Do I Need a Resale Certificate to Sell Online? Key Facts

Do I Need a Resale Certificate To Sell Online?

Do I Need a Resale Certificate To Sell Online? blog image

Selling products online has become a popular and lucrative business venture, offering entrepreneurs the opportunity to reach a global audience.

However, as with any business, there are legal and regulatory considerations to navigate. One question that often arises is whether you need a resale certificate to sell online.

In this article, we’ll explore the ins and outs of resale certificates, their importance for online stores, and how to ensure compliance with the law while running a successful eCommerce business.

Takeaways
  • Resale certificates are essential for eCommerce businesses looking to purchase products for resale without incurring sales tax
  • The requirements for obtaining and using resale certificates can vary significantly from state to state
  • It’s vital for businesses to research their local tax laws and adhere to them diligently
  • eCommerce businesses can efficiently obtain, use, and benefit from resale certificates, ultimately reducing their operational costs and ensuring legal compliance

Do You Need a Resale Certificate to Sell Online at Home?

If you want to start an ecommerce business, you need a specific resale certificate to sell products online, even if you’re operating your eCommerce business from home.

To gain a comprehensive understanding of the regulations that apply to your eCommerce business, you’ll have to learn the specific requirements for a reseller certificate for your location.

In the United States – resale certificates are used by online sellers to exempt them from paying sales tax when purchasing products that will be resold to end consumers. These certificates essentially establish a legal basis for sales tax exemption, provided you meet certain criteria and adhere to the rules and regulations set by your state and local sales tax authorities.

Important

The specific requirements for obtaining a reseller’s certificate can vary significantly from one state to another and may even vary at the city level.

As an online seller, you’re not typically required to pay sales tax on the items you plan to resell; instead, your customers will be responsible for paying the applicable sales tax when they purchase these products from your eCommerce store.

However, the specifics of obtaining and using a resale certificate can differ significantly depending on where your business is located. The regulations governing resale certificates are a matter of state law and, in some cases, local ordinances. This means that you must consider the rules and requirements in your specific state and city to ensure compliance.

What Is The Purpose of a Resale Certificate?

A resale certificate, often referred to as a “reseller certificate,” “reseller permit,” or “exemption certificate,” serves as a critical document for online sellers. Essentially, it’s the same thing as a sales tax permit or license but is sometimes issued separately from such permits and licenses by state authorities.

A resale certificate allows you, as a seller, to make tax-free purchases of products that you intend to resell to end consumers. It’s basically a business license to sell online.

By presenting this certificate to your suppliers or wholesalers, you can legally avoid paying sales tax on the items you purchase for resale. Instead, the responsibility for remitting the applicable sales tax to the state or locality falls on your customers when they make a purchase from your eCommerce store.

It’s important to note that the terminology and specific requirements surrounding resale certificates can vary from one jurisdiction to another. As you dive into the world of eCommerce, understanding what a resale certificate is and how it functions is crucial for ensuring compliance with state and local tax regulations.

Resale Certificate vs. Sales Tax Permit: What’s the Difference?

While a resale certificate and a sales tax permit share similarities, they are not the same.

  • Resale Certificate: A resale certificate allows you to purchase products without paying sales tax. It’s a declaration to your supplier that you intend to resell the items to end consumers who will ultimately pay the sales tax.
  • Sales Tax Permit: A sales tax permit, also known as a seller’s permit or sales tax license, grants you the authority to collect and remit sales tax on behalf of your state or local government. It’s a legal requirement for businesses to obtain a sales tax permit if they’re engaged in selling taxable goods and services. Unlike a resale certificate, which is primarily for purchasing items tax-free, a sales tax permit authorizes you to charge and collect sales tax from your customers.

In summary, a resale certificate is about avoiding the payment of sales tax on your purchases, while a sales tax permit is about your responsibility to collect and remit sales tax to the appropriate tax authorities.

What Is a Multi-Jurisdictional Resale Certificate?

What does a resale certificate look like, and is it the same as a multi-jurisdictional certificate?

A multi-jurisdictional resale certificate, often abbreviated as MJR, is a specialized type of resale certificate designed for sellers who operate in multiple states. It simplifies the process of purchasing items for resale across different jurisdictions.

