How E-Commerce Sellers Can Save Thousands by Using a Reseller Certificate

Imagine saving thousands on purchases while boosting your profit margins and enhancing your business strategy, all with a simple piece of paper! 

While harnessing this powerful resource could be your game-changer for your e-commerce business, obtaining one is not an easy task. 

Let doola’s Sales Tax Registration Services handle the process for you, allowing you to focus on growing your business and securing more profits. We also provide ongoing assistance with renewals and updates whenever needed so that your business remains fully compliant with all state regulations.

But first, let’s explore how e-commerce sellers can save thousands by using a reseller certificate and create more room for growth. 

What Is a Reseller Certificate?

A standard e-commerce business model involves purchasing goods wholesale and then selling them online at a markup. However, sales tax can often complicate this plan.

To get around paying sales tax on items they plan to resell, e-commerce sellers acquire a reseller certificate.

A reseller certificate, also known as a resale certificate, is an official document that allows businesses to make tax-exempt purchases for their inventory.

Since you intend to resell the goods, you should not be charged sales tax. With a valid reseller certificate, you can save thousands of dollars in taxes when purchasing products.

Let’s assume you decide to buy 100 shirts from the wholesaler for just $5 each to sell in your e-commerce online store. That means you’ll spend $500 on products. 

The wholesaler will charge you 8.25% in sales tax, which means you are also going to have to pay an additional $41.25 in sales tax. 

However, with a reseller’s permit, that extra amount stays in your pocket rather than going to the government since you are exempted from sales tax.

📌 Note: While you don’t have to pay sales tax, you still have to collect sales tax from your customers when they make a purchase and remit it to the state.

4 Ways a Reseller Certificate Helps E-Commerce Sellers Save Money

A reseller certificate can be an invaluable tool for e-commerce sellers since it can result in thousands of dollars in savings over time. 

So, how exactly does having a reseller certificate help you save money?

Let’s take a look at 4 key ways:

1. Avoiding Double Taxation

Most states require businesses to pay sales tax when sourcing products from manufacturers or wholesalers at the time of purchase. 

However, if those items are ultimately sold to customers and sales tax is collected at that point, the business would essentially be paying taxes twice on the same goods.

By providing suppliers with a valid reseller certificate, e-commerce sellers can bypass this double taxation and only pay sales tax on the final sale price to their customers. 

2. Bulk Ordering Discounts

Many wholesalers offer discounted pricing for larger orders, which allows them to sell more products in one transaction instead of processing individual orders.

With a reseller certificate, e-commerce sellers can take advantage of these bulk ordering discounts without paying additional taxes upfront. This not only saves money but also allows businesses to stock up on inventory at lower prices, which can increase their competitiveness in the market.

3. Reduced Administrative Burden

Having multiple sources of revenue across various states adds another layer of complexity, as each state has unique sales tax regulations and rates that need to be accounted for.

However, with a reseller certificate, businesses are exempt from collecting and remitting sales tax on purchases for resale. This reduces the administrative burden and frees up valuable time for sellers to focus on other aspects of their business.

4. Lower Fulfillment Costs

E-commerce sellers often face high fulfillment costs, especially when shipping products to customers in different states. These costs include packing materials, labor, storage fees, and shipping expenses that often vary based on distance and are also affected by state taxes.

Also, many fulfillment companies charge additional fees if they have to handle paperwork related to sales tax. 

However, with a reseller certificate, these added fees can be avoided, resulting in lower overall fulfillment costs for your e-commerce business.

Who Qualifies for a Reseller Certificate?

While a reseller certificate is essential for any business, not everyone may be eligible to obtain one. 

First and foremost, it’s important to note that each state has its requirements for obtaining a reseller certificate. Generally, you must have an active business license and be registered with the state’s taxing authority to qualify. 

In addition, there are some standard criteria that most states look at when determining eligibility:

• Proof of Intent: You must show that you intend to resell products rather than use them for personal use. This can include providing invoices from wholesale purchases or having a separate inventory system strictly used for resale items.

• Active Sales Tax Account: Your business must have an active sales tax account with your state’s Department of Revenue or equivalent agency.

• Valid Business Purpose: States will also review your business activities to ensure you are not applying for a certificate to avoid paying sales tax on personal purchases.

• Minimum Sales Requirements: Some states have minimum annual sales requirements to qualify for a reseller certificate. For example, California requires businesses selling tangible goods to exceed $1000 in taxable revenue per year in order to obtain a permit.

• Multiple Locations: If you operate multiple locations within the same state, each location must meet all qualifications individually to obtain its own certificates.

How to Apply for a Reseller Certificate

You can apply for a resale certificate online in most states on their Department of Revenue website. 

Just search for a resale certificate form on their website, which could be under the name “Certificate of Resale” or the more general “Sales Tax Exemption Certificate.”

Make sure you apply in the state you physically have an address, and not the state in which you are incorporated, if it’s different. 

If your physical address is different from the state in which you incorporated, you’ll need to complete a Foreign Qualification process to be able to do business in a different state.

Since e-commerce businesses sell products in more than one state, you’ll also have to apply for a resale certificate in every single state you do business in. 

However, instead of applying in each state separately, there are two multi-state resale certificates that allow you to apply for resale certificates in multiple states in one go.

• Streamlined Sales Tax Exemption Certificate: You can apply for this form for any Streamlined Sales Tax Governing Board (SST) member state.

• Uniform Sales & Use Tax Exemption Certificate: You can apply for this certificate to sell in any Multistate Tax Commission (MTC) member state.

Mistakes That Cost E-Commerce Sellers Money

E-commerce has become a booming industry, but it also comes with its own set of challenges and pitfalls that can cost sellers significant amounts of money.

However, if you are aware of these mistakes, you can avoid them and potentially save thousands by utilizing a reseller certificate.

🚩 Not Keeping Their Reseller Certificates Up-to-date

In most states, these certificates expire after a certain period. If you fail to renew it on time, any purchases made with an expired certificate will not be exempt from sales tax, leading to unnecessary costs. 

🚩 Using a Non-compliant or Incomplete Reseller Certificate

Every state has its specific requirements regarding what information should be included in the document for it to be considered valid. 

Some states may require an employer identification number (EIN), while others may ask for a signature from both parties involved in the transaction.

🚩 Using Their Reseller Certificates for Personal Purchases

E-commerce sellers sometimes make the mistake of using their reseller certificates for personal purchases, which can result in severe penalties as it constitutes fraud and tax evasion. 

You must open a separate business bank account for operational expenses and use your reseller certificate strictly for purchases related to your e-commerce business.

Ready to Secure Your Profits? Get Started with doola’s Sales Tax Registration Services

Each state has its own set of rules and regulations when it comes to sales tax and resale certificates. 

By partnering with doola, you won’t have to waste time navigating confusing government websites or trying to figure out which forms need to be filled out. We will handle the entire registration process to ensure that your business is correctly registered for sales tax in every state where it conducts business.

Our Sales Tax Registration Services include seamless sales tax registration, tailored guidance for a reseller certificate, and compliance filing them with the respective state agencies. 

We guarantee fast turnaround times so that you can start taking advantage of the benefits of a reseller certificate as soon as possible.

 
Book a free consultation today and get started on the path toward maximizing your e-commerce business’s savings.