A state resale certificate exempts you from paying sales tax on items or services you buy in that state for the purpose of reselling, renting, or leasing them out. Here’s an overview of the regulations you’ll need to follow in the state of New Jersey.
Purchases that qualify for the sales tax exemption include any products that will be resold in their present form, as well as physical components of products made or repaired by your business.
Purchases that DON’T qualify include:
- Office supplies
- Tools and equipment used by your business
- Materials and services used for capital improvements to your business
- Anything for your personal use
For example, if you make beaded jewelry for your online store, you don’t have to pay sales tax on purchases of beads, but you do have to pay it on the needles you use to string the beads.
When making your purchase, you’ll present the seller with one of the certificates listed below, which you’ve printed out and filled in completely:
- Form ST-3 Resale Certificate for in-state resellers
- Form ST-3NR Resale Certificate for out-of-state resellers
Both of these forms require you to fill in a tax identification number — which means you must have applied for and received a permit to collect sales tax (and must then file periodic sales tax returns). If you’re not registered to collect sales tax in New Jersey, you can use either your tax registration number from another state(s) or your federal employer identification number.
Learn more about the New Jersey resale certificate in New Jersey’s Bulletin S&U-6.
Be aware that sellers are not required to give you the tax exemption, even if you present a valid resale certificate. Target, for one, is well-known for refusing to accept resale certificates. Also, they are required to check that your certificate is legit, and can suffer major penalties if it’s not — so don’t bother trying to fake it.
You may be wondering what happens if you never sell the items you bought tax-free. If they are determined to be unsellable, you can remit use tax rather than the sales tax on them to avoid the penalty.
Sales Tax Exemption for Sellers
As stated above, you’re not required to give a sales tax exemption to anyone who asks for it, even if they have a resale certificate. Be aware that if you do, the responsibility lies with you to confirm the validity of the certificate.
If it turns out to be invalid, you could be on the hook for paying the sales tax, plus assorted fines and penalties.
Make sure that the certificate is completely filled out, including tax registration number, date, and signature. If you accidentally accepted one that is incomplete or incorrect, you have 90 days to obtain a revised one from the buyer.
The State of Jersey offers a quick link to check the authenticity of the resale certificate.
The New Jersey Division of Taxation requires that you keep the certificate in your files for 4 years from the date of the transaction so that it can be inspected if necessary.
Of course, to accept a resale certificate, your own business must be registered to collect sales tax in New Jersey.
Have more questions about sales tax exemptions, registrations, collections, or filings in the state of New Jersey? Leave it to your Xendoo tax professional to keep all that part of your business running smoothly, so you can spend more time doing what you love.