An Indiana Sales Tax Exemption Certificate (also referred to as a Resale Certificate) is a document that allows a business to purchase goods and services tax-free from suppliers for the purpose of reselling those goods and services or to purchase equipment used in the production of products that will be sold.
Learn how the Sales Tax Exemption Certificate works, how to get one, and more.
How Does an Indiana Sales Tax Exemption Certificate Work?
A sales tax exemption certificate allows a business to purchase items tax-free. Two scenarios in which a business can purchase tax-free are products that are resold and equipment used to produce a finished good.
Purchasing inventory tax-free
When retailers purchase products to resell, they often don’t pay sales tax to the supplier. The sales tax will still be paid, but instead of the retailer paying the state sales tax, the retailer charges sales tax to their customer on the final value of the merchandise.
For instance, when a furniture store in Indiana purchases items like sofas, tables, or chairs from a manufacturer to sell in their store, by having a sales tax exemption certificate, the store owner typically won’t pay sales tax on these transactions. When a customer purchases a piece of furniture, the retailer will charge sales tax to the customer based on the item’s full price. Then, typically, at the end of the month, the store owner takes the collected state sales taxes and sends the funds to the Indiana Department of Revenue.
Purchasing manufacturing equipment
Indiana also offers a sales tax exemption for manufacturing equipment, machinery, tools, and supplies that are “directly used” in production (Indiana Admin. Code 45 §2.2-5-10). To qualify for this exemption, the equipment must have an immediate effect on the tangible personal property being processed and be an “essential and integral” part of an integrated production process. The exemption also includes property incorporated into the final product, property consumed in the production process, and research and development equipment.
For example, if a business uses a laser engraver to produce an etched phone case for sale, the laser engraver can be purchased tax-free.
How To Fill Out the Indiana Sales Tax Exemption Certificate (Form ST-105)
Before a business starts selling products or providing taxable services, it must first get an Indiana Registered Retail Merchant Certificate (sometimes called a sales tax license or seller’s permit). After registering for the Registered Retail Merchant Certificate, the Indiana Department of Revenue will provide a sales tax number, which will be used when filling out the Sales Tax Exemption Certificate.
Begin by downloading the Indiana Sales Tax Exemption Certificate Form ST-105
Step 1: Enter the Purchaser’s Information
Identify the name and business address of the seller in addition to either the Indiana Registered Retail Merchant’s Certificate number or state tax ID number if the business is located out of state.
Step 2: Enter the Seller’s Information
Enter the name and address of the seller.
Step 3: Explain the Frequency of Purchases
If the retailer is expected to purchase items frequently from the seller, instead of completing a sales tax exemption certificate for every invoice, check the “blanket purchase exemption request” box. In section 2, the buyer will describe the items they will be purchasing.
Step 4: Indicate the Type of Sales Tax Exemption
The purchaser will indicate the type of exemption being claimed. The two most common responses are the first two choices:
– Sales to a retailer, wholesaler, or manufacturer for resale only
– Sale of manufacturing machinery, tools, and equipment for direct production.
– Sales to a company providing public transportation.
– Sales to farmers.
– Sales to contractors for exempt public projects such as public schools, government agencies, or nonprofits.
– Sales to Indiana Government units such as state agencies, cities, towns, municipalities, public schools, and universities.
– Sales to the US Federal Government
Step 5: Certify and Sign Form ST-105
The purchaser will certify that the property is for resale and provide their title, signature, and date on the certificate.
Indiana Sales Tax Exemption FAQs
How much does an Indiana Sales Tax Exemption Certificate cost?
There is no cost for a Sales Tax Exemption Certificate in Indiana.
Does an Indiana sales tax exemption certificate expire?
Indiana sales tax exemption certificates do not expire.
Where do I file the Indiana sales tax exemption certificate?
In Indiana, the certificate is not filed with any government agency. Instead, it is kept by the seller (the business selling the merchandise for resale).
How often is Indiana sales tax due?
Most new businesses are set up to file and pay sales and use tax monthly, but depending on the amount of tax collected, your business may have a different filing frequency.
Is a Sales Tax Exemption Certificate the same as a Registered Retail Merchant Certificate?
No – The Registered Retail Merchant Certificate and Sales Tax Exemption Certificate is commonly thought of as the same thing, but they are actually two separate documents. The Registered Retail Merchant Certificate allows a business to sell and collect sales tax from taxable products and services in the state, while the Sales tax exemption certificate allows the retailer to make tax-exempt purchases for products they intend to resell.
These are two of several registrations your business may need. To learn more, check out our guide to Indiana business licenses.
What steps should a business take to accept a sales tax exemption certificate?
When a business is presented with a resale certificate, the seller has the burden of proof to verify that the buyer’s information is correct and to keep these records. Failing to verify this information may make the seller liable for Indiana sales taxes.
Before accepting a sales tax exemption or resale certificate, a seller should:
– Review the sales tax exemption certificate to ensure it is completely filled out.
– Verify the purchaser’s Registered Retail Merchant Certificate is valid. There is no online verification, so sellers will have to call the Department of Revenue at 317-233-4015 to verify the certificate’s validity.
– 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 should investigate further.
– Keep a file of sales tax exemption certificates.
