Who this is for
- Sellers who invoice business customers in one or more states without charging sales tax
- Owners whose customer certificates are missing, undated or kept in email
- Businesses that must show a state which certificate supports each untaxed invoice
Not covered here
- Which states you must collect in at all
- Buying inventory with your own resale certificate
- Data center buyer exemptions and contractors' materials
- Every state's rules: Texas, New York and California are worked examples
- Voluntary disclosure, penalties and audit appeals
When can I sell to a business without charging sales tax?
A sale of a taxable item to a business is taxable unless an exemption applies and you can prove it. "We're a business" is not an exemption. The proof is usually a certificate the customer signs: a resale certificate if it will resell what it buys, or an exemption certificate if it qualifies for another reason, such as an exempt use or an exempt buyer.
The state puts the risk on the seller. New York says sales not supported by valid exemption certificates are deemed taxable retail sales, with the burden of proof on the seller: if the paper is missing, you must prove the sale was exempt. California presumes all gross receipts are taxable until the contrary is shown. Texas says that if you do not keep the certificates you accepted, those sales will be presumed taxable in an audit.
Certificate rules are state law. This page uses Texas, New York and California as worked examples, plus the Streamlined Sales Tax form for its member states. The Streamlined Sales Tax Governing Board runs one shared certificate for the states that joined the Streamlined agreement; its exemptions page lists them. For any other state, find three answers on the state revenue department's own site: which certificate form it accepts, how long after the sale a certificate may arrive, and how long to keep it.
A customer's statement that goods will leave the state is not enough by itself: California says it does not relieve the seller; the documents must show it. Whether you had to collect in that state at all is a separate question: see when you must collect sales tax.
What makes a case not simple: sales into several states, years of untaxed invoices, certificates that are undated, incomplete or buried in email, untaxed invoices that do not say which certificate backs them, or a state letter. The certificate is the proof, and the books are where you find it. Gather first:
- A customer list with the state each sale was delivered to.
- Every certificate on file, with its date.
- Untaxed invoices by customer.
Resale certificate or exemption certificate: which one fits which customer?
A resale certificate fits a customer that will resell what it buys. An exemption certificate fits a customer that qualifies for another reason. They are different documents, and a resale certificate does not cover something the customer will use itself. An exemption can also remove only part of the tax: California's manufacturing and research equipment exemption leaves part payable, and the seller documents it with a partial exemption certificate (CDTFA-230-M or an equivalent) and charges the rest.
| Your customer | Usually gives you |
|---|---|
| Buys the item to resell it | A resale certificate |
| A government body or charity | An exemption certificate, where the state allows that exemption. Texas needs none from the federal government or Texas and its agencies and political subdivisions (audit manual). Another state's government qualifies only if the state borders Texas and exempts Texas from tax on similar sales (Tax Code 151.309) |
| Uses the item in manufacturing or another exempt use | An exemption certificate naming that use |
The forms by state:
| State | Resale certificate | Exemption certificate |
|---|---|---|
| Texas | Form 01-339, resale side. Needs the buyer's 11-digit Texas permit number, or an out-of-state registration number | Form 01-339, back. States the reason; needs no number |
| New York | Form ST-120 | A form by reason, such as the Exempt Use Certificate (ST-121) or the Exempt Organization Exempt Purchase Certificate (ST-119.1), listed in TB-ST-240 |
| California | CDTFA-230, or any letter or purchase order with the required elements, which must say "for resale" | A written certificate with date, signature, name, address, permit number or the reason none is needed, a description of the property and its use (Regulation 1667). Particular exemptions need more: the manufacturing certificate also states that the buyer is a qualified person and the property is qualified property |
| Streamlined member states | One form with a reason box: resale, government, charity, manufacturing and others (form) | Same form |
The certificate must fit the customer. If a buyer wants an item it does not ordinarily sell, California says the seller should require a certificate that lists that specific item or treat the sale as taxable. Texas says not to accept a resale certificate if you know or have reason to believe the goods are bought for other than resale. Texas resale relief covers resale in the United States, its territories or possessions, or Mexico, not other countries; a sale for delivery abroad may be exempt as an export instead, which Texas proves only with the export documents its statute lists.
When do I need the certificate: before the sale, or can I collect it later?
