Doing business as a domestic retailer or wholesaler of pre-owned cell phones in most American states requires some critical paperwork, known as resale certificates. This guide walks through whether your business needs a resale certificate, how to obtain a resale certificate, and how to use a resale certificate once you get one.
Do I Need a Resale Tax Certificate?
The majority of states in the US require mobile phone sellers to have a resale tax certificate before beginning operations; this state resale certificate is not a formality. In most cases, you’re not going to find sellers that are willing to sell products to you unless you present your certificate. Although a domestic retailer or wholesaler of goods can sell to you without a resale certificate, they are required to collect sales tax.
There are exceptions on a state-by-state basis. Domestic buyers located in states without sales tax (Alaska, Delaware, Montana, New Hampshire, and Oregon) may be permitted to show suppliers their business licenses in place of a resale certificate. International buyers are not required to show resale certificates to make purchases.
What Is a Resale Certificate?
If you’ve been building up your business plan, there’s a good chance you’ve seen or heard mentions of resale certificates. You shouldn’t think of this certificate as a burden. Rather, it’s there to protect you from owing taxes on items you buy and resell. In short, this is a tax-exemption certificate that exempts you from paying double the sales tax on products that will ultimately be resold. As a buyer, you will submit a certificate to the seller to let them know that you intend to resell the goods you’re buying.
Sellers are responsible for collecting taxes and submitting them to the state. A certified seller who produces a sales tax resale certificate can purchase products without paying state and local taxes. The certificate shifts tax burdens to the end-user of products you intend to sell. Wholesale resale permits or resale certificates provide proof that you are part of a chain of transactions and not the final link.
It helps to understand the tax life cycle of a product to fully understand how to use resale certificates. By law, sales tax only needs to be paid a single time for a product. Retailers are obligated to charge buyers appropriate sales tax amounts. If you’re a certified reseller, you don’t have to pay sales taxes. But, you must collect taxes when you sell to an end-user. And, if you participate in business-to-business sales, you will need to request proof of a resale certificate when you sell to other resellers.
Many states have their own resale certificates. There are 12 states (plus Washington, DC) that require you to register for a sales tax permit in their state to get a resale certificate. Two of the most common resale certificates accepted by multiple states are:
- A Uniform Sales & Use Tax exemption Resale Certificate
- A Streamlined Sales Tax Agreement Certificate of Exemption
Uniform Sales & Use Tax Exemption Resale Certificate and Streamlined Sales Tax Agreement Certificate of Exemption: What Are the Differences?
Thirty-six states recognize the Uniform Sales & Use Tax Resale Certificate. You’ll need to contact your state’s revenue department to determine whether this certificate will be appropriate for you. Keep in mind that you’ll need to register for any state where you have a sales/use tax nexus, which is a certain level of reach or contact in a given state that justifies sales tax collection in that state (check with your tax professional for guidance). You would need to register separately for each state.
If you’re doing business in one of the 26 states recognizing the Streamlined Sales Tax Exemption Certificate, you can use this form. While some states overlap, you’ll need to look at state-by-state requirements to see what applies based on where you and your suppliers are located.
How to Get a Resale Certificate
You’ll need to apply with your state tax agency to obtain a resale certificate. Policies vary quite a bit by state. You may learn that your business resale certificate ID is the same as your sales tax registration number in some states. In other states, you’ll need to go through a formal application process to obtain a separate certificate.
The Last Big Thing to Know: Some Suppliers Will Require Something Extra
Suppliers in California, Hawaii, Illinois, Maryland, Massachusetts, Washington, and the District of Columbia may ask you to show certificates for their states.
Ask your suppliers about their certificate requirements. Then, obtain any certificates necessary to complete your transaction.
A Word About European Transactions
If you’re an American wholesaler selling to European resellers or a European reseller selling within Europe, you need to understand the basics of the value-added tax, or VAT. VAT is calculated according to the destination principle, which means that the VAT is collected in the nation of the final buyer, according to the national formula.
As of March 2022, the average VAT in the EU is 21 percent, but the rate varies by country. If your revenue within a specific nation falls below a certain threshold, you can be exempt from the VAT. The threshold depends on the country in question. For a more in-depth look at European taxation, consult this article.
Final Thoughts on Getting Your Resale Certificate
If you plan to buy and sell used mobile devices, it pays to understand resale certificates. In some cases, sellers don’t need to worry about this requirement because they are operating in states without sales tax. However, even a seller in a tax-free state may need to obtain a certificate when purchasing from a supplier in another state. Ultimately, there are local subtleties with certificate requirements that make it necessary to defer to the instructions from your state’s revenue department. Here’s a list from the IRS that will allow you to find contact information for every state’s tax office.