When a business purchases inventory to resell, it can do so without paying sales tax. To be eligible for the sales tax exemption, the retailer will provide a Pennsylvania Exemption Certificate (commonly called a Resale Certificate in most states) to their vendor.
Learn more about how the Pennsylvania Exemption Certificate works, how to get one, and more.
What is a Pennsylvania Exemption Certificate?
When retailers purchase products to resell, they often don’t pay sales tax to the supplier. 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 instance, when a flower shop in Pennsylvania buys a fresh stock of roses to sell in their store, having an exemption certificate allows them not to pay sales tax on this particular transaction. When an end-user decides to buy these roses, the flower shop applies sales tax to the purchase, calculating it based on the full price of the bouquet.
The flower shop collects this sales tax from all their transactions throughout a given period, usually monthly, and then sends it to the Pennsylvania Department of Revenue.
It’s worth noting that the sales tax exemption is only intended for inventory that will be resold and is not intended for the tax-free purchase of items used in normal business operations, such as paper, pens, etc.
How to fill out the Pennsylvania Exemption Certificate (Form REV-1220)
Before a business starts selling products or providing taxable services, it must first get a Pennsylvania Sales Tax License from the Pennsylvania Department of Revenue. The Sales Tax License is sometimes referred to as a seller’s permit, sales tax number, or sales tax license. After registering for the sales tax license, the Pennsylvania Department of Revenue will provide a tax account ID number, which will be used when filling out the Exemption Certificate.
Step 1: Begin by downloading the Pennsylvania Exemption Certificate Form REV-1220
Step 2: Indicate the type of tax the exemption is being requested for
- State and local sales and use tax (what most retailers will use)
- State and local hotel occupancy tax
- Public transportation assistance taxes and fees
- Vehicle rental tax
- Additional local, city, and county hotel tax
Step 3: Check whether the certificate is for a single transaction or blanket exemption. If the retailer is expected to purchase items frequently from the seller, instead of completing a resale certificate for every invoice, the blanket exemption box should be checked.
Step 4: Enter the name and address of the seller.
Step 5: Select one of the boxes to indicate why the exemption is being requested. Most retailers will select number 3, “Property will be resold.” Enter the buyer’s sales tax number.
Step 6: The purchaser signs and dates the certificate, including their address and FEIN (Federal Employer Identification Number).
Pennsylvania Sales Tax Exemption Certificate FAQs
How much does a Pennsylvania Sales Tax Exemption Certificate cost?
There is no cost for a Certificate of Exemption in Pennsylvania.
Does a Pennsylvania Resale Certificate Expire?
Pennsylvania Resale Exemption Certificates don’t expire.
How often is Pennsylvania 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 or semiannual filing frequency instead.
Where do I file the Pennsylvania sales tax exemption certificate?
In addition to the Exemption Certificate and SalesTax License, your business may also need to register for additional items. For more information, check out our guide to Pennsylvania business licenses.
Are sellers required to accept resale 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 the state 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 Pennsylvania sales taxes.
Before accepting a resale certificate, a seller should:
– Review the resale certificate to make sure it is completely filled out.
– The valid certificate should be in the seller’s possession within 60 days from the date of the sale
– The seller doesn’t contain anything knowingly false.
– 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.
Is the Exemption Certificate the same as a Sales Tax License?
The Sales Tax License and Exemption Certificate are commonly thought of as the same thing, but they are actually two separate documents. The Sales Tax License 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.
These are two of several registrations your business may need. To learn more, check out our guide to Pennsylvania business licenses.