It is easiest to have it with the order. After that, help from a later certificate is state-specific: the Streamlined states and New York allow 90 days, California ties timing to its billing cycle and delivery, and Texas's 90 days start only when the Comptroller sends written notice requiring the certificates.
| State | When the certificate must be in your hands |
|---|---|
| Streamlined member states | At the time of sale or within 90 days after it, as one condition of the seller's protection (form instructions) |
| New York | Within 90 days of the sale; the form's instructions count from delivery of the property or performance of the service. After that, you and the customer both carry the burden and more documentation may be required |
| California | Before you bill, within your normal billing and payment cycle, or at or before delivery. A certificate that is not timely is not retroactive |
| Texas | The statute says it should be in your possession when the sale happens. In an audit, deductions that need a certificate are disallowed if you do not hold it within 90 days of the Comptroller's written notice, or a later agreed date (S.B. 296; Comptroller notice of the rule change). The Comptroller's audit manual still shows 60 days; the statute as amended says 90 |
These are the ordinary windows, not planning targets. Missing one does not always end the chance to prove an exemption: New York takes a late certificate with both sides carrying the burden, California accepts other proof, and Streamlined states allow a further period after an audit request (see the audit table below).
What must a valid certificate show, and what does good faith mean?
Each state defines a valid certificate and good faith for itself. In general a certificate has to be complete, come from the customer, fit what you sold and fit what the customer does, and good faith turns on whether anything on it, or anything you knew, should have made you doubt it.
Most state forms ask for the items below; check the state's own form:
- The purchaser's name and address, and the seller's name and address.
- The purchaser's registration number, where the state requires one.
- A description of what is bought, or the reason for the exemption.
- The purchaser's signature and the date. The Streamlined form says a signature is not required on an electronic form. California lists the date for an exemption certificate; for a resale certificate it says an otherwise valid one is not invalid solely because it is undated. Get the date anyway, because timing is judged by it.
- The state's own wording. California wants the phrase "for resale"; terms like "exempt" or "non-taxable" are not acceptable.
How each source defines good faith:
- New York: you have no knowledge that the certificate is false or fraudulently given and use reasonable ordinary care. The protection applies to a seller with a Certificate of Authority, and most sellers need one to accept an exemption certificate. Whether you must register there is a separate question: see when you must collect sales tax.
- California: you are presumed to have acted in good faith when the certificate has the essential elements and looks valid on its face, unless there is evidence to the contrary.
- Texas: a certificate accepted at the time of sale is treated as good faith unless something is obviously wrong on its face, such as an invalid permit number. The Comptroller also asks whether the buyer sells that kind of item and whether you knew it would be consumed.
- Streamlined states: the seller is not liable for the buyer's improper claim if the fully completed certificate came at the time of sale or within 90 days, the seller did not fraudulently fail to collect, and the seller did not solicit customers to claim an exemption unlawfully. The seller need not verify the buyer's ID number, except in Georgia.
The sources read name three things that do not count as a certificate. A permit number or a copy of the permit: Texas says it is not a substitute. A customer who removes the tax from your bill or says the sale is "not taxable": California says that does not relieve a seller who did not timely get a certificate. An entity-based exemption, such as a government or charity, claimed at a location you operate in a Streamlined state that does not allow it: the Streamlined Governing Board says you may not accept the certificate there.
Can one blanket certificate cover repeat orders from the same customer?
Usually yes, for the same general kind of purchase, until it ends or the customer's details change.
| State | How a blanket certificate works |
|---|---|
| Streamlined member states | Unless the single-purchase box is checked, the form is a blanket certificate. It stays effective until the buyer cancels it, if purchases are no more than 12 months apart, unless the state allows longer |
| New York | Mark the Blanket box on ST-120; otherwise it is single-use. It covers purchases of the same general type. If the buyer's details change, get an updated one |
| California | A resale certificate stays in effect until revoked in writing. If a later purchase order marks a transaction taxable, the blanket does not apply to that transaction |
| Texas | A blanket resale certificate fits a customer that buys exclusively for resale and lasts until written revocation. A buyer with a pending permit gives a certificate valid for 60 days, then a new one with the permanent number (audit manual). A buyer that purchases both resale and use items must show per purchase which is which |
Can I take a multistate certificate, or does each state need its own form?
