Sales tax exemption and resale certificates, and use tax

Sales tax usually applies to sales to the final user. A buyer who will resell the item, or a customer such as a nonprofit or government agency, may be exempt. When you sell tax-free to an exempt customer, you need documentation that supports it, because the state can assess the tax from you if you cannot show why you did not collect it.

Ask exempt customers for a properly completed certificate before or at the time of the sale. Check that it includes the buyer's name, address, registration number, a description of the exemption, and a signature, and that it is valid in your state. Some states accept a multistate form.

Store certificates where you can search them by customer. Note the expiration or renewal date, since some expire. Review them annually and request new ones when needed. If a state audits you, these are the first documents they ask for.

If you buy goods to resell, you can give your supplier a resale certificate and pay no sales tax on those purchases. Use it only for items you will resell, not for supplies you use. Misuse can lead to assessments and penalties.

Use tax applies when you buy something taxable and the seller did not charge sales tax, often an out-of-state purchase, and you use it in your state. The tax is owed by you, at the same rate you would have paid. Typical items are equipment and supplies bought online.

To catch it, review purchases from vendors that did not charge tax. Record the use tax as an expense, usually added to the cost of the item, and a liability that you report on your sales and use tax return or a separate form.

Add a certificate step to customer onboarding and a use tax review to your month-end close. Both are small tasks that prevent expensive surprises.