In South Dakota, a Certificate of Exemption also called a resale certificate in many states, allows businesses to purchase inventory without paying sales tax. To be eligible for the sales tax exemption, the retailer must provide their vendor a South Dakota Certificate of Exemption.
Learn more about how the South Dakota Certificate of Exemption works, how to get one, and more.
What is a South Dakota Certificate of Exemption?
When retailers purchase products to resell, they often don’t pay state 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 retailer then sends the collected sales tax to the South Dakota Department of Revenue.
Let’s consider a sports equipment store in South Dakota. With a valid Certificate of Exemption, the store owner can purchase sporting goods such as baseball bats, basketballs, and tennis rackets from suppliers without paying sales tax on those transactions. When a customer visits the store and purchases a baseball bat, the retailer will charge sales tax to the retail customer based on the full price of the bat. The retailer will take all of the sales tax that was collected and periodically remit the sales tax to the state.
It’s worth noting that 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 South Dakota Certificate of Exemption (EFORM – 1932)
Before a business starts selling products or providing taxable services, it must first get a South Dakota Sales Tax License from the South Dakota 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 license, the South Dakota Department of Revenue will provide a state sales tax number. This number will be listed on the Certificate of Exemption.
Step 1: Begin by downloading the South Dakota Certificate of Exemption Form EFORM – 1932
Step 2: Indicate whether the Multistate Supplemental form is being attached. This is the second page of the exemption form. Several states joined together under the Streamlined Sales Tax Agreement 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 buyer’s business type.
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.
South Dakota Certificate of Exemption FAQs
How much does a South Dakota Sales Tax Exemption Certificate cost?
There is no cost for a Certificate of Exemption in South Dakota.
Does a South Dakota Certificate of Exemption Expire?
Provided the box for a single-purchase certificate wasn’t checked and the purchaser makes recurring purchases with the seller at least once every 12 months, the Certificate of Exemption doesn’t expire.
How often is South Dakota sales tax due?
Most new businesses are set up to file, pay sales, and use monthly tax, but depending on the amount of tax collected, your business may have a bimonthly, quarterly, or semi-annual filing frequency instead.
Where do I file the South Dakota Certificate of Exemption?
In South Dakota, the Certificate of Exemption is not filed with any government agency. Instead, it is kept by the seller (the business selling the merchandise for resale).
Are sellers required to accept a Certificate of Exemption?
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 Certificate of Exemption?
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 result in a sales tax liability for the seller.
The following steps should be taken before accepting a Certificate of Exemption from a buyer.
– Review the Certificate of Exemption to ensure it is completely filled out.
– Verify the purchaser’s South Dakota Sales Tax License is valid and active by calling the South Dakota Department of Revenue at 800-829-9188, option 1.
– 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 with the Certificate of Exemptions in case of an audit.
Is a Certificate of Exemption the same as a Sales Tax License?
No – The Sales Tax License and Certificate of Exemption 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 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 South Dakota business licenses.