One form can cover several states, but only the states that accept it, and the state where the sale is delivered decides.
| Form | Where it works | Limits |
|---|---|---|
| Streamlined Sales Tax Certificate of Exemption | Streamlined member states, for a sale delivered to one of them | Texas, New York and California are not among the 24 states listed on the form. A state may not allow every exemption on the form or may require its own ID number. You need not register through the Streamlined system to use it. Drop shipments: check with the state |
| Border States Uniform Sale for Resale Certificate | Arizona, California, New Mexico and Texas | Resale only. For any other exemption reason, use the state's own form |
| Multistate Tax Commission uniform certificate | States that have told the Commission they accept it as a resale certificate | The Commission says to confirm with each state's revenue department |
| The state's own form | That state | New York's ST-120 Part 2 is for out-of-state buyers that are neither registered nor required to register in New York, and only for the resale transactions it lists; a buyer that must register uses Part 1. New York says other states' certificates are not valid for its exemption |
Record the delivery state for every certificate, and pick the form by that state. For the buyer's side of the same forms, see resale certificates and sales tax refunds.
How long do I keep certificates, and how do I tie each untaxed invoice to one?
Keep each certificate for the state's minimum, and longer while an audit, appeal or refund claim is open. Link every untaxed invoice to the certificate behind it.
| State | Minimum |
|---|---|
| New York | 3 years after the return due date or filing date, if later (ST-120). For a blanket certificate, TB-ST-240 counts from the due date of the return that reported the last sale using it |
| Texas | 4 years for sales and use tax records, and until the audit is completed if one is under way (Comptroller) |
| California | 4 years for records needed to determine the tax; the regulation lists exemption certificates among supporting documents (Regulation 1698) |
| Streamlined member states | The seller must keep proper records of exempt sales and give them to the state on request, on paper or electronically (form instructions). The period is the state's own |
| Any other state | Differs. Find the state's own record-keeping page |
New York, California and Texas each look for the link. New York requires a method of associating an invoice with the certificate on file. California says invoices for exempt sales should name the purchaser so they can be matched to certificates. A Texas auditor compares the certificate's description with the sales invoice.
For each untaxed invoice, the books should show the customer, the delivery state, the certificate form, its date and what it covers. Then a list of untaxed invoices with no certificate reference takes seconds to produce. Save each certificate as a file in a folder per customer, name it with the date and delivery state, and note any end date (a Texas pending-permit certificate, or a Streamlined blanket certificate after 12 months with no purchase) so you can ask for a new one before the next order.
What happens in an audit if a certificate is missing, late or incomplete?
The auditor generally treats the sale as taxable unless you show otherwise. How much a late or flawed certificate still helps depends on the state.
| State | What the state says |
|---|---|
| New York | Missing: the sale is deemed a taxable retail sale and the burden is on the seller. Late: both sides carry the burden. On time but not properly completed: satisfactory if the gap is corrected within a reasonable period |
| California | Missing or late: the burden is on the seller, and a late certificate is not retroactive. You can still be relieved by showing the goods were resold, held for resale, or consumed with the tax reported or paid by the buyer. A letter, in a form the agency approves, in which the customer confirms it resold the goods or paid the tax is one way to prove it. A certificate missing the essential elements does not get the good-faith presumption |
| Texas | Missing: sales are presumed taxable. Late: not accepted after the 90-day period that starts with the Comptroller's written notice (S.B. 296). Incomplete: the audit manual says all blanks should be filled in |
| Streamlined member states | Protection depends on a fully completed certificate by the deadline above and on the seller's own conduct. If it was not obtained in time, the state must allow at least 120 days after its request for substantiation to get a fully completed certificate taken in good faith (an exemption available on the sale date, applicable to the item and reasonable for the buyer's business) or other proof the sale was not taxable. Relief can be denied if the seller knew or had reason to know the information was materially false, or took part in evading the tax (Agreement, section 317) |
How an auditor samples, estimates and bills is covered in sales tax audits.
The customer never gave me the certificate: do I owe the tax, or is it their problem?
You may owe it. The customer may owe use tax too (the buyer's own tax on items bought without sales tax), but that does not by itself release you. The seller is the one who must show why no tax was collected.
