Resale Certificate: Buy Tax-Free or Get a Sales Tax Refund

What is a resale certificate, and who can use one?

A resale certificate is a signed form a business gives its supplier to say it is buying goods to resell, so the supplier does not charge sales tax on that sale. The tax is deferred, not cancelled: the later sale to the final customer is the taxable one, if the goods are taxable. Resale rules are state law. This page uses Texas, New York and California as worked examples. For another state, find its revenue department's page on resale certificates and check the form, the number it asks for, when to give it, and whether the buyer can claim a refund.

Generally only a business that resells, or in some states leases, the goods can use one. California limits resale certificates to purchasers engaged in the business of selling tangible personal property. New York limits Form ST-120 to registered New York vendors and certain out-of-state buyers. Texas asks for the buyer's Texas permit number. Whether a side business counts as a business at all is a different question: see reselling as a hobby or a business.

A supplier that already charged tax is the common problem: ask it for a refund or credit first. Some states also let a permit holder claim from the state, but on a deadline, so the oldest invoices expire first.

What makes a case not simple: tax already paid on stock for months, several suppliers or states, items used in the business, or a letter from a state. In the three example states the certificate goes to the supplier, not the state. Texas says do not send it to the Comptroller.

Gather first:

• Your seller's permit or registration number in each state.
• Every supplier invoice that shows tax.
• Each certificate you sent, with the date.
• Proof of payment.

What do I need before a supplier will accept a resale certificate?

A supplier needs a complete certificate that carries your state registration number and describes what you are buying. Without one, the supplier carries the burden of proving the sale was for resale, so it will normally charge tax. New York treats sales without a valid certificate as taxable retail sales, and California puts the burden on the seller unless it timely takes a certificate in good faith.

No registration number yet? Most certificates ask for one, with exceptions. Texas accepts a certificate that says the permit application is pending; the Comptroller's audit manual says it is valid for only 60 days, then needs a new one with the permanent number. California accepts a sufficient explanation of why the buyer needs no California permit. On New York's Part 2, a buyer whose home place requires no sales tax or VAT registration gives its business location and writes "not applicable" for the number. Where you must register: see when you must collect sales tax. Otherwise stock bought before you register will normally be taxed, and in Texas a buyer with no permit when it paid must go through the seller for a refund.

In Texas and California, a permit number alone is not a certificate. Texas says a customer's permit number or a copy of its permit is not a substitute for a resale certificate. California says that giving a permit number, or telling the seller a sale is not taxable, does not relieve a seller who did not timely take a certificate, and wants the words "for resale" on the document, not "exempt" or "non-taxable".

Timing matters. California treats a certificate as timely if the seller takes it before billing, within its normal billing and payment cycle, or at or before delivery; a late certificate is not retroactive. New York protects a vendor that accepts a complete certificate in good faith and has it in hand within 90 days of the transaction. Send the certificate with the order.

Do I give a resale certificate with each order, or one blanket certificate?

Either: a certificate for one order, or a blanket certificate for repeat purchases from the same supplier. All three example states allow a blanket certificate, with conditions; otherwise each purchase needs its own.

Can one resale certificate work with suppliers in other states?

Not one for every state, but multistate forms cover groups of states; two are shown here. Each form names one seller, so you complete one per supplier, and each state decides what it accepts. Rules usually follow the state the goods are delivered to, not where the supplier sits: the Streamlined Board ties its certificate to a sale sourced to a member state, and New York says sales delivered outside New York State are exempt from tax.

Which number to enter: the Streamlined instructions say that if the state where you claim the exemption requires you to register, give that state's number; if you are not registered there, give a sales tax ID from any state. New York's out-of-state section accepts a registration in another state, a Canadian province or another country.

Goods drop-shipped straight to your customer in another state have their own rules: the Streamlined Board tells sellers to check with that state.

What can I buy with a resale certificate, and what can't I?

You can buy goods you will resell, either as you bought them or as a part of something you sell. You cannot use the certificate for things you will use up or keep: supplies, equipment, furniture or anything the business consumes.

