This post is for information only. You are responsible for reviewing and using this information appropriately. This content doesn’t contain and isn’t meant to provide legal, tax, or business advice. Requirements are updated frequently and you should make sure to do your own research and reach out to professional legal, tax, and business advisers, as needed. To sell products using the Shopify platform, you must comply with the laws of the jurisdiction of your business and your customers, the Shopify Terms of Service, the Shopify Acceptable Use Policy, and any other applicable policies.
When a store buys inventory, many people might assume it pays sales tax just like any other buyer. But it doesn’t, and the reason is a simple piece of paper known as a resale certificate. This state-issued document lets a business buy goods and certain services without paying sales tax—as long as the item purchased is for resale.
Learn more about what a resale certificate is, how it works, how to apply for one, and who should—and shouldn’t—use one.
What is a resale certificate?
A resale certificate is a permit that lets a purchaser make tax-free purchases of tangible personal property (TPP)—consumer products, equipment, or other merchandise—or certain taxable services if those items will be resold to end purchasers. The purchaser’s business provides a seller with the certificate, listing the address, account number, and other registration details proving that the company holds a seller’s permit or similar registration and that the seller has no obligation to collect tax on sales.
Without a certificate, every inventory purchase would be taxed twice: once when the purchaser acquires the merchandise and again at retail, when it’s sold to the final customer. For online shops, galleries, wholesalers, repair businesses, and anyone selling goods on a regular basis, the certificate ensures that the buyer doesn’t pay unnecessary tax and that the state collects revenue only on the final sale, not at every step along the chain of commerce.
What businesses are eligible for a resale certificate?
In most states, a resale certificate proves that a vendor does not need to pay or collect tax at the wholesale stage. The state will collect the revenue due once the end customer makes a purchase.
Each state’s tax authority sets its own standards for eligibility, applying two classifications for resale exemptions—TPP and services subject to taxation. For instance, in California, TPP is defined as “personal property which may be seen, weighed, measured, felt, or touched, or which is in any other manner perceptible to the senses.” But Texas is a little looser, applying resale exemptions to any personal property deemed “a taxable item that is purchased for resale.”
Although state regulations define a qualifying purchase differently, there are a number of business niches where the use of resale certificates by both buyers and sellers is fairly universal. These include:
-
Wholesale merchandise distribution
-
Retail sales of clothing, electronics, furniture, cosmetics, and books
-
Manufacturing that incorporates materials into finished products
-
Reseller businesses (e.g., ecommerce businesses that resell goods)
-
Service providers that offer taxable services for onward sale—for example, car repair parts bundled with labor
In the following cases, resale exemptions are generally not available:
-
Final consumption of TPP goods that are used by the purchasing business and not sold to a customer
-
Rent or goods leased for customer use, unless specifically sold afterward in a rent-to-buy transaction
-
Personal services such as health care, legal services, and spa services
The general rule of thumb follows the Texas state regulation: If the property purchased will not be resold, the resale certificate does not apply.
Resale certificate vs. exemption certificate
A resale certificate is a type of exemption certificate, but the two terms are not the same. Basically, every resale certificate is an exemption certificate, but not every exemption certificate is a resale certificate. While a resale certificate applies specifically to purchases of TPP or certain services for resale to an end buyer, an exemption certificate more broadly applies to any document used for permitted sales tax exceptions. Exemption certificates include:
-
Agricultural exemptions for production inputs
-
Government agency purchaser exemptions
-
Nonprofit purchaser exemptions
-
Manufacturing machinery exemptions
How to get a resale certificate
Although the process for obtaining a certificate varies by state, most registration procedures follow the same general steps.
Consult your state’s tax authority
Not every state requires a separate resale certificate, and the states of Alaska, Delaware, Montana, New Hampshire, and Oregon don’t impose state sales tax, so a certificate isn’t necessary. Other states, like New York and California, require a seller’s permit before issuing the certificate.
Some states accept a multistate certificate, like the Uniform Sales and Use Tax Resale Certificate. Others require a state-specific form. Before filling out anything, check the rules with the appropriate state agency. Sometimes it’s the Comptroller’s Office; other times, it’s the state’s Department of Revenue or Franchise Tax Board.
Submit an application
To receive a resale certificate, the purchaser generally must:
1. Register with the state and obtain a seller’s permit or sales tax registration number.
2. Provide key details, including the company name and address, state tax ID or account number, contact information, and a description of the purchaser’s operations and the merchandise or property it will resell.
3. Submit the application online or by mail, depending on the jurisdiction’s preference.
4. Keep a valid and up-to-date copy of the certificate to show vendors.
In many states, a single copy of the certificate can cover multiple transactions. But in some, a new copy is required for each transaction, even if they are repeat purchases from the same vendor.
Follow renewal and compliance rules
In some states, resale certificates don’t expire, as long as the business’s seller’s permit remains valid and it doesn’t owe back taxes. In others, renewal is required annually, every two years, or whenever you change your business’s structure, such as converting from a limited liability company (LLC) to an S corporation.
Other ongoing compliance obligations might include:
-
Reporting sales tax collected on resold property
-
Maintaining detailed records of all purchases made under the certificate
-
Providing the certificate to the vendor on request, not just when purchases are made
-
Updating the address if the business changes locations
-
Documenting that the property purchased was actually resold
If a purchaser uses a resale certificate improperly, it may owe back sales tax, penalties, and interest to the state. Misuse can include buying property for internal company use under a resale claim, or using a resale certificate without being properly registered with the state—for example, without a separate seller’s permit, where required.
Who shouldn’t use a resale certificate?
A resale certificate is limited to qualifying goods and taxable services resold to end users. It should not be used for:
-
Buying property for business operations, such as computers, desks, or stationery
-
Buying merchandise to give away as promotional items
-
Subscriptions or professional services
-
Property that is rented, not sold, unless the state allows rental resale or rent-to-buy exemptions
For example, if a furniture store purchases sofas it intends to resell to customers, it won’t pay sales tax on them under a resale certificate. But that furniture store cannot use a certificate to buy desk chairs for its back office. Similarly, a restaurant cannot use its resale certificate to purchase plates or silverware, even though it sells meals. The restaurant will keep the table settings for its own use.
Resale certificate FAQ
What is the difference between an EIN and a resale certificate?
An employer identification number (EIN) is a federal tax identification number issued by the US Internal Revenue Service (IRS). It identifies a business for payroll and income tax, and banks or lenders may ask for it to set up business bank accounts or extend lines of credit. Resale certificates, on the other hand, are a state document used for making tax-exempt purchases of property that will be resold. Some states, however, may require an EIN to register for a seller’s permit, which may be needed to obtain a resale certificate. An EIN alone does not grant resale tax exemptions.
Are a business license and a resale certificate the same things?
No. A business license lets a company operate within a city or county, while a resale certificate authorizes tax-exempt purchases for resale. A business license may be required before obtaining a seller’s permit, but it serves a very different purpose.
Is a resale certificate the same as a tax exemption?
Resale certificates are a specific type of tax exemption, but they only apply to purchases of goods intended for resale. Other types of exemption certificates cover different circumstances, like nonprofit status or government use. The term “tax exemption” is broader, while a resale certificate is tied to the sale of tangible personal property (TPP) and certain services to end consumers.
