Resale Certificate vs. Tax Exempt Certificate: What's the Difference?
Two of the most commonly confused documents in sales tax compliance are the resale certificate and the tax exemption certificate. Both allow you to purchase goods without paying sales tax. Both are provided to sellers at the time of purchase. And in some states, both are even on the same form.
But they serve fundamentally different purposes, apply to different types of buyers, and using the wrong one can create serious audit problems.
This guide explains exactly how these two certificates differ, who uses each one, and how to make sure you are using the right document for your situation.
The Core Difference
The simplest way to understand the distinction:
- A resale certificate says: "I am buying this to resell it. I will collect sales tax from my customer when I sell it."
- A tax exemption certificate says: "My organization is exempt from paying sales tax because of what we are (nonprofit, government, etc.)."
One is about what happens to the goods. The other is about who is buying them.
Side-by-Side Comparison
| Feature | Resale Certificate | Tax Exemption Certificate |
|---|---|---|
| Purpose | Buy goods tax-free for resale | Buy goods tax-free due to organization's exempt status |
| Who uses it | Businesses buying inventory to sell | Nonprofits, government agencies, religious organizations, schools |
| Why it's exempt | Goods will be resold (tax collected later) | Organization is exempt from sales tax by law |
| Registration required | Sales tax permit / seller's permit / vendor's license | State-issued exemption number or letter |
| Goods are resold? | Yes; that is the entire basis for the exemption | No; goods are consumed by the exempt organization |
| Sales tax collected later? | Yes, the buyer collects tax from end customer | No, no further tax is collected |
| Issued by | Self-issued by the buyer (with valid permit number) | State issues the exemption number; buyer provides documentation |
| Expiration | Varies by state; many do not expire | Varies; some require periodic renewal |
| Misuse risk | Using it for personal purchases or non-resale items | Using it for purchases outside the organization's exempt purpose |
Resale Certificates: A Closer Look
Who Uses Them
Any business that purchases goods with the intent to resell them can use a resale certificate. This includes:
- Retail stores buying inventory from wholesalers
- Online sellers purchasing products to sell on Amazon, Shopify, eBay, or their own websites
- Wholesalers and distributors buying from manufacturers
- Restaurants buying food ingredients for meals they sell
- Rental companies buying equipment they will rent to customers
- Auto dealers purchasing vehicles for resale
How They Work
- You register for a sales tax permit in your state
- You fill out a resale certificate and provide it to your supplier
- Your supplier sells you the goods without charging sales tax
- When you resell the goods, you collect sales tax from your customer
- You remit that collected sales tax to the state
The tax is not eliminated; it is deferred. The end consumer ultimately pays the sales tax. The resale certificate simply prevents the tax from being collected at every step in the supply chain.
What Qualifies
Only purchases that will genuinely be resold qualify. You cannot use a resale certificate for:
- Office supplies your business will use
- Equipment or tools for your operations
- Personal purchases
- Items you will give away (with limited exceptions)
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Tax Exemption Certificates: A Closer Look
Who Uses Them
Organizations that have been granted tax-exempt status by their state, including:
- 501(c)(3) nonprofits: Charitable, religious, educational, and scientific organizations
- Federal government agencies: Always exempt from state sales tax
- State and local government agencies: Exempt in their own state (and usually others)
- Public and private schools: Educational institutions with exempt status
- Hospitals and healthcare organizations: Those with tax-exempt designation
- Religious organizations: Churches, mosques, synagogues, temples
How They Work
- The organization applies for and receives tax-exempt status from the state
- The state issues an exemption number, letter, or certificate
- When making purchases, the organization provides its exemption documentation to the seller
- The seller does not charge sales tax
- No sales tax is collected at any point; the transaction is fully exempt
The tax is eliminated, not deferred. This is the key structural difference from a resale certificate.
What Qualifies
Exemption rules vary significantly by state, but generally:
- Purchases must be for the organization's exempt purpose
- Not all purchases by an exempt organization are necessarily exempt, as some states limit exemptions to specific types of goods
- Purchases for personal use by employees or members are not exempt
- Some states require the purchase to be paid for with the organization's funds (not an employee's personal credit card)
State-Specific Names: The Source of Confusion
One major reason people confuse these two certificates is that states call them different things. Here are examples of the terminology each state uses:
What States Call Resale Certificates
| State | Name Used |
|---|---|
| California | Resale Certificate (CDTFA-230) |
| Texas | Sales and Use Tax Resale Certificate (01-339) |
| New York | Resale Certificate (ST-120) |
| Florida | Annual Resale Certificate for Sales Tax (DR-13) |
| Ohio | Sales and Use Tax Blanket Exemption Certificate (STEC-B) |
| Pennsylvania | Exemption Certificate (REV-1220) |
| Illinois | Certificate of Resale (CRT-61) |
| New Jersey | Resale Certificate (ST-3) |
| Virginia | Certificate of Exemption (ST-10) |
| Georgia | Certificate of Exemption (ST-5) |
Notice the problem: Pennsylvania, Virginia, and Georgia call their resale certificate an "exemption certificate" or "certificate of exemption." Ohio uses a single form (STEC-B) for both resale and other exemptions. This naming overlap is the primary source of confusion.
