As a business owner, you need to understand sales tax and tax exemption so that you can avoid overpaying for products or supplies. That’s where we step in to clear this up.
What is sales tax?
Sales tax is collected by the purchaser for the government on the sale of goods and services. It is collected by the reseller and then paid to the government. This means that sales tax paid by consumers goes to the government and the reseller does not profit from it.
It’s widely known that physical retail stores collect sales tax from their customers. Traditionally, states cannot charge taxes for purchases made in another state. Soon after the birth of e-commerce, a Supreme Court case Quill Corp v North Dakota ruled that following this doctrine meant that states could not charge sales tax on online sales unless the business had a physical presence in that state. Meaning, if you bought something from a California-based business and had it shipped to Nevada, you would not be charged sales tax.
Recently in 2018, South Dakota v Wayfair Inc. the Supreme Court reversed this decision, ruling instead that states had the right to collect sales tax on online sales regardless of the physical location of the business. So now if you buy those same products from Nevada to ship to California, you will pay sales tax of the state that it is being delivered to.
Does every state require sales tax?
Each state has different laws when it comes to charging sales tax, so businesses need to know whom to charge. Tax charges and tax rates are based on the state that the product is being shipped to. It is not based on what state the purchase originated from or where the buyer resides. 45 states and the District of Columbia require sales tax on all applicable purchases, including online purchases.
4 states have no sales tax. 3 states do not require taxes on out-of-state online purchases*.
- New Hampshire
Can you become tax exempt?
As business owners who sell goods and services, you may qualify for tax exemption depending on the state. Depending on the state, business owners who sell goods and services may qualify for tax exemption. Each state will have its own requirements and necessary documentation for sales tax exemption. Usually, if your business purchases goods and services for resale, those goods and services can be tax-exempt. For example, if the product is being purchased for resale to customers, you may not be charged sales tax. Each state will have its own requirements and necessary documentation for sales tax exemption.
When you start a business, you will need to apply for two different forms: seller’s permit (different names for different states) and resale certificate. A seller’s permit allows you to sell your goods and services. A resale certificate records your seller’s permit number and documents what products you intend to purchase for resale, and will typically allow for those purchases to be tax-exempt. When you provide the resale certificate to the company that you intend to purchase a qualified product from, tax could be removed from your order.
When to use Seller’s Permit vs Resale Certificate
A seller’s permit (different names for different states) is when you register as a business and begin selling products or services in a state. The resale certificate is a form that records your business’ sales permit number and also documents what you intend to purchase from the buyer. You will need to provide a resale certificate to the company that you are purchasing goods and services from if you want those purchases to be tax-exempt. When you provide the resale certificate to the company that you intend to purchase a qualified product from, tax could be removed from your order.
- A seller’s permit is not a resale certificate – a resale certificate is not a seller’s permit.
- You will need to supply a resale certificate for each state that product is being shipped to, if you want to have tax-exemption for those states.
In some states, schools, churches, and non-profits would be exempt from all forms of sales taxes. Most non-profit organizations will have a declaration letter from the IRS. However, this exempts you from federal income tax, not state sales tax. 501c nonprofit organizations will still need to apply for sales tax exemption. If you are a nonprofit, read Taxjar’s article: What Nonprofits Need to Know About Sales Tax – TaxJar.
What can you use your resale certificate on?
Obtaining a resale certificate does not mean that your business is tax exempt on all sales tax. The resale certificate can only be used for products and components of products that are intended to be resold or rented. It is unlawful to use the resale certificate on products that will not be resold. Let’s say that you are an illustrator and you are printing a book of your art to be sold at a pop-up shop. You would not pay taxes to the print vendor who is producing your books. However, you will pay taxes on the table and decorations that you need for your pop-up booth.
How to apply for tax exemption in your state
Links Here are links to each state’s website where you can register for a seller’s permit and download resale certificates.
*State does not charge sales tax or no form exists. Certificates from other states are acceptable.
Make sure to send the correct form to your seller. If you are unsure which form to send, simply contact your seller to verify. Make sure your form is complete – as it is a tax document, sellers cannot complete the form for you. At Printivity, this is a common mistake from our customers that can cause delays with starting their order.
Printivity’s Tax Exempt Status Process
Each company will have their own unique process for making your orders/account tax exempt. Always check with them to learn their process to avoid any mistakes and delays. Keep in mind that some businesses reserve the right to to not accept your tax exemptions status. In this case, you will be reimbursed when you file your taxes at the end of the year.
Start buying your print marketing materials now! Follow Printivity’s process to stop paying taxes on your orders.
- Visit Printivity.com to create a User Account.
- Go to the “My Tax Exemptions” tab on your user account
- Create Tax Exemption.
- Choose a tax exemption type – “Wholesale” if you are reselling the product, “Government” if your organization is exempt from sales tax in your state.
- Input your Billing Address.
- Select the state that you are tax exempt in.
- If you are tax exempt in multiple states, you will have to repeat this process for each state and with that state’s specific tax exemption documentation.
- Upload your Tax Exemption documentation.
- You will receive approval or a request for clarification within two business days.
We understand that you may not know every sales tax law for every state. If your products qualify for tax exemption, we want to make the process as simple as possible for you. The rules around sales tax are constantly changing with progress of the digital age. Since every state is different, please verify the laws in the state that you wish to be exempt from.
If you have any questions about resale certificates or the tax exemption process, our team is here to help! Call Printivity at 1-877-649-5463.