What are sales tax exemptions?

Each state has its own particular items that qualify as sales tax exempt, in general these exemptions are based on:

• The sort of item being sold

• The identification of the buyer

• The type of use of the item

The first criterion, the sort of items being sold, is based upon the specific living necessities recognized by the states, but note that this can differ from state to state. Most states offer product-specific exemptions which include clothing, food, medical devices, and medical prescriptions. Even states that do not provide full exemptions for these items listed above, often set a lower sales tax rate for them.

When we talk about the identification of the buyer, tax may be exempted if the consumer is the federal government or affiliated agencies including at the state, city, county, and local jurisdiction-level. Sales tax exemptions can also apply to religious entities, nonprofit charities, and educational organizations. 

The type of use of the item, is based upon the item(s) sold supporting particular industries which include, but are not limited to, manufacturing, industrial processing, agriculture and certain activities pertaining to the public welfare such as economic expansion, industrial progress, or pollution control.

Most commonly, items that are purchased for resale purposes are often exempt from sales tax. Those claiming the resale exemption must provide their sellers with documentation which is called a resale certificate in order to qualify for the exemption.

What are resale certificates and sales tax certificates?

It is important to note that laws regarding resale certificates differ depending on the state, as with everything in US sales tax. Accordingly, a resale certificate, i.e. reseller’s permit, is a certification which allows registered sellers to buy items for resale without having to pay sales tax on the items. 

Depending on the state, some states will provide you with an official resale certificate customized to your business which you can give to your suppliers. Other states will provide you with a template form with your resale certificate number on it to provide to your suppliers. 

Whether you need assistance with your sales tax exemptions or your resale certificates, Taxually is here to help keep your sales tax complaint! Check out our FAQ below for more information on exemptions.

FAQ

What can I purchase with a resale certificate?

It is imperative to know that resale certificates are only to be used to purchase items you intend to resale or component parts of items purchased you intend to resale. For example, purchasing the stainless steel used to make the necklaces for sale. 

Using a resale certificate to purchase items tax free when you do not intend to sell them at retail is deemed illegal and fraudulent activity.

Is a resale certificate the same as a sales tax permit/license?

Your sales tax registration number is the same as your sales tax permit number in most states. However, there are some states where you are required to request a separate resale certificate/permit. 

We recommend you to contact your DOR in order to determine what requirements are needed for you to be able to purchase tax-free items for resale.

What happens if I buy something with the intent to resell but don’t end up selling it?

Typically, it will be required that you pay the use tax on an item if you do not resell it. Use tax is defined as the amount of sales tax you would have paid if you had purchased the item at retail price.

Do all retailers accept a resale certificate?

The short answer is no. Retailers have the ability to use their own discretion when deciding if they will accept resale certificates. This can be done on a case by case basis and it is not illegal for a retailer to deny a resale certificate.