If you have recently launched or are planning to launch a limited liability company (LLC) that will sell products or services in Minnesota, you may want to get a certificate of exemption, or several of them, before you start doing business, as this can save you a lot of time and money.
This document is known as a resale certificate in most other states and attaining one is a relatively simple process, as detailed in this step-by-step guide.
What is a Certificate of Exemption?
If your LLC has a valid certificate of exemption, 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 certificate of exemption 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 the goods and fines.
Keep in mind, each certificate of exemption, also known as a resale license, applies to a single vendor. This means you’ll need a certificate of exemption for each one of your vendors.
You cannot use a certificate of exemption 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 certificates or exemptions, 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 Certificate of Exemption in Minnesota
You’ll obtain a blank certificate of exemption from the Minnesota Department of Revenue. The form is not filed with the state. Instead, you simply present the completed certificate to your vendor.
In a few states, a seller’s permit, or sales tax permit, also serves as a certificate of exemption that applies to all vendors. But in most states, including Minnesota, you’ll need a seller’s permit as well as a certificate of exemption 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 certificate of exemption applies to items that you buy for resale, or for parts that you buy to manufacture something for sale.
How to Fill out the Minnesota Certificate of Exemption
In Minnesota, the revenue department handles the issuance certificates of exemption. Start by visiting the website, then follow these simple steps:
- The link provided will take you directly to the form.
- Check the box if the form is for a single purchase or if the other stated situation applies to you.
- Fill in your business name, address, and either your tax ID number, FEIN, or driver’s license number.
- Fill in the seller’s name and address.
- Check the box indicating your type of business.
- Check the box indicating the reason for exemption.
- Sign and date the form and keep in your files.
Again, you will not file the form with the state. You’ll simply give the certificate to your vendor and keep a copy for your records.
Does a Minnesota Certificate of Exemption Expire?
In Minnesota, certificates of exemption do not expire unless the information on them changes. However, the state recommends updating them every three to four years.
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.
Certificates of exemption can be a bit of a hassle, but in Minnesota, 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.