If you have recently launched or are planning to launch a limited liability company (LLC) that will sell products or services in Pennsylvania, you may want to get an exemption certificate, 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’s a relatively simple process, as detailed in this step-by-step guide.
What is an Exemption Certificate?
If your LLC has a valid exemption 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 an 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 costly fines or potential jail time.
Keep in mind, each exemption certificate, also known as a resale license, applies to a single vendor. This means you’ll need an exemption certificate for each one of your vendors.
You cannot use an 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 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 an Exemption Certificate in Pennsylvania
In Pennsylvania, the resale certificate is known as the exemption certificate and you’ll need to obtain the form from the Department of Revenue. The certificate is not filed with the state of Pennsylvania, it’s simply kept on file by the seller.
In a few states, a seller’s permit, or sales tax permit, also serves as an exemption certificate that applies to all vendors. But in most states, including Pennsylvania, you’ll need a seller’s permit as well as 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 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 Pennsylvania Exemption Certificate
In Pennsylvania, the Department of Revenue handles the issuance of exemption certificates. Start by visiting the website, then follow these simple steps:
- On the Sales, Use and Hotel Occupancy Tax Forms page, scroll down and click on the REV-1220 Pennsylvania Exemption Certificate link to download the form.
- At the top of the form, check the appropriate box.
- Next, choose whether the form is for one-time use or a blanket exemption and check the appropriate box.
- In the next section, enter the seller’s contact information.
- In the next section, check any box that applies and fill in the blank spaces with the appropriate information.
- Finally, sign the form at the bottom and enter your contact information. Click “print” and save a copy for your records.
For assistance, contact the Pennsylvania Department of Revenue at 717-787-1064.
Does a Pennsylvania Exemption Certificate Expire?
In Pennsylvania, exemption certificates do not expire.
Exemption certificates can be a bit of a hassle, but in Pennsylvania 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.