In general, anyone buying products from a wholesaler or retailer in order to resell them does not pay sales tax. Certain organizations (libraries and schools, for instance) have tax-exempt status since they serve the public interest, but the details differ depending on where you do business.
By obtaining a sales tax number, which is also called a resale certificate or resale number, you can:
- Purchase goods from wholesalers and attend wholesale trade shows, both of which typically require a resale certificate.
- Provide your state and city with funds to run their operations — from which you benefit.
- Keep your business on the up-and-up.
Action Steps
The best contacts and resources to help you get it done
Contact your state and local tax agencies
The agencies that collect sales taxes also hand out the numbers, so contact your state, county, and city tax agencies to request a registration form or apply for a sales tax number online.I recommend: Look over the sales tax requirements for your state to make sure you're collecting everything you need to. The IRS also has links to state taxation authorities.
Get help for managing your sales tax compliance
Web-based services are available.I recommend: Alavara has helpful services to manage sales tax compliance.
Consider where you do business
If you sell taxable goods to customers outside your state, you must decide whether to collect sales tax on those sales. In most cases, you're not required to collect such tax; instead the onus is on the buyer to pay an appropriate use tax while filing his annual state income tax. However, if you have "nexus" within a state — that is, a physical presence such as a warehouse — then you may be legally required to collect sales tax, although court rulings on this matter have been inconsistent.I recommend: you have nexus in another state or decide to collect sales tax on out-of-state purchases to avoid any chance of legal troubles, you need to apply for a sales tax number in each state. You'll also need to charge the tax rate of the purchaser's state and not your own location. The Federation of Tax Administrators maintains a page that lists sales tax rates for the current year, along with a separate list of which states exempt food and drug sales from sales tax.
Tips & Tactics
Helpful advice for making the most of this Guide
- File a sales tax return regularly, even if you're not open yet and have made no sales. Once you have an account, the state wants to hear from you.
- Keep current with tax rates. Some areas hold special tax holidays to encourage business, so you want to advertise those dates to your customers.
- Hold tax funds in a separate bank account if possible so that those funds aren't used for another purpose.
- Track sales taxes for state, city and county individually so that you always pay the right amount to the right party.
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