Updated March 16, 2020
The sourcing road trip is a hallowed institution in the (admittedly short) history of FBA. Stephen over at Full Time FBA, Ryan at the Online Selling Experiment and even the CEO of Inventory Lab have all detailed their sourcing trip stories.
But I recently discovered a small flaw that could derail even the best planned sourcing road trip. Your resale certificate.
As it turns out, some states won’t accept an out-of-state resale certificate. Your resale certificate is based on your sales tax permit in the state where you live, and is your way of proving to a seller that you are buying products in order to resale them at retail. (You can often download a template to use if you search online for “your state” + “resale certificate.”) Vendors who accept resale certificates should double check your certificate number and then sell the items you’re buying for resale to you sales tax free. Sales tax is designed to be a tax on retail sales, so products bought for resale aren’t actually intended to be taxed.
What do I mean when I say some states won’t accept your out-of-state resale certificate? Say Bobbie lives in Nevada but has heard about some screaming deals in California. She takes her van across the border ready to load it up, but finds out that California if one of 10 states that doesn’t accept out-of-state resale certificates. So Bobbie’s Nevada resale certificate is no good there. Bobbie’s choices are to either register for a California sales tax permit so she can also get a California’s reseller’s number, or go ahead and pay the sales tax in California and try to recover it later. We’ll get into both choices in detail below.
Which states do not accept out-of-state resale certificates?
These ten states are more strict when it comes to accepting resale certificates. Also keep in mind that some vendors, like Target, can elect not to sell to resellers, meaning they don’t accept resale certificates.
So if you want to make a purchase for resale in one of these two states, what do you do?
How Do you Avoid Paying Sales Tax on Items You Plan to Resale?
You can do one of two things:
1.) Register for a sales tax permit in that state – This will mean you can now provide a valid resale certificate and avoid paying sales tax on items. But keep in mind that this route can also create lots more administrative work for you. If you have an active sales tax permit in a state then you’re required to collect sales tax from all of your buyers in a state. This means setting up sales tax collection on all the platforms on which you sell, collecting sales tax, and filing and remitting sales tax to the state periodically.
2.) Attempt later to recover the sales tax you paid – Our CPA blogger Ned Lenhart wrote an entire post on different ways you can attempt to recover sales tax you paid on an item you intended to resale. Head over here for his tips.
You could also do a third thing – don’t shop in that store or that state. But I totally get it – sometimes those deals are just too good to pass up.
I hope this post has helped answer some questions about resale certificates. Got questions? Start the conversation in the comments!
Want to learn more about how TaxJar keeps you up-to-date with current legislation automates the headache of sales tax? Learn more at TaxJar.com/how-it-works.