If you have recently launched or are planning to launch a limited liability company (LLC) that will sell products or services in Virginia, 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’s a relatively simple process, as detailed in this step-by-step guide.
What is a Resale Certificate?
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 costly fines or potential jail time.
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 of exemption, 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 Virginia
In Virginia, the resale certificate is known as the certificate of exemption and you’ll need to obtain the form from the Department of Taxation. The certificate is not filed with the state of Virginia, it’s simply kept on file by the seller.
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 Virginia, you’ll need a seller’s permit as well as certificates 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 Virginia Certificate of Exemption
In Virginia, the Department of Taxation handles the issuance of certificates of exemption. Start by visiting the website, then follow these simple steps:
- On the Forms page, scroll down and click the ST-10 link to download the form.
- In the first section, enter the supplier information.
- Next, check the box most appropriate to the purchased goods and enter your seller’s information.
- Lastly, sign the form, provide your title, and keep a copy for your records.
For assistance, contact the Virginia Department of Taxation at 804.367.8037.
Does a Virginia Certificate of Exemption Expire?
In Virginia, certificates of exemption do not expire.
Certificates of exemption can be a bit of a hassle, but in Virginia 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.