What is Resale Certificate?

When a business buys merchandise to resell, it generally should not pay sales tax on the purchase, because tax will be collected from the final customer. A resale certificate, sometimes called a reseller's permit or exemption certificate, documents that the purchase is for resale. Each state sets its own form and rules; see our state guides.

How it works

1. The buyer registers for a sales tax permit in its state
2. The buyer completes the state's resale certificate, or a multistate form accepted by the state, and gives it to the supplier
3. The supplier keeps the certificate on file and does not charge tax on qualifying purchases

What qualifies

Resale certificates cover items purchased for resale in the regular course of business, and in some states, materials that become part of a product for sale. They do not cover items the business uses itself, such as office supplies, equipment or cleaning products. Using a resale certificate for business-use items creates use tax liability and potential penalties.

Supplier responsibilities

Sellers must keep valid certificates for exempt sales. In a sales tax audit, missing or incomplete certificates can turn exempt sales into taxable ones, with tax due from the seller.

Good practice

• Keep certificates organized by customer, with expiration dates where states require renewal
• Review certificates when customers first buy and periodically after
• Track exempt sales separately in the books; see sales tax bookkeeping

Other exemption certificates

Separate certificates exist for exempt organizations, manufacturing exemptions, agricultural exemptions and more. Each has its own rules.

The IRS's state government websites page links to each state's revenue agency, where current forms are published. See also sales tax nexus basics.

Related terms

• Exempt and Non-Exempt Employees: Non-exempt employees must receive overtime under federal law; exempt employees meet specific tests that remove that requirement.
• Use Tax: Use tax is a tax on taxable goods or services used in a state when sales tax was not collected at purchase.

Browse more definitions in the small business glossary.