The Streamlined Board says that when the seller does not collect, the customer must remit use tax directly to the state unless it can claim a valid exemption. That gives the state a second person to pursue; it does not move your burden. California says a buyer who deletes the tax, gives a permit number or calls the sale "not taxable" does not relieve the seller who failed to get a timely certificate.
What can change the answer:
- A valid certificate arrives inside the state's window.
- The state accepts other proof, as California does for goods that were resold or whose tax the buyer paid.
- The sale was not taxable in that state in the first place: see when you must collect sales tax.
If you accepted a complete certificate in good faith and the customer turns out not to have been exempt, the good-faith rules above are what protect you. A certificate with a visible flaw does not get that protection.
Whether you can bill the customer for tax you did not collect depends on the contract and the state: see invoices sent without sales tax.
What do I do now with untaxed invoices that have no certificate?
Sort them by state and by what you hold, ask for what can still be obtained, and treat the rest as possibly taxable.
- List every untaxed business sale by customer and delivery state. Set aside sales in states where you had no duty to collect.
- Match each invoice to a certificate and sort into three piles: complete and on time, on file but flawed (undated, wrong form, no number), and none.
- Ask for the right form in the second and third piles, using the windows above. The customer completes, signs and dates it with the real date. Never fill in, sign or backdate a certificate for a customer: the form is the customer's own certification, Texas makes knowing misuse a criminal offence, and a seller who solicits an unlawful claim loses Streamlined protection.
- Work out what applies to whatever stays unsupported. Billing the customer, paying it yourself and reporting it are covered in invoices sent without sales tax and catching up on uncollected sales tax. If a state letter has arrived, start with sales tax audits.
- Fix intake. Many sellers ask for the certificate before the first untaxed order and store a reference to it with the customer record.
Example
Dollar figures are in US dollars and are illustrative.
Texas: certificate before shipping
A Texas parts distributor sells US$30,000 of parts to a shop that resells them. Before shipping, the shop sends a completed Form 01-339 with its 11-digit permit number, a description of the parts and of its business. The distributor ships without tax and files the certificate in the customer folder with the invoice number written on it.
New York: nothing arrives in 90 days
A vendor delivers US$12,000 of goods to a New York business customer that says it will resell them. No ST-120 arrives within 90 days. Unless the vendor can show the sale was exempt some other way, New York treats it as a taxable retail sale and the vendor carries the burden. At an assumed combined rate of 8%, that would be US$960 plus interest. A certificate that arrives on day 100 is not on time: the vendor and the customer both carry the burden, and more proof may be asked for.
Six states, certificates in email
A seller made US$500,000 of untaxed business sales in six states and keeps the certificates in email threads. An audit letter could ask for each one by invoice. Before any letter comes, the seller lists every invoice by delivery state and finds US$380,000 backed by complete certificates, US$70,000 backed by certificates with gaps and US$50,000 with none. If those sales were taxable and the average combined rate were 7%, the US$50,000 would carry US$3,500 of tax before interest, and the US$70,000 would carry US$4,900 if the gaps could not be fixed. The work is to cure the gaps state by state, decide how to handle the rest, and store each certificate reference with the customer.
Different for you?
- You sold without tax to business customers in more than one state, and the certificates are missing, undated or buried in email, or a state letter arrived: each state counts its own sales, windows and records. Working out which sales a state could treat as taxable, which certificates can still be obtained, and how the books tie every untaxed invoice to its certificate is record work: see bookkeeping help.
- A state has sent an audit letter or information request: see sales tax audits for what happens next. Rebuilding the certificate and invoice records is bookkeeping work: bookkeeping help.
- You should have collected tax for past periods: see catching up on uncollected sales tax.
- Invoices already went out without the right tax: see invoices sent without sales tax.
- You are the buyer giving a certificate to your supplier: see resale certificates and sales tax refunds.
- Your buyers are data centers: see sales tax on servers, installation and maintenance.
- You are a contractor buying materials: see contractors and sales tax on materials.
- You are a Canadian or other non-US seller: see US sales tax for sellers based outside the US. You sell in Canada, not the US: see no resale certificate in Canada.
