What is Sales Tax?

What is Sales Tax Sales tax is a consumption tax imposed by the government on goods or services. Instead, consider it as a tiny cost tacked onto the price of an object each instance you buy. The seller collects this tax from the purchaser at the time of sale and then remits it to the state Government.

Sales tax is implemented to provide monies to fund public services such as education, health care, and infrastructure. States set their own sales tax rates, and in some places, local governments tack on an additional layer of taxes

What is a reseller certificate?

A Reseller Certificate (Resale Certificate), is a sales tax exemption from the state and generally allows you to purchase products without paying any sales taxes on them. For example, if you did not have this license and one of your clients wanted to purchase OEM goods from you then whoever purchases the tax will be forced to pay sales/returns based on that full amount doubling their taxes

A reseller certificate is essentially the resale license that your supplier needs to sell you an item tax-free. Then, you can avoid sales tax on your purchase. But you are going to charge sales tax on those goods when you sell them.

Why Non-Residents Need a Reseller Certificate

A reseller certificate is a must-have, if you are a non-resident willing to sell products in the US. Your profit margins could take a hit if you end up paying taxes when you do not owe them. This certificate allows you to operate on an even playing field with other American companies — if the goods aren't being "consumed" in Nigeria, they should not be taxed.

How to get a reseller certificate for non-resident

That means the first step in getting a reseller certificate is to learn what your state wants. Every state has its rules and regulations, it is necessary to know them before you apply.

Your business will need to be registered with the state before you can even apply for a reseller certificate. It typically requires some paper work and a registration fee. However, if you are a non-resident than in certain states like New York might require that you appoint an agent who can receive legal documents on your behalf.

After registering your business, you can obtain the reseller certificate. Generally, this require you to file an application in the state tax authority. Please note that some states allow you to apply online and others may require a paper application.

Sales tax issues for non-residents

Nexus is one of the most important ideas in sales tax. Nexus is the legal connection between a business and state which requires that tax be collected on behalf of that state by the business. Nexus may be triggered in certain states if you have a physical presence there (e.g. warehouse or office) and/or where the economic thresholds are met such as minimum of sales/transactions volume even if your business operated purely online without any property, employees or contractors present locally at all times.

When you have nexus with a state, the requirement is for that specific jurisdiction (state) to collect sales tax on all taxable transactions and then forward those taxes back to the taxing authority. Since nexus can easily extend from one state to multiple states, it might sound extremely tough process and also keeping track of all the records.

Issues That Non-Residents Struggle With

What non-residents struggle with the most when it comes to sales tax is not knowing how just exactly they are supposed to be compliant among various states. It can be challenging to keep up with all of that since each state has its own set of rules, however.

Sales tax laws, and reseller certificate applications can be doubly daunting if you are not a native English speaker. Having someone local, like a consultant or attorney who you can bend their ear, is invaluable.

Staying Collection Complaint changes to sales tax laws and regulations are frequent. Out of state residents will likely have to spend more time and effort making sure their knowledge is current with the most up-to-date requirements.

What are the Statewide Reseller Certificate Requirements

Some states are more attractive for non-resident businesses based on their tax environment or size of the market. Alternatively, there is a business opportunity in other states that have no sales tax (example: Delaware) or large populations with huge markets (case study: California and New York).

A brief glance at some of the typical requirements for obtaining a reseller certificate in several important states:

• California: it is mandatory to have a seller permit (which converts itself into reseller certificate).

New York Requires your business to register for sales tax in NY & must obtain a Certificate of Authority.

Texas: DAWN permit for sales and use tax, which also functions as a resale certificate.

Meeting Sales Tax Compliance

From there, once you obtain your reseller certificate and begin taxing sales transactions; you will then have to submit regular returns in the state. How often you need to file them — monthly, quarterly or annually depends on how much your sales volume is.

Accurate record-keeping is one of the keys to staying in compliance with sales tax laws. You must maintain careful records of all sales, tax number amounts collected and exemptions claimed. In the case of a state audit, this documentation is very important.