Resale Certificates for Real Estate Investors: What Actually Qualifies

Real estate investors, house flippers, and rental property owners spend heavily on building materials, appliances, fixtures, and supplies. A kitchen renovation for a flip property can easily require $15,000 to $30,000 in materials. It is natural to wonder: can a resale certificate eliminate the sales tax on those purchases?

The short answer is mostly no, but with important exceptions. Real estate transactions involve real property, not tangible personal property, and most states treat construction materials differently from retail inventory. Understanding the rules prevents costly mistakes and helps you identify the savings that are legitimately available.

The Core Rule: Real Property vs. Personal Property

Sales tax and resale certificates deal with tangible personal property, which means movable goods like merchandise, equipment, and supplies. Real property means land and anything permanently attached to it, including buildings and their components.

When you buy lumber, drywall, paint, or plumbing fixtures and install them into a building, those materials become real property. In most states, the person who installs materials into real property is treated as the end consumer of those materials. This is true whether you are a licensed contractor or a DIY investor doing the work yourself.

This means the resale exemption generally does not apply to building materials you install into a property, even if you plan to sell that property.

Why the Exemption Does Not Apply

The logic is straightforward. When you sell a house, you are selling real property (the house and land). You are not selling the individual materials (lumber, drywall, fixtures) as separate items. Real property sales are not subject to sales tax in any state. Because there is no taxable retail sale of the materials, there is no resale transaction to exempt.

Think of it this way: a resale certificate exempts purchases of items you will resell in the same form (or as components of a product you sell). A 2x4 that becomes part of a wall is no longer a 2x4 you are reselling. It has become part of the real property.

What DOES Qualify for Real Estate Investors

Despite the general rule, there are specific categories where real estate investors can legitimately use a resale certificate.

1. Appliances and Fixtures That Remain Personal Property

In some states, certain items installed in a home remain personal property rather than becoming real property. The distinction often depends on how permanently the item is attached.

The key question: Is the item permanently attached to the building, or can it be removed without damaging the property? Freestanding appliances that plug into an outlet and can be moved are more likely to qualify as personal property.

State rules vary significantly. Some states consider all appliances installed in a home (even freestanding ones) as part of the real property when sold with the house. Others draw a clearer line between attached and unattached items.

2. Staging Furniture and Decor

If you buy furniture, artwork, rugs, and accessories to stage a flip property and you keep those items after the sale (to use in your next staging), those are your business assets, not resale items. You would pay sales tax on them as business-use purchases.

However, if you operate a separate staging business that rents staging items to other investors or real estate agents, the items you buy for that rental business may qualify depending on your state's treatment of rental property.

3. Items You Sell Separately

If you buy materials that you sell directly to a buyer as personal property (not installed into a building), the resale exemption applies. For example:

• Leftover materials you sell to other investors, contractors, or at surplus sales
• Appliances sold separately from the property (not included in the home sale)
• Fixtures and hardware you sell through a retail side business

For more on selling leftover materials, see our guide to selling leftover construction materials.

4. Rental Property Furnishings (Limited Cases)

If you furnish rental properties and the furnishings remain your property (not sold to the tenant), you are not reselling those items. You are using them in your rental business. However, some states have specific rules for the hotel and short-term rental industry that may allow tax-exempt purchases of items placed in rental units.

Short-term rental operators (Airbnb, VRBO) should check their state's rules on this topic. Some states treat furnished short-term rentals differently from long-term rentals.

The Contractor Angle

Many real estate investors hire contractors to do renovation work. The tax treatment of materials purchased by contractors follows contractor sales tax rules, which vary by state.

How Contractor Rules Work

In most states, the contractor (not the property owner) is considered the consumer of construction materials. The contractor pays sales tax when purchasing materials and does not separately charge the property owner sales tax on those materials. The cost of materials (including the tax) is built into the contractor's bid.

Some states use a different model where the contractor acts as a retailer of materials and charges the property owner sales tax on the materials portion of the invoice. In these states, the property owner cannot use a resale certificate to avoid the tax, because they are the end consumer.

