If you’re looking to buy products to resell, you need to make sure you’re avoiding double taxation. Paying taxes twice that can eat away at your profit. In this article, I’ll walk you through a basic example of what you need to do to make sure when you buy from your supplier you’re not paying sales tax.
Sales Tax Exemption
If you buy from a supplier or store in a State that charges sales tax, you need to make sure you have a Sales Tax Exemption Certificate filled out and submitted to that supplier. In Pennsylvania, on non-essentials, we’re taxed at 6% of the total sales price as retail customers. However, if you’re planning to resell that item, you do not need to pay that tax at that time.
If you’re doing retail arbitrage and buying from a local retail store, talk to the manager about getting sales tax exemption. Typically you’ll want to talk to them anyway and see if you can work a better discount. After all, you’re trying to make as much money as possible, right?
I won’t get into sales tax nexus issue with other States, but you should at a least register within the State you are primarily doing business as a tax collector agent for that State.
What this means is you will collect the sales tax from your customer and remit them to your State for your customers. You see, the sales tax is a tax on the customer, not your business. You’re simply doing the work of the State for free, or as the State would tell you, for the right to do business in their State. How nice of them!
Sales Tax Licensing
In order to claim tax exemption and incidentally collect taxes from your customers, you will need to file and an application for and receive a Sales Tax License certificate and number.
Once you’ve registered and received your sales tax license, you can now file sales tax exemption forms with your suppliers if you meet the criteria of exemption. This usually isn’t difficult as the typical criteria is that you are buying the item to resell in your own State or on the Internet.
In some states, simply showing your Sales Tax License at the point of sale is enough, but many store clerks may not know what to do, so it’s best to talk with the store manager before buying.
Where I do business, we use the Pennsylvania REV-1220 Exemption Certificate and present that to each supplier that we will be buying from.
TIP: If you plan on buying from a supplier more than once, check the “Blanket Exemption Certificate” box on the REV-1220 form to avoid having to file the form again with that supplier.
If you don’t file your exemption form with your supplier, and pay the sales tax, you will need to go through the additional troublesome burden of petitioning for a refund from your State or eat that additional cost (unthinkable!).
Also, it’s important to keep track of what items are taxable and which are not. Not only for your own collection of sales tax from your customers but in some cases, you may not even have to file a tax exemption certificate if all the items your purchasing from your supplier are already exempt items.
Check out my article for a list of non-taxable items in Pennsylvania.