If you have recently launched or are planning to launch a limited liability company (LLC) that will sell products or services in Delaware, you may be wondering how to get a resale certificate.
Delaware does not have state or local sales tax, so resale certificates are not available. If you sell products in other states, however, you may need a resale certificate in those states. It’s a relatively simple process, as detailed in this step-by-step guide.
What is a Resale Certificate?
If your LLC has a valid resale certificate, you can buy goods from a wholesaler without paying sales tax, though you may pay a use tax. Depending on the size of your business, this can save you tens of thousands of dollars each year.
The catch is that whenever you do use a resale certificate to purchase goods, you are legally bound to resell those items and collect sales tax when you do so. If you do not resell those items, or fail to collect sales tax, the punishment could be liability for the sales tax on items and sometimes interest and penalties.
Keep in mind, each resale certificate, also known as a resale license, applies to a single vendor. This means you’ll need a resale certificate for each one of your vendors.
You cannot use a resale certificate to buy items you do not intend to resell, such as a new computer for your business. This would be tax fraud, a felony offense. You are only able to buy items tax-exempt if you are going to collect sales tax on them later.
Not all wholesalers will accept resale certificates, nor do they have to. They may choose not to because of the risk of expired or false certificates, which would put the wholesaler on the hook for the sales tax.
How to Apply for a Resale Certificate in Delaware
If you are selling products in other states, you’ll need a resale certificate for those states. Generally, you’ll obtain the form from the state’s department of revenue or the department of taxation.
In a few states, a seller’s permit, or sales tax permit, also serves as a resale certificate that applies to all vendors. But in most states, you’ll need a seller’s permit as well as resale certificates for each of your vendors.
The seller’s permit identifies you with your state as a collector of sales tax. If you sell tangible personal property or goods you are required to have a sales tax permit. In some states, even a service provider like a lawyer is required to have a sales tax permit and collect state sales tax.
The resale certificate applies to items that you buy for resale, or for parts that you buy to manufacture something for sale.
How to Fill out the Certificate of Resale
Generally, when you obtain a resale certificate in other states, the following information will be required:
- The seller’s name and address
- Your business name and address, and your registration or ID number in the relevant state
- A description of the goods being purchased.
Does a Resale Certificate Expire?
States have different expiration rules for resale certificates. Check with the relevant states for requirements. It’s best to create calendar reminders so you’re aware when expirations are coming up to ensure you’re able to apply for renewal in time and run your business without interruption.
Resale certificates can be a bit of a hassle, but in most states, they are an absolute necessity. So take the time to get certificates for each of your vendors to ensure full compliance with your state’s tax regulations.