Suppliers often require an exemption certificate when you ship products from the US. In addition, some B2B marketplaces have created Sales Tax Exemption Programs, such as Amazon (ATEP) and Alibaba (ASTEP), that can easily help buyers identify as eligible tax-exempt for US sales tax purposes. You may enroll in their program to acknowledge and ensure that you are qualified for sales tax-free towards purchases on Amazon or Alibaba Business.
Enrolling in the program will require you to fill in the form or upload the certificate. You must make all information you have entered correctly, and the details must match the business information. Once you fail to complete the information required by the program will be rejected.
What is a Sales Tax Exemption Certificate?
A sales tax exemption certificate is a tax form you can present to your supplier or dropshipper to make sales tax-free. It is an official or proper document that gives someone special permission not to do or avoid paying sales tax on your goods or services.
When do you need a sales tax exemption certificate?
- If one of your supplier or drop shippers wants you to provide a resale certificate.
- Suppose you have nexus with a state resulting from physical presence or a remote sales tax law. In that case, you must collect an exemption certificate whenever you don’t charge a customer sales tax on a taxable transaction. No exceptions.
You need a sales tax exemption certificate and don’t want to get an EIN. What are your options?
It depends on the state you are getting an exemption certificate. You may be limited if the supplier requires an exemption certificate from the home state. In all situations except for the ten states listed below, you have the ability to get an exemption certificate from any regular state. You have more flexibility to be in a position if it is not one of these ten states listed, perhaps to obtain an exemption certificate without an EIN US number. It is very helpful for the non-resident seller because if you get an EIN in many cases, you may want to file what is called a protective return even if you have a tax treaty with your country. If you are a U.S. resident, you already have a Tax ID and an entity most likely for your business, so in many cases, you might just get an exemption certificate from your home state.
Are sales tax returns due?
For the states that require sales tax registration, you are required to file a tax return based on your sales tax filing frequency (monthly, quarterly, annual). If you are not required to register for sales tax but have EIN for the business, you are required to file income tax returns with the IRS for the EIN. For VAT ID, you are required to file tax returns in your home country.
Note: You have no US tax return obligations if a state accepts your VAT number for the exemption since you will not be registering for FEIN or sales tax license in a state.
SST (Streamlined Sales Tax), the MTC (MultiState Tax Commission) or go directly to the state? Which is best?
MTC and SST forms are important alternative documents, and most states will accept them. There are states not covered by these two forms, e.g., Washington D.C. and Louisiana. Well, you have to visit their website and get the form.
*SST has 24 state members and has created the Streamlined Sales Tax Exemption Certificate, which anyone can use for all of their member states. If one of your suppliers or dropshipper wants you to provide an exemption certificate to one of these 24 states, you can give them this SST form. You don’t need to be registered in these states to use this form. This form will accept your FEIN, driver’s license, and state-issued business ID number. For foreigners, it will accept your VAT issued by your country. If you don’t have a VAT number, you need to get a FEIN.
*MTC has 37 state members and has created the Uniform Sales & Use Tax Exemption Certificate, which can use for some of their member states. Please consult the link for a complete list of the states that accept the Uniform Sales & Use Tax Exemption Certificate, subject to notes on pages 2-4 of that document. If one of your suppliers or dropshipper wants you to provide an exemption certificate, you can give them this MTC form. Keep in mind that some of these states still require a reseller to be registered to collect sales tax in the state where the reseller makes the purchase.
MTC form is very similar to the SST form but has a lot of restrictions, and you must read the footnotes for 7 pages. Also, please remember that some of the MTC member states are also members of SST. However, the form requirement will still be based on what the program requires (SST, MTC, or a state exemption form).
We suggest you check first the state who will accept the SST form before you get into the MTC form because the SST form is easy and has not required much hesitation. If you don’t have a sales tax ID in the state, you only need to provide the other tax ID number mentioned above.
SST Member States:
Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, North Carolina, North Dakota, Nebraska, New Jersey, Nevada, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming.
MTC Member States:
Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kansas, Kentucky, Maine, Maryland, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Washington, and Wisconsin.
Who is responsible for getting a sales tax exemption certificate?
Reseller or purchaser. Whoever brings the responsibility should know enough about when to get an exemption certificate. Whoever needs an exemption certificate must know what forms and types of exemptions use.
Why is a sales tax exemption certificate necessary?
Auditor will require you to submit all exemption certificate documents for any sales-tax-free claims on your filing returns. If the supplier or reseller missed some of the certificates on their end, it could be a massive evaluation, including penalties and interest. This is also one of the common causes of sales tax audit problems.
Do you need to register for a sales tax account to obtain a sales tax exemption certificate?
Not all states are required to register for sales tax account numbers, but more than 10 states require sales tax registration before getting an exemption certificate.
Will those ten states requiring sales tax registration accept sales tax exemption certificates from other states?
No, they do not accept out-of-state resale certificates. These states are very stringent in terms of accepting exemption certificates.
Does the sales tax exemption certificate expire?
It depends on the state because some exemptions certificate needs to renew specifically if not used within a twelve-month timeframe.
What are my options to obtain a sales tax exemption certificate?
- Basic state requirement for non-resident sellers: VAT ID or other country-issued tax ID. If a VAT ID should suffice the basic requirement for a state exemption, the non-resident seller will not need to register for FEIN or a state tax ID number, and will only complete the exemption certificate directly.
- Options are based on the state requirements. If a state does not accept VAT ID, the non-resident seller should apply among the following:
- EIN only (specify the states)
- EIN + state-issued tax ID number (specify the states)
- State-issued tax ID number only. No FEIN required.