If you have recently launched or are planning to launch a limited liability company (LLC) that will sell products or services in Iowa, you may want to get a sales tax exemption certificate, or several of them, before you start doing business, as this can save you a lot of time and money.
It’s a relatively simple process, as detailed in this step-by-step guide.
What is a Sales Tax Exemption Certificate?
If your LLC has a valid sales tax exemption certificate, often referred to as a resale certificate in other states, 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 sales tax exemption 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 those items’ sales tax.
Keep in mind, each sales tax exemption certificate, also known as a resale license, applies to a single vendor. This means you’ll need a sales tax exemption certificate for each one of your vendors.
You cannot use a sales tax exemption 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 sales tax exemption 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 Sales Tax Exemption Certificate in Iowa
You will need to obtain a sales tax exemption certificate document from Iowa’s Department of Revenue. Sales tax exemption certificates are not filed with the state, but they’re still vital for your business’s records– especially if your business is ever audited.
In a few states, a seller’s permit, or sales tax permit, also serves as a sales tax exemption certificate that applies to all vendors. But in most states, including Iowa, you’ll need a seller’s permit as well as sales tax exemption 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 sales tax exemption 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 Iowa Sales Tax Exemption Certificate
In Iowa, the Department of Revenue handles the issuance of sales tax exemption certificates. Start by visiting the website, then follow these simple steps:
- Open the link above and download the form.
- As the purchaser, fill in your name.
- Then provide the name, address, phone number, and general nature of your business.
- Fill in the seller’s name and business information.
- Check the appropriate box indicating your business’s general role in this transaction.
NOTE: If applicable, fill in the associated number blanks.
- Check the relevant box that lists your reason for this sales tax exemption certificate.
NOTE: If applicable, fill in the relevant blanks.
- Detail the items you’re purchasing for resale.
- Lastly, sign and date to profess your honesty when filling out the form.
For assistance, you can contact Iowa’s Department of Revenue.
Hours: Monday through Friday, 8:00 AM – 4:30 PM
Remember, this form does not need to be filed with the state. Just store it in your records and present it to the seller of goods you purchase.
Does an Iowa Sales Tax Exemption Certificate Expire?
In Iowa, sales tax exemption certificates are only valid for three years. It’s best to create calendar reminders so you’re aware of upcoming expirations and are able to apply for renewal in time and run your business without interruption.
Sales tax exemption certificates can be a bit of a hassle, but in Iowa they are an absolute necessity. So take the time to get sales tax exemption certificates for each of your vendors to ensure full compliance with your state’s tax regulations.