for up to 12 months unless cancelled by the purchaser.
A South Dakota blanket exemption certificate’s validity may also depend solely on 2 essential factors.
- Your sales tax license – an inactive or revoked license means your exemption certificate becomes invalid. If you hold a South Dakota sales tax license, you typically do not need to renew it. However, the SDDOR can still revoke your license.
- 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.
South Dakota vendors can also cancel your blanket certificate’s validity if they deem it necessary. Therefore, updating your exemption certificate based on these variable aspects is crucial to keep your South Dakota suppliers up to date.
By updating your records accordingly, you and your supplier can stay compliant with South Dakota’s sales tax regulations and prevent audits.
How to Use a South Dakota Resale Certificate
To properly utilize your exemption certificate in South Dakota when making tax-exempt purchases for resale, you’ll need to present a valid copy of your SST Exemption Certificate to your supplier at the time of purchase.
South Dakota accepts out-of-state resale certificates. However, there are specific conditions.
Under South Dakota’s South Dakota’s Administrative Rule 64:06:01:08.01, the only acceptable forms for exemption certificates are:
- The department’s official exemption certificate form
- A substitute form with prior department approval
- The Multistate Tax Commission Uniform Sales and Use Tax Certificate form, or
- The Streamlined Sales Tax Agreement Certificate of Exemption
Be aware that South Dakota may not accept resale certificates from other states. For South Dakota vendors to accept your certificate, you must also abide by the following conditions:
- Meet Compliance Requirements: If you use the SST Exemption Certificate, know that its usage is also subject to specific rules. For instance, you cannot claim resale exemption on services unless certain conditions are met.Refer to the “Multi-Jurisdictional Resale Certificates” section for more details.
- Good Faith Acceptance: Vendors in South Dakota may 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.).To increase the likelihood of good faith acceptance, consider using the Streamlined Sales and Use Tax Certificate of Exemption.
If you are an out-of-state business buying from a vendor in South Dakota and intend to use your home state’s resale certificate, be ready to present it at the time of purchase.
However, as previously mentioned, South Dakota vendors can only accept state-specific forms that the state recognizes. For convenience, you may use South Dakota’s SST Exemption Certificate itself, as it’s already accommodating for out-of-state buyers.
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 South Dakota, read the state’s official publications on exemption certificates.
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 South Dakota might encounter:
- Streamlined Sales Tax (SST) Certificate of Exemption: South Dakota is a member of the Streamlined Sales Tax Governing Board, and the Streamlined Sales and Use Tax Certificate of Exemption is the primary exemption certificate for resale purposes in the state. Therefore, South Dakota vendors generally accept this certificate with ease.But as previously discussed, you must meet specific requirements depending on your business to properly use this form. You can find more information about South Dakota’s SST membership on the Streamlined Sales Tax Governing Board website.
- Multistate Tax Commission (MTC) Uniform Sales & Use Tax Resale Certificate: This is a widely recognized form accepted by many states, including South Dakota. This certificate is also an acceptable form for an exemption claim.When purchasing services for resale, you must ensure the following conditions are met to claim exemption:
- The buyer delivers the purchased service directly to their customer, including contracted services yet to be provided.
- You purchased the service on behalf of your customer.
- You, the buyer, shall not use the purchased service in any manner. Your customer must be the only person using the service.
- The purchased service must be delivered or resold without any changes applied by the purchaser.You may find this form at the Multistate Tax Commission (MTC) website.
For a seamless transaction, inquire about your South Dakota 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 South Dakota Resale Certificate
Buyer Responsibilities
Using a South Dakota exemption 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.
- South Dakota-based buyers: Provide a fully completed Streamlined Sales and Use Tax Certificate of Exemption to your suppliers for qualifying purchases. The MTC Resale Certificate form can also be used as long as it’s properly completed.If your business has a sufficient nexus in South Dakota, ensure you have a valid Sales Tax License as well.
Businesses based in South Dakota listed below generally need to obtain a Sales Tax License. To use the Streamlined Sales and Use Tax Certificate of Exemption, these businesses must follow specific rules stated under South Dakota’s official guidelines.
- Manufacturers: Manufacturers: Manufacturers also include fabricators, processors, or manipulators. To use the Streamlined Sales and Use Tax Certificate of Exemption correctly, you must comply with certain regulations.
