SCBJ Recap: Overview of the the reseller permit system

Published 4:14 pm Wednesday, October 7, 2009

Under the current resale system, businesses are allowed to buy products for resale without paying sales tax by giving a resale certificate to the seller. The resale certificate states that the purchaser plans to resell the products and will ultimately collect and remit sales tax for the product.

Ongoing misuse of the certificates by some businesses, those that intentionally purchased products for their own use with no intent to resell or those that simply misunderstood that taxes must be paid if they used or sold the products themselves, spawned Senate Bill 6173 which passed Apr. 25.

This is the new reseller certificate system. Under this system, wholesalers, retailers, manufacturers and qualified contractors are issued a number of free permits from Department of Revenue. These allow them to make wholesale purchases without paying sales tax. The permits are valid for anywhere from one to four years, depending on the industry and the length of time the business has been registered with the Department.

The Department is automatically sending reseller permits to more than 154,000 qualified businesses. More than 40,000 contractors that are deemed likely to be eligible should also receive a letter and application form encouraging them to apply. About 286,000 other businesses will not automatically receive permits or applications but are able to apply if they believe they qualify for the sales tax exemption. The permits are free to businesses.

Buyers without a permit or other exemption certificate after Dec. 31, 2009 must pay retail sales tax on purchases, but can take a “Taxable Amount for Tax Paid at Source” deduction on their tax return, or request a refund for the sales tax.

For audit purposes, all previous resale certificates and the new reseller permits need to be retained for at least five years.

Revenue Director Cindi Holmstrom said the Department has been working with stakeholders, including wholesalers, retailers, contractors, and business associations, to ensure a smooth transition to the new system.

“The goal here is to ensure that sales tax is paid when due, and not paid when not due,” she said. “We’ve developed a robust system that will allow us to more closely monitor the use of the reseller exemption while discouraging its misuse.”