When you purchase materials for your business, vendors may ask for your business tax wholesale number or your certificate of exemption from sales tax. Although terminology may vary from state to state, your wholesale number is simply your state business license number, which exempts you from paying sales tax on goods you will resell.
TL;DR (Too Long; Didn't Read)
You can find your business tax wholesale number on your state business license, or you can request a tax exemption certificate from your state's revenue department that includes your business tax number and explicitly states your exemption status.
How Does a Wholesale Number Work?
Your business can use your wholesale number when purchasing items that you will later sell at the retail level. States only collect sales tax once, when the final sale is made to the final customer. A wholesale purchase isn't the final step in the purchasing chain because the goods that change hands are intended for resale to your own customers. A wholesale number, or reseller's certificate, serves as proof that you will be reselling what you buy, so the vendor does not have to charge you sales tax.
If you're buying an item for use in your business, you are the final user, so you are still required to pay sales tax even if you have a wholesale number or a reseller's certificate. Suppose you buy a price gun to mark prices on the products in your store, and you also purchase label tape to make pricing stickers. You will pay sales tax on the price gun itself because your business will own it and use it. However, you won't pay sales tax on the pricing tape because once you mark your products, the tape will become part of an item that you resell.
If you are buying or selling food products in a state where food isn't subject to sales tax, it won't make a difference whether or not you have a wholesale number or a reseller's certificate. The food you buy won't be taxed at the wholesale level, but it won't be taxed at the retail level either. Vendors may still ask you to provide a number or a certificate because they may be required to do so for all their wholesale customers, but this documentation will have no effect on the final amount you pay.
- Oregon. There is no sales tax in Oregon, so there is no state-specific resale certificate. However, if you live outside of Oregon and purchase goods there that you will resell in another state, you may need to complete an Oregon Business Registry Resale Certificate for the state where you will be reselling those goods.
- Alabama. The state of Alabama does collect sales tax on retail sales, but a reseller certificate is only required if you have a "sales tax nexus," or a presence such as a retail store or sales representative operating in the state.
- Hawaii. This state doesn't have a sales tax, but it does have a general excise tax levied on most commercial activity. Unlike sales tax, the GET is levied on businesses rather than consumers. However, businesses are allowed to pass this cost along to their customers.
Understanding Use Tax
Use tax is the equivalent of sales tax but is paid in the state where you live rather than the state where you shopped. It is used when you purchase goods, especially big-ticket goods such as equipment and automobiles, from businesses in states that do not charge sales tax. It is also applicable to internet sales where you are not charged sales tax because you do not live in the same state as the business making the sale.
Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.