Typically, a business must obtain separate resale certificates for each state where they operate. However, a multi-jurisdictional resale certificate consolidates this process, allowing you to present a single certificate to suppliers or wholesalers in various states, streamlining the tax-exempt purchasing process.

This certificate can be a valuable asset for online sellers with a broad geographic customer base, as it helps ensure compliance with the varying tax laws of multiple jurisdictions.

Understanding the nuances of multi-jurisdictional resale certificates can be particularly beneficial if your eCommerce business spans several states, enabling you to navigate the complexities of tax-exempt purchasing more efficiently.

Where Can You Use Resale Certificates?

The use of resale certificates is typically specific to individual retailers, and it’s contingent on their policies and your location. Resale certificates are primarily employed when making purchases from suppliers, wholesalers, or other businesses where you source products for resale.

Not all retailers or suppliers will accept resale certificates. The acceptance of a resale license can vary based on their individual policies. Some suppliers may have specific requirements or request additional documentation before they honor your resale certificate.

It’s advisable to establish a clear line of communication with your suppliers to ensure you comply with their procedures when using a resale certificate for tax-exempt purchases.

What Can You Buy with a Resale Certificate?

If you get a resale certificate, you can make tax-free purchases of products that you intend to resell in your eCommerce business. This can encompass a wide range of goods, including but not limited to:

  • Physical Products: Resale certificates can be used to purchase physical items such as clothing, electronics, home decor, and more, which you plan to sell in your online store.
  • Wholesale Merchandise: If you buy merchandise from wholesalers or distributors, you can use your resale certificate to avoid paying sales tax on these wholesale purchases.
  • Inventory for Your Online Store: Whether it’s the latest fashion trends, tech gadgets, or handmade crafts, any inventory you acquire for resale can be acquired tax-free with a resale certificate.
  • Raw Materials for Products: If your business involves manufacturing or crafting products, you can use a resale certificate to purchase raw materials and components without incurring sales tax.
  • Packaging and Shipping Supplies: Even items like packaging materials and shipping supplies can be purchased tax-free if they are intended for use in your eCommerce business.

Once you get a resale certificate, the items you buy with your resale license are intended for resale and not for personal use. Using the certificate for non-resale items may lead to legal and local sales taxes complications, so always maintain clear records and adhere to your state’s specific regulations regarding resale certificates.

Resale Certificate Requirements by State

Resale certificate requirements can vary significantly from state to state. A state’s tax department has specific rules for state resale certificates. To obtain detailed and up-to-date information regarding the resale certificate requirements in your state, you should refer to the official state government website or the department responsible for taxation and revenue.

Below, we provide an overview of resale certificate requirements for a few states as examples. If your state is not mentioned here, or you want to know about sales and use tax in more than one state, visit your state’s official website for comprehensive and accurate information.

StateRequirementIssuing AuthorityApplication Information
New YorkResale certificate is typically needed for online businesses selling taxable items and making purchases for resale.New York State Department of Taxation and FinanceNew York State Department of Taxation and Finance website
CaliforniaSellers planning to conduct online business and purchase goods for resale without paying sales tax need a resale certificate.California Department of Tax and Fee AdministrationCalifornia Department of Tax and Fee Administration website
WisconsinSellers require a Wisconsin resale certificate to purchase items tax-free for resale.Wisconsin Department of RevenueWisconsin Department of Revenue website
IndianaSellers selling taxable items online and wishing to make tax-exempt purchases for resale need an Indiana resale certificate.Indiana Department of RevenueIndiana Department of Revenue website
GeorgiaResale certificates are mandated for online sellers planning to purchase products tax-free for resale in Georgia.Georgia Department of RevenueGeorgia Department of Revenue website
ArizonaArizona resale certificate is required for online sellers to qualify for tax-free purchases for resale purposes.Arizona Department of RevenueArizona Department of Revenue website
Other StatesRequirements vary by state; businesses should research their specific state regulations and application processes.State-specific government or tax department websitesCheck your state’s official government or tax department website for specific details.

Resale Certificate Requirements by Platform

In addition to the varying requirements by state, it’s important to note that resale certificate requirements can also differ depending on the platform you choose to sell your products.

