How to get an Arkansas Sales Tax Exemption Certificate
An Arkansas Sales Tax Exemption Certificate (commonly known as a Resale Certificate) allows a business to buy goods that it will resell without paying sales tax on the purchase. When the goods are resold, the business will collect and remit sales tax to the state.
To get a Sales Tax Exemption Certificate, businesses must complete an application.
Learn more about what a Sales Tax Exemption Certificate is, how to get one, and more.
What is a Sales Tax Exemption Certificate?
When retailers purchase products to resell, they often don’t pay sales tax to the supplier on the purchase. The sales tax will still be paid, but instead of the retailer paying sales tax, the retailer charges sales tax to their customer on the final value of the merchandise. The collected sales tax is then sent by the retailer to the Arkansas Department of Finance and Administration.
For instance, imagine a furniture store in Little Rock, Arkansas. When the furniture store buys tables and chairs from manufacturers to sell in their store, by having an Arkansas resale certificate, the furniture store owner won’t pay sales tax on this transaction. This is because the items are intended for resale, so the tax is not levied at this stage.
When a customer walks into the furniture store and buys a table, the retailer will add Arkansas’s state sales tax to the price of the table. The sales tax is calculated based on the full price of the table. The customer pays this sales tax at the point of sale, which the furniture store collects.
Over a certain period of time, usually the end of the month, the furniture store will tally all the sales tax it has collected from its customers. The furniture store then sends this accumulated sales tax to the Arkansas Department of Finance and Administration. Therefore, while the furniture store is responsible for collecting and remitting the sales tax, the actual tax cost is borne by the end customer.
The purpose of the certificate is to provide evidence of why sales tax was not collected on a transaction. Similar names for a resale certificate include reseller number, seller’s permit, exemption certificate, wholesale license, or reseller’s license. In order for the supplier to allow the tax-exempt purchase, the seller needs proof the buyer intends to resell the product by providing a valid resale certificate.
The sales tax exemption is only intended to be used for inventory that will be resold and not intended for the tax-free purchase of items used in normal business operations such as paper, pens, etc.
Before a business starts selling products or providing taxable services, they must first get an Arkansas Sales Tax Permit from the Arkansas Department of Finance and Administration. The Sales Tax Permit is sometimes referred to as a seller’s permit, sales tax number, or sales tax license.
Is a Sales Tax Exemption Certificate the same as a Sales Tax Permit?
The Sales Tax Permit and Sales Tax Exemption Certificate is commonly thought of as the same thing, but they are actually two separate documents. The Sales Tax Permit allows a business to sell and collect sales tax from taxable products and services in the state, while the Exemption Certificate allows the retailer to make tax-exempt purchases for products they intend to resell.
After registering, a sales tax number will be provided by the Department of Finance and Administration. This number will be listed on the Sales Tax Exemption Certificate.
Steps to fill out Arkansas Sales Tax Exemption Certificate
Filling out the Sales Tax Exemption Certificate (Form ST391) is pretty straightforward but it is critical for the seller to gather all the necessary information.
If audited, the Arkansas Department of Finance and Administration requires the seller to have a correctly filled out ST391 Sales Tax Exemption Certificate. Without it correctly filled out, the seller could end up owing sales taxes that should have been collected from the buyer in addition to penalties and interest.
Step 1 – Begin by downloading the Arkansas Sales Tax Exemption Certificate Form ST391
Step 2 – Include the Arkansas Sales/Use Tax Permit Number or the state and Sales Tax Number if the buyer is from another state.
Step 3 – Identify the name of the seller
Step 4 – Describe the merchandise being purchased for resale
Step 5 – Provide the reason the merchandise is exempt (typically because it is being resold).
Step 6 – Include the purchaser’s business activity or line of business
Step 7 – Include the purchaser’s business name, signature, address, position, and date
ST391 Sales Tax Exemption Certificate Fillable Form
Arkansas Sales Tax Exemption Certificate FAQs
How much does a Sales Tax Exemption Certificate cost in Arkansas?
There is no cost for a Certificate of Exemption in Arkansas.
Does an Arkansas Sales Tax Certificate Expire?
There is not a stated date a certificate expires, but it’s a good practice to keep the buyer’s information current and update certificates at least every three years.
Where do I file the Arkansas Sales Tax Exemption Certificate?
The exemption certificate is kept on file by both the buyer and seller and is not filed with the state.
Are sellers required to accept Sales Tax Exemption Certificates?
Sellers are not required to accept resale certificates, however, most do. If the vendor doesn’t accept the certificate, the buyer will have to pay sales tax on the merchandise being purchased. In most cases, a credit for the sales taxes will be provided when filing the Arkansas sales tax return.
What steps should a business take to accept a Sales Tax Exemption Certificate?
When a business is presented with a resale certificate, the burden of proof is on the seller to verify that the buyer’s information is correct and to keep these records. Failing to verify this information may put the liability of paying Arkansas sales taxes on the seller.
Before accepting a resale certificate, a seller should:
– Review the resale certificate to make sure it is completely filled out.
– Verify the purchaser’s Arkansas sales tax ID is valid and active by logging into the Arkansas Taxpayer Access Point.
– 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 they want to purchase office supplies tax-free, the seller should investigate further.
– Keep a file of resale certificates.
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