- You are unsure which states need your tax at all, or how to file: see when you must collect sales tax and filing sales tax returns.
Figures on this page
| Figure | Value | Source |
|---|---|---|
| Streamlined states: time after the sale to get a fully completed certificate Seller is relieved of the tax if it obtains a fully completed certificate or captures the data elements within this period; a member state may allow longer | 90 days | Streamlined Sales and Use Tax Agreement, section 317(C) Checked |
| Texas time to hold a resale or exemption certificate after the Comptroller's written notice From the date of the Comptroller's written notice requiring the certificates, or a later date agreed with the seller; deductions that need a certificate are disallowed and none is granted on a certificate delivered later | 90 days | Texas Tax Code 151.054(e) and 151.104(d), as amended by S.B. 296 (2021) Checked |
| New York time to get an exemption or resale certificate after the sale ST-120 instructions count from delivery of the property or performance of the service; after that, seller and purchaser both carry the burden of proving the sale was exempt | 90 days | New York Tax Department: Form ST-120 instructions Checked |
| Streamlined blanket certificate: longest gap between purchases Blanket certificate stays effective until cancelled if purchases are no more than this far apart, unless the state allows longer | 12 months | Streamlined Certificate of Exemption (Form F0003), instructions Checked |
| Texas resale-certificate validity while a permit application is pending Rule 3.285(g)(2): renew the certificate after this period to show the permanent permit number; separate rules apply to out-of-state retailers. | 60 days | Texas Comptroller: Rule 3.285(g)(2) Checked |
| New York minimum record retention for sales tax exemption certificates held by a contractor Measured from the due date of the last return to which the certificate relates, or the date that return was filed, if later. | 3 years | New York Tax Department: Form ST-124, Certificate of Capital Improvement (12/15) Checked |
| Texas minimum sales and use tax certificate record retention Keep longer during an audit, appeal or refund proceeding; special obligations may require longer. | 4 years | Texas Comptroller: Keeping Records FAQ Checked |
| California minimum retention for sales and use tax records Applies to all records necessary to determine tax liability; Regulation 1698(g) lists exemption certificates among supporting documents that may be kept as images. Unless the CDTFA authorizes earlier destruction in writing | 4 years | CDTFA: Regulation 1698, Records Checked |
| Streamlined states: minimum time after a state's request for substantiation to obtain a certificate or other proof Applies when the seller did not obtain the certificate or data within the first period; a member state may allow longer | 120 days | Streamlined Sales and Use Tax Agreement, section 317(D) Checked |
Primary sources
- Streamlined Sales Tax Governing Board: Exemptions
- Streamlined Sales and Use Tax Agreement, section 317 (administration of exemptions)
- Streamlined Sales Tax Certificate of Exemption, with instructions (Form F0003)
- Multistate Tax Commission: Uniform Sales & Use Tax Certificate
- New York Tax Department: Form ST-120, Resale Certificate, with instructions
- New York Tax Department: Exemption Certificates for Sales Tax (TB-ST-240)
- Texas Comptroller: Sales and Use Tax Forms
- Texas Comptroller: Form 01-339, Resale Certificate and Exemption Certification
- Texas Comptroller: Border States Uniform Sale for Resale Certificate (Form 01-909)
- Texas Comptroller: Sales and Use Tax FAQ, Resale Certificates
- Texas Comptroller: Sales and Use Tax FAQ, Keeping Records
- Texas Comptroller: Auditing Fundamentals, chapter 5
- Texas Legislature: S.B. 296 (2021), amending Tax Code sections 151.054 and 151.104
- Texas Tax Code chapter 151: sections 151.006, 151.307 and 151.309
- Texas Comptroller: Tax Policy News, July 2022 (rules 3.282, 3.285 and 3.287)
- CDTFA: Publication 103, Sales for Resale
- CDTFA: Regulation 1667, Exemption Certificates
- CDTFA: Regulation 1668, Sales for Resale
- CDTFA: Regulation 1698, Records
- CDTFA: Manufacturing and R&D equipment partial exemption, guidance for sellers
About this guide
Published by Cloud Accounting under standing professional approval. This version has no separately recorded personal review. It explains general rules for the tax year shown. It is not advice for your situation.
Changes
- : First published.