When a business in North Carolina purchases inventory to resell, it can often do so without paying sales tax. To be eligible for the sales tax exemption, the retailer will need to provide a North Carolina Certificate of Exemption (commonly known as a Resale Certificate) to their vendor.
Learn more about how the Sales Tax Certificate of Exemption works, how to get one, and more.
What is a North Carolina Sales Tax Certificate of Exemption?
When retailers purchase products to resell, they often don’t pay state sales tax to the supplier on the purchase. The state 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.
For example, when a clothing boutique in North Carolina orders a variety of designer dresses to sell in its store, the boutique owner will not pay sales tax on that transaction because it has a sales tax certificate of exemption. However, when a shopper purchases a dress, the boutique will charge sales tax to the end user based on the full retail price of the dress.
The boutique will retain all state sales tax from its transactions and typically send it to the state once a month. In this manner, the tax burden is transferred to the final user and not to the businesses in between.
The sales tax exemption is only intended for inventory that will be resold and not for the tax-free purchase of items used in normal business operations, such as paper, pens, etc.
How to fill out the North Carolina Certificate of Exemption (Form E-595E)
Before a business starts selling products or providing taxable services, it must first get a North Carolina Sales Tax Number from the North Carolina Department of Revenue, as this number is needed to fill out the Certificate of Exemption.
Step 1: Begin by downloading the North Carolina Streamlined Sales and Use Tax Agreement Certificate of Exemption Form E-595E
Step 2: Indicate whether the Multistate Supplemental form is being attached. This is the second page of the exemption form. Several states joined together to accept one resale form to make it easier for merchants.
Step 3: Check whether the certificate is for a single purchase. Otherwise, the form is considered a blanket certificate that allows a buyer to purchase multiple times from a vendor without having to file a separate certificate.
Step 4: Include the name, address, and State Tax ID Number. If there is no State Tax ID Number, enter the purchaser’s FEIN and Driver’s license number.
Step 5: Enter the name and address of the seller.
Step 6: Check the box closest to the type of business the buyer is in.
Step 7: Indicate the reason for exemption. Most retailers are going to check box G for Resale.
Step 8: The purchaser will certify that the property is for resale, including their title, phone number, and email address, and then sign and date the certificate.
E-595E Certificate of Exemption Form
North Carolina Sales Tax Certificate of Exemption FAQs
How much does a North Carolina Sales Tax Certificate of Exemption Certificate cost?
There is no cost for a Certificate of Exemption in North Carolina.
Does a North Carolina Certificate of Exemption Expire?
The certificate does not expire, provided the single purchase box isn’t checked, and the purchaser makes at least one purchase within 12 months.
How often is North Carolina 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 quarterly filing frequency instead.
Where do I file the North Carolina Sales Tax Certificate of Exemption?
In North Carolina, the certificate is not filed with any government agency. Instead, it is kept by the seller (the business selling the merchandise for resale).
Is a Sales Tax Certificate of Exemption the same as a Sales Tax Permit?
No – The Sales Tax Permit and Sales Tax Certificate of Exemption are 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 Sales Tax Certificate of Exemption 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 North Carolina business licenses.
Are sellers required to accept sales tax exemption certificates?
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 file a claim with your the North Carolina Department of Revenue to receive a refund or credit for the sales tax paid on items purchased for resale.
What steps should a business take to accept a resale 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 North Carolina sales taxes.
Before accepting a resale certificate, a seller should:
– Review the resale certificate to make sure it is completely filled out.
– Verify the purchaser’s North Carolina Sales Tax ID is valid by visiting the Department of Revenue’s Registry of Sales and Use Tax Numbers.
– 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 all resale certificates.