Overview of resale certificates

Overview

A resale certificate is a document that certifies the customer's intention to resell the purchased items and confirms their eligibility as a legitimate reseller, entitling them to a sales tax exemption. Reseller purchases are generally tax-exempt because the ultimate consumer will pay sales tax when they purchase the product.

In typical taxable transactions, retailers are required to collect and remit sales tax to the state where the transaction occurs. However, purchases for resale are exempt from sales tax in all states that impose sales tax. When customers present a valid resale exemption certificate to their retailers, both parties are relieved of sales tax liability:

• The retailer is relieved of the responsibility to collect and remit sales tax.
• The customer, who is a valid reseller, is relieved of sales and use tax liability on what would otherwise be a taxable transaction.

In the event that a reseller is unable to provide a valid resale certificate, the retailer should charge and remit sales tax on the transaction as if it were a retail sale. This is because sellers are responsible for providing proof when audited to support any sales that are not subject to tax. Without an exemption certificate, you must collect and remit sales tax to ensure compliance and avoid potential penalties during an audit.

Certificate issuing and applicability

Resale certificates are issued in various ways, depending on the taxing jurisdiction:

• State-issued certificates — Tax authorities issue official certificates or provide resale exemption numbers as part of the sales tax registration process.
• Downloadable forms — States provide standardized resale certificate forms that are available on their respective tax authority websites, which resellers can download and complete.
• Multistate certificates — Some jurisdictions accept uniform resale certificates that are valid across multiple states, eliminating the need for separate state-specific documentation.

Generally, reseller certificates are only applicable within the state or local jurisdiction that issues them. However, multistate certificates can be used and applied to multiple states simultaneously if the appropriate information for each state is completed on the certificate.

From a tax perspective, the resale certificate should be linked with the ship-to address. Taxing authorities refer to the ship-to location on invoices to determine the applicable taxing jurisdiction for a transaction. The ship-to address directly influences taxability.

Reseller certificate management within Anrok

There are two common ways resellers are typically billed, and understanding these scenarios is crucial for effective certificate management:

1. Reseller listed as the customer — The reseller serves as both the shipping destination and the billing party on the invoice.
   • When the reseller is both the ship-to and bill-to address, you will only need to upload the resale certificate to the reseller's customer ID.
   • Since the certificate is applied to the ship-to address, this is the most tax-compliant billing flow in the case of an audit.
2. End-user listed as the customer — The end-user is the shipping destination, while the reseller remains the billing party on the invoice.
   • When the end-user is the ship-to and the reseller is the bill-to, you will need to upload the resale certificate to each end-user's customer ID associated with the reseller.
   • When completing this process, you will need to select the customer's ship-to address as the certificate's applicable jurisdiction, rather than the reseller's bill-to address.