Examples the states give:

• Texas: items you will resell in the form you bought them or as an integral part of other merchandise; property you will lease or rent to a customer; a taxable service on items in your resale stock; and property used in performing a taxable service when care, custody and control passes to the customer (Comptroller FAQ).
• New York: property for resale in its present form or as a physical component part of other property, and services bought for resale (ST-120). Contractors cannot use ST-120 to buy materials; see contractors and sales tax on materials.
• California: finished items for resale, materials that become a physical part of an item held for resale, and items held only for demonstration or display. Not items you will use in the business before selling them, use personally, or hold as an investment (Publication 103).

On a mixed order, mark which items are for resale. Texas tells buyers to clearly indicate which items the supplier should not tax, and not to use a certificate when there is any question whether you will resell the property.

I took something out of resale stock for my own use: what do I owe?

A business that uses an item it bought for resale owes tax on that use, generally measured on what it paid for the item, not on the price it would have sold it for. This is use tax: tax owed on goods you use when no sales tax was paid at purchase.

• Texas: you must pay tax at the time of use, on either the purchase price or the fair market rental value for the period of use. The Comptroller's example is a broom pulled from stock to sweep the store; you include the amount in the "taxable purchases" line of your return.
• New York: a business that withdraws property from inventory for its own use owes use tax on the price it paid. A registered business reports it on its sales and use tax return.
• California: use tax on the cost of the property, due when it is first stored or used and reported on the return for that period. A buyer cannot retroactively revoke the certificate to turn the use tax into sales tax.

Holding goods for sale, or demonstrating or displaying them while holding them for sale, is not a use (Texas, California). How to report and pay use tax is in use tax on business purchases.

A supplier charged me sales tax on goods I resell: how do I get it back?

Ask the supplier first. The supplier collected the tax and paid it to the state, so a refund usually starts there, and in some states only the supplier can claim it from the state.

1. Confirm the goods qualified: your business sells them and the state's resale rules cover them. Tax on items you used is not recoverable on this basis.
2. List each invoice that charged tax: supplier, date, items, price and tax.
3. Send the supplier a completed resale certificate, only for goods you resold or still hold for resale. Texas will not refund a seller until it has obtained a resale or exemption certificate from you. Elsewhere a late certificate may not be enough: California says it is not retroactive, so the supplier may have to show the goods were resold, and after 90 days New York puts the burden of proving the sale was exempt on both sides.
4. Ask for a refund or a credit on your account. In Texas, a credit needs your written consent on Form 89-123.
5. If the supplier does not act, use the direct route in the next section where your state allows one.
6. Claim once. New York's Form AU-11 has the claimant certify that no part of the tax was already credited or refunded by the person who collected it.

Can I claim the sales tax refund from the state myself, and how long do I have?

In New York, a person who paid tax in error may apply. In Texas, a buyer that held a permit when it paid may claim; otherwise it goes through the seller. In California, sales tax goes through the retailer; a buyer claims directly only for use tax that a retailer required to collect it charged.

Deadlines are counted from when the tax was due or paid, depending on the state, never from the day you noticed the charge. The supplier's return date is not on your invoice, so count from the invoice date to be safe; the oldest invoices run out first.

California also lets a retailer that paid tax to its supplier, then resold the item before any taxable use, deduct the pre-tax price on the return that reports the resale; Regulation 1701 names tax paid by mistake on goods bought for resale. If the deduction was missed for that period, a refund claim is needed. Taking it bars a refund or credit to the supplier for that sale, so use one route. That is a deduction, not a refund.

Watch for:

• An incomplete claim. In Texas, the deadline stops running only once the claim meets every requirement.
• An open audit. Texas suggests asking the auditor whether the refund can be included.
• A denial. Texas gives 60 days from the denial letter to request a hearing or file a notice of intent to bypass it; New York gives 90 days to petition.
• Other states. Each sets its own deadline: read the state's refund page before relying on these.

I bought online to resell and the checkout charged tax: what now?

Treat it like any supplier that charged tax. Where the site has a way to take a certificate, send it before the order is billed. If the site charges tax anyway, save the order confirmation and the invoice showing the tax, then follow the refund steps above. In California, ask whether the charge was use tax collected by an out-of-state seller: that is the one case where you can claim from CDTFA yourself. The refund deadline keeps running while you wait on the supplier.

What records does a sales tax refund claim need?

