A resale certificate allows a business to purchase goods or services from another business and resell them without paying state sales tax.
Learn how the Alabama Resale Certificate works, how to get one, and more.
How Does an Alabama Resale Certificate Work?
When retailers purchase products to resell, they often don’t pay state sales tax on the purchase. Instead, the retailer charges the state sales tax to their customer on the final value of the merchandise.
For example, when a pet store purchases dog toys to sell in their store, by having a resale certificate, the pet store owner won’t typically pay sales tax on the transaction. When a customer purchases a dog toy, the retailer will charge sales tax to the customer based on the full price of the retail sale. The retailer will collect the sales tax from all their transactions and periodically (typically at the end of the month) send the sales tax to the Alabama Department of Revenue.
How to Get an Alabama Resale Certificate
Alabama is one of the few states without a resale certificate. When a vendor asks for one, an Alabama business gives them a copy of its Alabama Sales Tax License.
Alabama Resale Certificate FAQs
Are sellers required not to charge sales tax?
Vendors can decline resale certificates, even if they’re valid and properly completed. While most accept resale certificates as standard practice, there’s no legal requirement for them to do so.
If a vendor refuses to accept your resale certificate, you can still complete the purchase by paying the sales tax. The tax paid in this situation isn’t lost – you can receive a refund or credit for the sales tax paid on items purchased for resale from the state.
What steps should a business take to accept a resale certificate?
When a business is presented with a request to sell items tax-free, the seller must verify that the buyer’s information is correct. Failing to verify this information may make the seller liable for Alabama sales taxes.
To verify whether the sales tax license is valid:
– Request a copy of the buyer’s Alabama sales tax license.
– Log on to My Alabama Taxes and click “Verify a Sales Account.”
– Sellers are also responsible for examining the certificate and evaluating whether the goods sold are reasonably consistent with the purchaser’s line of business. For example, if the buyer’s business is a car dealership but wants to purchase office supplies tax-free, the seller may want to investigate further.
While it’s not required, making a copy and filing the sales account verification is a good idea.
Is a business license the same as an Alabama Sales Tax License?
No, a business license and a sales tax license are different. A business license is a general permit that allows a business to operate legally in a certain jurisdiction, such as a city, county, or state. A sales tax license is a specific permit that allows a business to collect and remit sales tax on taxable sales of goods or services.
Depending on its type, location, and activities, a business may need a business license and a sales tax license.