What States Call Tax Exemption Certificates
| State | Name Used |
|---|---|
| California | Exemption Certificate (varies by type) |
| Texas | Texas Sales and Use Tax Exemption Certification (01-339, same form with different boxes) |
| New York | Exempt Organization Certificate (ST-119) |
| Florida | Consumer's Certificate of Exemption |
| Ohio | STEC-B (same form, different box checked) |
| Illinois | Certificate of Exemption (varies) |
In some states, the resale certificate and the tax exemption certificate are literally the same physical form with different boxes checked. This is efficient for the state but confusing for businesses.
Can You Have Both?
Yes. A business can hold both a resale certificate and a tax exemption certificate, though this is relatively uncommon.
Example: A nonprofit that operates a thrift store:
- Uses its tax exemption certificate when buying office supplies, furniture, and other items for the organization's own use
- Uses a resale certificate when buying inventory for the thrift store (goods it will resell to the public)
In this case, the nonprofit is acting in two different capacities:
- As an exempt organization making purchases for its own use
- As a retail business making purchases for resale
Each capacity requires the appropriate certificate.
Common Confusion Points
Confusion 1: "I'm Tax Exempt, So I Don't Need a Resale Certificate"
Wrong. If you are a nonprofit buying goods to resell (at a fundraiser, thrift store, or bookstore), your tax exemption status does not cover those purchases. You need a resale certificate for resale transactions and your exemption certificate for organizational purchases.
Confusion 2: "My Resale Certificate Makes Me Tax Exempt"
Wrong. A resale certificate does not grant tax-exempt status. It only allows you to defer sales tax on goods you will resell. You are still responsible for collecting and remitting sales tax when you make sales to end consumers.
Confusion 3: "I Can Use My Resale Certificate for Anything My Business Needs"
Wrong. A resale certificate can only be used for purchases that will be resold. Office furniture, business equipment, cleaning supplies, and anything else your business consumes are not covered by a resale certificate. You must pay sales tax on those items.
Confusion 4: "The Seller Said They Need a Tax Exempt Certificate, But I Only Have a Resale Certificate"
This often happens because sellers use the terms interchangeably. In most cases, if you are buying for resale, your resale certificate is what they need. Clarify the purpose of the purchase, and the correct form will follow.
Confusion 5: "My Out-of-State Exemption Certificate Works Everywhere"
Not necessarily. Some states accept out-of-state exemption certificates, while others (notably California) require you to have state-specific documentation. Always check the requirements of the state where the purchase is occurring.
Why Using the Wrong Certificate Leads to Audit Issues
Scenario 1: Using a Resale Certificate for Non-Resale Purchases
If you provide a resale certificate to buy goods you actually use in your business (not resell), you have made a false claim. During an audit:
- The state will assess the sales tax you should have paid
- Penalties can range from 10% to 50% of the tax owed, depending on the state
- Interest accrues from the date the tax was originally due
- Repeated misuse can be treated as fraud
Scenario 2: Using a Tax Exemption Certificate Without Exempt Status
If you present a tax exemption certificate without actually having exempt status, this is straightforward tax fraud. Consequences include:
- Full assessment of unpaid sales tax
- Civil penalties
- Potential criminal charges in egregious cases
Scenario 3: Seller Accepts the Wrong Certificate
If you are a seller and you accept a resale certificate from a buyer who does not have a valid sales tax permit, you may be liable for the uncollected tax. Similarly, if you accept an exemption certificate from an organization that has lost its exempt status, you bear the risk.
Best practice for sellers: Always verify the certificate type matches the purchase reason, and confirm the buyer's registration or exemption number is valid using the state's online verification system.
How to Determine Which Certificate You Need
Ask yourself these questions:
1. Are you buying goods to resell them?
- Yes: You need a resale certificate
- No: Continue to question 2
2. Is your organization tax-exempt (nonprofit, government, etc.)?
- Yes: You need a tax exemption certificate
- No: Continue to question 3
3. Does the purchase qualify for another specific exemption (manufacturing, agriculture, etc.)?
- Yes: You need the state's specific exemption form for that category
- No: You owe sales tax on the purchase
Get the Right Certificate for Your Business
If you are a business buying goods for resale, we can help you obtain the proper resale certificate for any state. Our service handles the sales tax registration, ensures you receive the correct forms, and provides guidance on proper usage.
- Registration in all 45 sales tax states
- Correct form identification for your state
- Application processing and support
- Guidance on proper certificate usage
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If you are a nonprofit or government entity seeking a tax exemption certificate, you will need to apply directly through your state's Department of Revenue or equivalent agency. The process varies by state, but typically requires documentation of your federal tax-exempt status (IRS determination letter) along with a state application.
Key Takeaways
- Resale certificates are for businesses buying goods to resell. The sales tax is deferred to the end consumer.
- Tax exemption certificates are for exempt organizations. The sales tax is eliminated entirely.
- State naming conventions vary widely. Some states use the same form for both purposes, and some call their resale certificate an "exemption certificate."
- You can hold both if your organization both resells goods and makes exempt purchases.
- Using the wrong certificate creates audit liability for both buyers and sellers.
- Always verify that the certificate type matches the transaction and that the registration number is valid.
These two certificates look similar and people confuse them all the time, but they serve completely different purposes. Knowing the difference protects your business from audit issues and makes sure you are claiming the right exemption for every purchase.
Related Articles
- What Is a Resale Certificate? - A comprehensive introduction to resale certificates, how they work, and who needs one.
- Resale Certificate vs. Sales Tax Permit - Another commonly confused pair of documents. Learn how they differ.
- Sales Tax Exemption Forms: Complete Guide - Find the exact form you need for your state and exemption type.