One of the many significant differences between UK VAT and US sales tax is that US sales tax is intended to be collected only from the final purchaser of a good or service. Because US sales tax cannot be reclaimed, the danger exists that the sales tax can become a “pyramiding” tax, in which the same goods or services are taxed multiple times along the distribution chain.
To solve this problem, the states have devised the resale exemption certificate. If you are a reseller who is purchasing from a US supplier for resale, and you can provide your supplier with a proper resale exemption certificate, your supplier will not charge you sales tax on your purchase.
So how do you get and use a resale exemption certificate?
1. Pick the right form. The certificate you use must be approved by the state to which the goods are being shipped or services are being supplied. Each state has its own approved form. The majority of states have also approved the use of the MTC certificate (Uniform Sales & Use Tax Resale Certificate – Multijurisdiction) and roughly half of the states have approved the use of the SST certificate (Streamlined Sales Tax Agreement Certificate of Exemption). These forms are available online.
2. Register for sales tax if required. Some states (e.g., California, Connecticut, Florida, and Massachusetts) require you to register for sales tax in their state before you are allowed an exemption on sales shipped to their state. Other states allow you to present a certificate even without registration if you, as seller to a customer in their state, are not required to collect tax.
3. Complete the certificate. In all but one state (Florida), you complete the form yourself. (In Florida, a completed form is downloadable via the Florida Department of Revenue’s website.) If you intend to make multiple purchases from the same supplier, you often have the option of indicating that the certificate is a “blanket” certificate, which will cover multiple purchases for resale.
4. Present the certificate to your supplier. Ideally, present the completed certificate to your supplier with your purchase order. However, any time before the invoice is raised is sufficient. In addition, most states permit the supplier to remove the sales tax if a proper sales tax exemption certificate is presented within a certain number of days following invoice. A supplier who accepts a properly completed resale exemption certificate in good faith, without knowledge of facts that would disqualify the exemption, is entitled to rely upon the certificate and sell without collecting sales tax.
5. Keep the certificate current. If you have an ongoing relationship with your supplier, your supplier may ask you to periodically provide an updated certificate. In the vast majority of states, exemption certificates do not expire and remain valid as long as the information stated in the certificate remains correct. In a few states (e.g., Connecticut, Iowa, Maine, Michigan, North Dakota, and South Dakota) the certificate expires after a few years. Despite these laws, many suppliers have policies in place to request new certificates annually.