A sales tax refund claim needs proof of the purchase, of the tax paid, and of why the purchase qualified for resale; Texas, New York and California each ask for these.

• Texas: the Comptroller may ask for invoices, dates, item descriptions, amounts, a sales journal and general ledger, resale certificates, proof of payment, the local taxing jurisdictions paid, and the seller's name and permit number. More than 10 invoices go in a schedule.
• New York: a signed Form AU-11, an explanation of the basis for the claim, and the documents that support it; a summary table is accepted for large volumes. A representative signing for you also needs Form POA-1.
• California: the claim states the reasons, the amount and the reporting periods, and goes with invoices or exemption certificates.

Keep tax charged in error on its own line, apart from the cost of the stock, and tag each purchase by supplier, date and whether a certificate was sent. When a refund or credit arrives, it clears that line instead of being counted as income: see recording refunds in the books. A claim, a use tax entry for an item pulled from stock and an audit all start from that same list.

What happens if I give a resale certificate for something I use?

A business that gives a resale certificate for items it uses owes the tax, and in Texas, New York and California giving such a certificate can be a crime. Each state looks at what the buyer knew at purchase, and New York and California also at whether the buyer meant to evade the tax. The tax is owed either way. The criminal side falls on the person who signs.

Example

Figures are illustrative and in US dollars.

A Texas shop paid tax on parts it resells

A Texas shop with a sales tax permit buys US$5,000 of parts each quarter to resell. For six quarters the supplier charges US$400 of tax on each order because no certificate is on file. The shop sends a completed certificate covering all six invoices and asks for a refund. The supplier does not respond. The shop held a permit when it paid, and Texas lets such a purchaser amend returns, take a credit or file its own claim. The four-year period generally runs from each tax's due date, so the shop lists the invoices oldest first and files the oldest claims first. The total at stake is US$2,400, before any part the Comptroller does not allow.

A New York retailer uses a desk it bought for resale

A New York retailer buys a desk for US$750 with Form ST-120, paying no tax, meaning to sell it for US$1,250. It then uses the desk in its own office. Had it known at purchase that it would use the desk, giving the certificate was misuse: see the misuse section above. Use tax is owed on the US$750 it paid, not on the US$1,250 resale price. At an illustrative 8% rate that is US$60, not US$100. Generally the rate is the one where the retailer took delivery of the desk, or where it uses the desk if that rate is higher. A registered retailer reports it on its sales and use tax return.

An online reseller buys from five states

An online reseller spends US$20,000 a year with suppliers in Ohio, Utah, Texas, California and New York. What decides the certificate is where each order is delivered, not where the supplier sits. Goods delivered to Ohio or Utah, both Streamlined member states, can use the Streamlined certificate, one per supplier. Goods delivered inside Texas, California or New York follow that state's rules: the Border States certificate may fit Texas or California if the reseller's permits match what that form asks, and New York needs ST-120, with its out-of-state section only if the reseller is not required to register in New York and one of the form's two cases applies. The reseller sends each certificate before the order is billed and keeps a log by supplier.

Different for you?

• You have paid tax on stock for months, across several suppliers or states: refund windows differ by state, and only some payments can be claimed directly. Which are still inside a deadline, and who may claim them, depends on each state. If the books never kept tax-paid purchases apart from resale stock, the claim list has to be rebuilt from invoices and bank records: see bookkeeping help and inventory or supplies for small sellers.
• A state has asked for tax on stock you used, or opened an audit: see sales tax audits, and get bookkeeping help to rebuild the purchase and withdrawal records first.
• You collect certificates from your own customers: see exemption certificates from customers.
• Goods arrived untaxed and you used them: that is use tax: see use tax on business purchases.
• You are unsure where you must register: registration rules differ by state, and most certificates ask for a number. See when you must collect sales tax.
• You need to amend a sales tax return or take a credit: see filing sales tax returns.
• You are a contractor buying materials: see contractors and sales tax on materials.
• You sell online and want the income tax side: see income tax for online sellers.
• The goods will be resold outside the United States, or you are a Canadian or other non-US business buying US stock: a Texas resale certificate covers only the United States and Mexico, so other exemptions may apply that this page does not cover. See Canadian sellers with US inventory, foreign sellers and sales tax and cross-border tax help.