While these platforms facilitate online sales and can even host your eCommerce business, they may have specific rules and policies in place.

Adhering to local business regulations is still a fundamental requirement, regardless of the platform you select.

PlatformResale Certificate Requirement
EtsyAs of the last knowledge update in January 2022, Etsy generally does not mandate sellers to provide a resale certificate. However, compliance with state or local tax regulations is still necessary. Please check Etsy’s official guidelines for updates.
AmazonSimilar to Etsy, Amazon typically does not require sellers to provide a resale certificate for registration. However, sellers must comply with state and local tax regulations, and the requirement may vary based on business circumstances and location.
ShopifyShopify, as a platform, does not generally mandate a resale certificate for setting up an online store. However, sellers must adhere to local and state regulations, and obtaining a resale certificate may be necessary based on state tax laws.
Own eCommerce WebsiteIf you operate your own eCommerce website, the need for a resale certificate depends on the tax laws in your state. Research and comply with the tax regulations specific to your location, and obtain a resale certificate if required for tax-exempt purchasing.

On and secure a resale certificate if it is a prerequisite for tax-exempt purchasing.

Note: The requirements and policies of these eCommerce platforms can evolve over time. Although these are all the same type of platforms, with multiple wholesalers, for the most current and accurate information, refer to the official websites and resources of the specific platform you choose to sell on and stay informed about updates in state and local tax regulations.

Where Do I Get a Resale Certificate?

To ensure you can make tax exempt purchases for resale in your eCommerce business, you can get resale exemption certificates. The process to acquire a resale certificate typically involves the following steps:

Step 1: Contact Your State’s Tax Department

Reach out to your state’s tax department or revenue agency. You can usually find the contact information for these agencies on your state’s official government website.

Step 2: Register Your Business

You may need to register your eCommerce business with your state. This registration process often involves providing information about your business structure, contact details, and purpose.

Step 3: Complete the Resale Certificate Application

Once you’ve registered your business (if required), you will need to complete an application. This application will ask for specific details about your business, including your business name, address, and tax identification number.

Step 4: Provide Necessary Documentation

Depending on your state’s requirements, you may need to furnish additional documentation to support your application. This could include proof of your business entity, such as an LLC or corporation certificate, as well as any other documents requested by your state’s tax department.

Step 5: Submit Your Application

After filling out the application and gathering the necessary documentation, you’ll need to submit it to your state’s tax department. This can usually be done online, by mail, or in person, depending on your state’s procedures.

Step 6: Wait for Approval

The processing time for applications can vary from state to state. Once your application is approved, you will receive your resale certificate or permit, often in the form of a physical certificate or a digital document.

Step 7: Keep Your Certificate Current

Resale certificates may have an expiration date or require periodic renewals. It’s essential to keep your certificate current to ensure that it remains valid for tax-exempt purchases.

How to Get a Reseller Certificate in the USA: 5 Steps

Ecommerce businesses must get a resale certificate, also known as a resellers permit, to make tax exempt purchases. Here are the steps to get a resale certificate in the USA.

  1. Find Out Which States Require a Reseller’s Permit

Determine in which states you need a reseller’s permit. Not all states require one, and the requirements can vary.

To find out which states necessitate a reseller’s permit, you can refer to resources like this guide from The Ascent: States Requiring Sales Tax Resale Certificates.

  1. Prepare the Necessary Documents

Before you begin the application process, gather the necessary documents and information. The exact requirements can vary by state but often include:

  • Business Information: You’ll need your business’s legal name, address, and contact information.
  • Business Structure: Information about your business’s legal structure (e.g., sole proprietorship, LLC, corporation).
  • Tax Identification Number: Your federal employer identification number (FEIN) or Social Security number, depending on your business structure. This is your sales tax id.
  • Description of Business: An overview of your eCommerce business, including the types of products you plan to sell.
  • Bank Account Information: Details of your business bank account for tax purposes.

Make sure to have these documents and information readily available, as you’ll need them to complete the application.

  1. Fill Out the Application

Once you’ve prepared the necessary documents, it’s time to fill out the application for a reseller’s permit. The application can often be found on your state’s tax department website. The specifics of the application may vary, but it typically involves providing the information and documentation mentioned in step 2.

