Sales Tax ID and Resale Certificate : Comparative and Practical Guide
E-commerce businesses operating in the United States deal with some tax documents, especially when selling on platforms such as Amazon and Shopify. Two of these documents that are often confused are the "Sales Tax ID" (or Sales Tax Permit) and the " Resale Certificate ". Both are applied on a state-by-state basis and are directly related to tax obligations, but their functions and areas of use are different from each other.
Before proceeding with Resale Certificate or Sales Tax ID applications, a legal company must be established in the US. In this process, there are important steps such as choosing a company structure and obtaining a tax number(EIN).
This guide explains the differences between these two concepts, both theoretically and in practice, how they work together and which document is required in which cases.
What is Sales Tax ID?
A Sales Tax ID is the identification number that shows that a business is authorized to collect sales tax and declare that tax to the state tax authority. It is also commonly referred to as a "seller's permit" or "sales tax permit". Obtaining this document is a legal requirement depending on the state where the sale is made.
What is a Resale Certificate?
A Resale Certificate is a document that allows a business to exempt itself from paying sales tax at the time of purchase from the supplier by declaring that it has purchased goods for direct resale. It ensures that sales tax is applied only on the sale of the product along the sales chain to the end consumer.
Relationship and Functioning
In order to use a Resale Certificate, you usually need to have a valid Sales Tax ID in the relevant state. These documents work together:
- Sales Tax ID → Registration, collection and declaration obligation to the tax office
- Resale Certificate → Temporary tax exemption for product purchases from wholesalers
For example: A business that wants to sell in Florida first obtains a Sales Tax ID and then can apply for a Florida Resale Certificate based on this number.
Practical Example
A business is based in Texas. It will purchase USD 30,000 worth of products from a distributor in California. California sales tax is 7.25%:
- If Resale Certificate is not offered: You will be charged 32.175 USD including tax.
- If the document is presented: Payment is only 30,000 USD and sales tax is paid by the end customer.
Differences by State
- **California**: "Seller's Permit" is required to submit a Resale Certificate. Documents are indefinite but active activity is required.
- **Florida**: The "Annual Resale Certificate" is renewed every year. It is linked to the Sales Tax ID.
- **Texas**: "Texas Sales and Use Tax Permit" application is required. The document is indefinite.
- **New York**: Resale Certificate can be presented after receipt of "Certificate of Authority".
- **Wyoming**: Businesses without a physical presence may not be asked for a Resale Certificate.
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Mixed Use Cases
An Out-of-State Resale Certificate (a certificate from another state) is accepted by some states, while others only recognize an in-state certificate as valid. For example:
- Pennsylvania accepts limited out-of-state documents.
- Illinois requires an in-state registered document.
- Arizona does not accept out-of-state documents.
Therefore, the specific rules of the state in which trade is to be conducted should be examined.
Frequently Asked Questions (FAQs) aboutSales Tax ID and Resale Certificate
- Does every business have to get a Sales Tax ID?
→ Yes if taxable sales are made in the state.
- Am I completely free from sales tax with a Resale Certificate?
→ No, it only provides temporary exemption during the purchase phase.
- Is Resale Certificate mandatory for dropshippers?
→ Generally yes if your supplier is within the US.
- Do Amazon FBAers have to get documents?
→ In most states, Amazon collects sales tax on your behalf. However, in some special cases, you may need a Sales Tax ID.
Conclusion and Recommendation
Sales Tax ID and Resale Certificate are legal documents that are used together in the US e-commerce ecosystem but have different functions. Obtaining these documents in the right order and in the appropriate states provides both cost advantages and minimizes legal risks.
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Additional Information: Is Sales Tax ID Required for Resale Certificate?
One of the most common questions asked by businesses applying for a Resale Certificate is whether it is mandatory to obtain a Sales Tax ID (Sales Tax Permit or Seller's Permit) prior to applying for this document. The answer is "yes" in most states.
The Sales Tax ID is an official number that shows that the business is registered with that state's tax authority and is legally authorized to collect sales tax. Without this ID, the tax authority will not issue a Resale Certificate because it will not verify that the business that will benefit from the tax exemption is responsible for sales tax.
For example:
- In states such as California, Florida, Texas and New York, a Sales Tax ID is required prior to obtaining a Resale Certificate.
- In some exceptional cases (e.g., sales without physical nexus), out-of-state certificates are accepted, but again, these documents are based on another state's Sales Tax ID.
In short:
Although the Resale Certificate is a direct tax exemption certificate, it is linked to the Sales Tax ID, which proves that the business is registered as a taxpayer. Therefore, businesses wishing to obtain the certificate must first register for tax in the relevant state.
