Sales Tax and Reselling

Resellers, such as department stores, grocery stores, and automobile dealers, are in the business of buying goods and reselling the same goods. Resellers purchase items and the sell those items, usually unchanged, at a markup. Generally resellers do not pay sales tax when they purchase an item, but must collect sales taxes when those items are sold to the end user. Exemptions on sales taxes for resellers do exist, but only under specific circumstances.

Resellers operate in a very select category. If you buy wheels and then resell those wheels, you are a reseller plain and simple. However, if you were to buy wheels and then attach them to wheelbarrows for sale, then you’ll likely be treated as a manufacturer, as the wheels are now components of a product rather than the entire product.

Resellers are liable for sales taxes for items that they sell within a state if the business is ”physically present” within the state. The only way to have a physical presence within the state and not collect sales taxes is to have some type of exemption that applies to the transaction. Resale exemptions do exist, and usually apply to transactions to other resellers. These exemptions will require a resale certificate, which may be provided by the state, or it could simply be a document outlining basic information required by state law.

Another important distinction is made for wholesalers. A wholesaler usually sells products to other businesses rather than end-users. This group usually deals with businesses customers that continuously make resale purchases. In this instance, many state laws let purchasers use “blanket” resale certificates for purchases from their vendor. A blanket resale certificate is a resale certificate that you will keep on file, which allows steady customers to make multiple exempt purchases. When you collect resale certificates from your customers, you must maintain a file of properly completed and valid certificates that were accepted in good faith. Once you are satisfied that all requirements for accepting a resale certificate have been met, you can apply a resale exemption to your customer’s resale order.

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