  1. Calculate the State Sales Tax Rate

As a seller, you’ll need to collect and remit sales tax from your customers in states that collect sales taxes. To do this, you must calculate the state sales tax rate for each applicable state. The sales tax rate can vary not only by state but also by local jurisdiction.

  1. Start Selling Online

Once you’ve successfully obtained your certificate, figured out your state tax code, and calculated how much your state will charge sales tax, you’re ready to start selling online.

With your certificate, you can make tax-exempt purchases of items you intend to resell, and you’ll have the necessary documentation to support your tax-exempt status.

How to Use a Resale Certificate to Buy and Sell

A resale certificate can be used to buy and sell tax exempt products. To make the most of it for your eCommerce business, you need to understand how to navigate eCommerce sales tax and use your tax exemption certificate effectively.

  1. Purchase for Resale

Once you have your resale certificate in hand, you can present it to your suppliers, wholesalers, or vendors when making purchases for items you intend to resell.

This certificate acts as proof that you are a legitimate reseller, and it exempts you from paying sales tax on these purchases. When you buy products for your eCommerce inventory, ensure you provide a copy of your resale certificate to the seller.

  1. Maintain Accurate Records

Keep detailed records of your tax-exempt transactions. This includes copies of your resale certificate, invoices, and purchase orders. Accurate record-keeping is crucial in case of a tax audit or any questions from tax authorities.

Having organized records ensures you can demonstrate that you used your resale certificate for legitimate, tax-exempt purposes.

  1. Verify the Validity of Resale Certificates

As a seller yourself, you may receive resale certificates from other businesses when selling your products. It’s important to verify the validity of these certificates to ensure that they are legitimate and issued by registered resellers. You can do this by checking with your state’s tax department or using online resources.

  1. Charge Sales Tax to Customers

While you use your resale certificate to avoid paying sales tax on your purchases, remember that you are generally required to collect and remit sales tax from your customers in states where you have a sales tax obligation.

When a customer makes a purchase from your eCommerce store, charge the applicable sales tax based on their location and the products sold.

  1. File Sales Tax Returns

To comply with state tax regulations, file regular sales tax returns. These returns detail your sales, calculate the amount of sales tax you’ve collected, and indicate the amount you owe to the state or local tax authorities.

Ensure you submit your returns on time and pay the owed sales tax.

Final Word

A resale certificate can be a valuable asset. This document allows you to make tax-exempt purchases for items you intend to resell, ultimately reducing your operational costs and streamlining your business operations.

With the steps outlined in this guide, you can not only obtain a resale certificate but also use it effectively in your eCommerce business.

Remember that compliance with state and local tax regulations is fundamental, and maintaining accurate records ensures your reseller status is legitimate. Now that you have your resale certificate, start selling your products online today.

Next Steps: What Now?

  • Learn more about how to grow an eCommerce business by exploring the best eCommerce platforms on the market to build your business online
  • Already built an eCommerce business website? Take the next step towards launching your online business, and learn how to avoid eCommerce mistakes, by choosing the eCommerce hosting platform that is best for your brand.

Learn More About eCommerce

Frequently Asked Questions

Who needs a resale certificate?

A resale certificate is typically needed by businesses engaged in selling taxable products to the end consumer. It allows these businesses to make tax-exempt purchases of items they intend to resell. The specific requirements for obtaining a resale certificate can vary by state, so it’s essential to check with your state’s tax department to determine if you need one.

What is the purpose of a resale certificate?

The primary purpose of a resale certificate is to establish a legal basis for tax exemption when making purchases for resale. It allows businesses to avoid paying sales tax on items they buy for resale, shifting the responsibility for remitting the tax to the end consumer. This benefits both businesses and customers, as it ensures that sales tax is collected only once when the product is sold to the final consumer.

What does a resale certificate look like?

A resale certificate typically includes the business’s information, such as its name, address, and tax identification number. It may also include the business structure (e.g., LLC, corporation) and other relevant details.

The appearance of a resale certificate can vary by state, but it often features an official design and is issued by the state’s tax department. It may be provided in physical form or as a digital document, depending on the state’s procedures.

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