Doing the Work Yourself

If you do your own renovation work (acting as your own contractor), you are treated as the end consumer of the materials you buy. You pay sales tax at the point of purchase. A resale certificate does not change this.

For detailed information on contractor tax rules, see our construction materials sales tax guide and our contractor resale certificate guide.

State-Specific Variations

States With Broader Real Estate Exemptions

A few states have rules that may provide more flexibility:

• Arizona: Contractors are generally treated as retailers of construction materials, which can shift tax obligations.
• New Mexico: Imposes gross receipts tax rather than traditional sales tax, with different rules for real property transactions.
• Hawaii: Imposes a general excise tax on the contractor's gross receipts, with different exemption rules.

States Where Materials Are Clearly Taxable to the End User

In states like Texas, California, New York, Florida, and Illinois, construction materials installed into real property are taxable to the person performing the installation (contractor or DIY owner). The resale exemption does not apply.

What About Wholesaler Access?

Even without the resale exemption on many purchases, a resale certificate can still provide value for real estate investors by opening access to wholesale and trade pricing.

Some building material suppliers, appliance distributors, and fixture wholesalers require proof of a resale license to open a trade account. While you may still need to pay sales tax on materials you will install, the wholesale pricing itself can save you 15% to 40% compared to retail.

Sources with trade pricing:

The savings from trade pricing alone can exceed the sales tax savings a resale certificate would provide.

Legitimate Strategies for Reducing Tax on Materials

While the resale exemption has limited application for real estate investors, other strategies can reduce your tax burden on materials.

1. Buy in Tax-Free States

If you are near a state line, purchasing materials in a state with no sales tax (Oregon, Montana, Delaware, New Hampshire) can save significantly. However, many states impose use tax on materials brought in from out of state, so verify your state's rules.

2. Tax-Exempt Purchases Through Contractors

In states where contractors are treated as retailers, the contractor pays tax on materials and passes it through to you in the total price. In some cases, negotiating with the contractor on material sourcing can result in lower overall costs.

3. Separate the Sale of Personal Property

If you are selling a flip property, consider selling freestanding appliances and movable fixtures as a separate bill of sale from the real property transaction. Consult a tax professional about whether this approach is valid in your state.

4. Track Materials for Tax Deductions

While you may not avoid sales tax on materials, the sales tax you pay on materials for a flip property is typically a deductible expense for income tax purposes. It becomes part of your cost basis in the property. Track every purchase with receipts.

Common Mistakes Real Estate Investors Make

Using a Resale Certificate for All Building Materials

This is the biggest mistake. Buying drywall, lumber, roofing, and plumbing supplies with a resale certificate when you plan to install those materials into a property is improper use of the certificate. State auditors specifically look for this pattern among real estate investors.

Assuming the Sale of the Property Counts as "Resale"

Selling a house is a real property transaction, not a retail sale of tangible goods. The fact that you are "reselling" the property does not make your material purchases exempt under the resale certificate rules.

Not Tracking Use Tax Obligations

If you buy materials from out-of-state vendors who do not charge your state's sales tax, you likely owe use tax on those purchases. Many investors overlook this obligation.

Confusing Tax-Exempt Items With Contractor Rules

Some items (like freestanding appliances) may be tax-exempt in your specific state, while installed components are not. Do not apply the same treatment to all purchases. Separate your purchases by category and apply the correct tax treatment to each.

When a Resale Certificate DOES Make Sense

Real estate investors should consider a resale certificate if they also:

• Sell appliances, fixtures, or materials as a side business (retail or wholesale)
• Operate a staging company that rents or sells furnishings
• Buy and resell surplus building materials
• Sell freestanding appliances separately from property transactions

If any of these activities apply to you, register for a sales tax permit and get your resale certificate for those specific transactions.

Apply for Your Resale Certificate

Real Savings Potential

The savings are more modest than for pure retailers, but they are real for investors who have qualifying activities.

Related Articles

• Construction Materials Sales Tax Guide - Detailed rules for how sales tax applies to building materials.
• Resale Certificates for Contractors - Contractor-specific tax rules and exemptions.
• Selling Leftover Construction Materials - How to sell surplus materials and the tax implications.