- Manufacturers must not alter any services they purchase when delivering or selling them
- You cannot purchase services such as product testing, engineering, designing, and janitorial services for resale
- Lessors: Refers to businesses related to renting or leasing products to customers. However, repair or replacement parts for leased items are still subject to sales or use tax. To learn more, read the Lease and Rental Fact or call the SD DOR at 1-800-829-9188.
- Service Providers: To claim an exemption for resale using the Streamlined Sales and Use Tax Certificate of Exemption, you must meet 3 specific conditions in South Dakota.
- You must provide the purchased service on behalf of your customer.
- You must not use or consume the service in any manner.
- You must deliver or resell the purchased service without changes to the product.NOTE: This rule applies to services as components of other services or services purchased for a current customer. This does not apply to services for resale that are otherwise tax-exempt by law.Engineers, architects, and surveyors are exempt from this rule. These individuals can purchase tax-exempt services for resale without meeting the 3 conditions above.
- Contractors: This rule applies to contractors operating retail stores. In case you consume the products you purchased for resale, you must pay the use tax for those goods. You can also deduct sales tax on purchases where you initially paid sales tax on goods that eventually got resold.However, it is more common for contractors to pay contractors’ excise tax on their gross receipts, not sales tax. The rules for contractors and subcontractors are specific and depend on the type of project.
NOTE: Buyers with “UT” and “ET” in their permit numbers are not allowed to purchase goods and services for resale. These businesses register for “Use Tax” and “Excise Tax,” not sales tax purposes.
Out-of-State Buyer Responsibilities
Aside from these businesses, out-of-state buyers also have certain standards and rules to follow when using the Streamlined Sales and Use Tax Certificate of Exemption. These regulations vary depending on the business:
- Foreign Buyers: You must have a valid VAT ID or any equivalent supporting document to complete the exemption certificate.
- Buyers Without Any Valid IDs: You must write “Not Required” and state the reason for exemption in the Streamlined Sales and Use Tax Certificate of Exemption. Otherwise, vendors may not consider your claim, and they may request an ID.
- Buyers Engaged in Drop Shipping: If you’re a registered business (you have a nexus in your home state), provide your home state’s sales tax ID number.
- Buyers From States without Sales Tax: If available, provide either a home state tax ID number, a VAT ID number, a Driver’s License number, or your FEIN. The vendor may request other supporting documents.
- Buyers without a South Dakota Sales Tax License: If you have no nexus in South Dakota, you can provide your home state’s sales tax ID number. In case you have no valid ID, then refer to the prior sections discussing your other options.
Seller Responsibilities
As a seller in South Dakota, 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
- Verify that the exemption claim is valid by ensuring that service providers meet specific conditions and that they deliver the services without any alterations.
- Reject if the buyer’s permit contains the letters “UT” and “ET.”
- Request additional documents if deemed necessary or
- Reject the certificate if the items aren’t for resale (e.g., personal or business use)
Keep records for at least 3 years: A properly completed resale certificate is your official proof of why sales tax wasn’t collected. As stated in South Dakota’s Law 10-52A-9, you must retain records for at least three years in case of a sales tax audit by the SD DOR.
Failing to keep records subjects you to penalties defined under South Dakota’s Administrative Code 64:06:01:35.03.
Frequently Asked Questions About the South Dakota Resale Certificate
Are There Penalties for Misusing a South Dakota Resale Certificate?
Yes. Misusing South Dakota’s SST Exemption Certificate or Form 2040 leads to penalties such as:
- Due Tax Payment: Pay the due tax when found guilty with the intent to evade tax. The purchaser is also responsible for remitting the tax owed to the state.
- Class 1 Misdemeanor: For intentionally filing an exemption certificate with the intent to evade payment of tax and failing to timely report it.
- Additional Fine: A 50% additional charge of the tax owed.
Learn more via South Dakota’s Statute Law 10-45-61, which details the responsibilities of the purchaser.
Does a South Dakota Resale Certificate Expire?
The Streamlined Sales and Use Tax Certificate of Exemption has no specified expiration date. However, a blanket certificate continues in force until canceled by the purchaser. Though it is typically only valid while your South Dakota Sales Tax License remains active.
If the authorities revoke or deactivate your license, your exemption certificate becomes invalid. Update blanket certificates accordingly to keep the exemption certificate valid.
How Do I Verify a Resale Certificate in South Dakota?
The primary way to verify a South Dakota Exemption Certificate is by calling the SD DOR at (800) 829-9188. Currently, online verification is not available. Out-of-state documents, tax IDs, and other numbers may also require other verification methods.
For instance, you have to use another state website’s verification tool if your buyer provides their home state’s ID number.
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