Which States Don’t Accept Out-of-state Resale Certificates?
If you purchase inventory from a wholesaler and re-sell the inventory to customers (or if you are a dropshipper), chances are that your supplier has asked you to provide a resale certificate to them.
When you provide a valid resale certificate to your dropshipper, all of your purchases for resale are now tax-free and you don’t need to pay sales tax on them (hooray). However, if you can’t provide a valid resale certificate to the supplier, you’ll end up paying sales tax on those purchases. This can certainly eat away at your margins.
Typically, providing a resale certificate to a supplier is as easy as filling out the appropriate exemption certificate form. There is, however, one important caveat: Not all states accept out-of-state resale certificates.
Which States Won’t Accept Out-of-state Resale Certificates?
In most states, so long as you have a valid resale certificate in at least one state, you can use that certificate to make purchases tax free for resale from your supplier. Here, however, are the ten states that do not allow the use of out-of-state resale certificates:
|State||Accept Out-of-state Resale Certificate?||What You Need Instead|
|Alabama||No||Alabama requires you to register for a sales tax permit in order to purchase items in-state tax free for resale unless you are a dropshipper. If you are dropshipping, Alabama will accept your home-state exemption certificate. See here for more information.|
|California||No||California requires you to register for a sales tax permit|
|Florida||No||Florida requires you to register for a sales tax permit|
|Hawaii||No||Hawaii requires you to register for a sales tax permit|
|Illinois||No||Illinois requires you to register for a sales tax permit|
|Louisiana||No||Louisiana requires you to register for a sales tax permit|
|Maryland||No||Maryland requires you to register for a sales tax permit|
|Massachusetts||No||Massachusetts requires you to register for a sales tax permit|
|Washington||No||Washington requires you to register for a sales tax permit|
|Washington, D.C.||No||Washington, D.C. requires you to register for a sales tax permit|
Free State Audit Risk Guide
See which states pose the greatest risk to your business.
State-by-State Audit Risk Percentages
How Do You Avoid Paying Sales Tax on Items Purchased for Resale?
If your supplier is requesting that you provide a valid resale certificate in one of the above states and you do not have a permit in the state, then you should consider registering for a sales tax permit in the state. This will allow you to provide the proper documentation in order to avoid paying sales tax on your purchases. By the way, click here to learn about how we can register your business for sales tax permits.
If your supplier is requesting that you provide a valid resale certificate in a state that is not listed above and you have a sales tax permit in at least one state, then you simply need to fill-out the appropriate resale exemption form and provide it to the supplier. Easy peasy!
A third option is to stop doing business with the supplier and hope that your next supplier isn’t as sales-tax-savvy. We’ve seen our clients do this in the past, but the new supplier usually figures out that they need to be collecting resale certificate documentation eventually.
A Word of Caution Regarding Resale Certificates
Here are a few things you should keep in mind as you continue your resale certificate journey.
Suppliers are not very knowledgeable on what resale certificate documentation they can accept. We’ve seen suppliers deny out-of-state resale certificates in states that accept out-of-state resale certificates, and require their vendors to register for an in-state sales tax permit. If this is happening to you, you can either show them this blog post (and the supporting state statutes) or you can just bite the bullet and do what they say. Thankfully, this is not the case with the majority of suppliers.
Resale exemption certificates are typically only good for one kind of use: reselling products. Many states have special forms for the different types of exemption use. Note that exemptions claimed on incorrect forms may be considered invalid.
In many states, resale certificates eventually expire. This means that you may need to fill the form out again every one to five years. Each state varies in when their resale certificate expires. Keep track of the expiration dates of your resale certificates.