It is essential to manage the intricacies of sales tax compliance effectively for businesses functioning in multiple states within the USA.
Part of that compliance is understanding how resale certificates work and knowing that out-of-state resale certificates are not recognized by some states.
This post aims to define a resale certificate, discuss why some states refuse out-of-state certificates, and publish a complete list of states having those policies by 2025.
Understanding Resale Certificates
A business can utilize a resale certificate to buy taxable merchandise from suppliers who are retailers without paying sales tax, provided those goods will be resold later.
Instead of paying sales tax for acquiring inventory, businesses are paid sales tax by their customers when selling that inventory. In general terms, the process is as follows:
- Obtaining a resale certificate: An eligible business applies for this certificate to the state where it is registered. It is commonly obtained through the state’s Department of Revenue or a similar tax agency.
- Tax Exempt Purchases: The business gives the certificate to their suppliers who are enabled to charge tax-free inventories to the businesses. Vendors that accept resale certificates must authenticate them.
- Collecting sales tax from customers: The business sells the products and gets sales tax from the customers, depending on the sales tax rate of the state and localities.
- Submitting Accrued Tax Revenue: The collected sales revenue is sent to the appropriate state tax body according to the state’s filing calendar.
This mechanism makes sure that the consumer pays sales tax only at the retail level, thereby avoiding taxes on already taxed goods.
Why Some States Reject Out-of-State Resale Certificates
Some states have policies that don’t accept resale certificates from different states. The major causes for this include:
Avoiding Tax Fraud: Through requiring in-state registration, states attempt to ensure that businesses properly collect and pay relevant sales tax, thereby reducing the chances of resale certificates abuse for tax-free personal purchases.
Fostering In-State Registration: Requiring businesses to register in the state improves monitoring and compliance with local tax law. It also improves the ability of the state to monitor and control taxable transactions.
Other State-Specific Tax Laws: Some states have special tax reliefs or structures that require direct registration to ensure compliance with certain local stipulations. For instance, states with varying tax classifications for services as well as goods may need separate documentation.
States That Do Not Accept Out-of-State Resale Certificates (as of 2025)
Pretty much all states listed below, as of 2025, need businesses to get a resale certificate from within the state revenue offices, and do not accept out-of-state resale certificates:
Alabama: The state allows businesses to claim tax-exempt purchases for resale only if they have an Alabama sales tax permit. Out-of-state certificates are generally not honored unless the company holding them has an Alabama sales tax account.
California: Requires vendors claiming tax-exempt purchases to obtain a seller’s permit within the state. Vendors must check with the California Department of Tax and Fee Administration (CDTFA) to validate use of the permit.
Florida: Requires out of state vendors to obtain a Florida sales tax permit for them to qualify for resale exemptions. Florida’s Department of Revenue requires all businesses to file sales tax returns, whether or not any taxable sales have been made.
Hawaii: Instead of sales tax, Hawaii operates with a General Excise Tax (GET). Almost all businesses must apply for a GET license, and some will be taxed for almost all their business transactions, including reselling.
Illinois: Vendors must obtain an Illinois sales tax permit to be granted resale tax exemptions. Following the issuance of resale certificates, strict business documentation retention policies come into effect in order to mitigate abuse of resale certificates.
Louisiana: To register, one has to apply for a Louisiana resale certificate. The local sales and use tax system has a myriad of local jurisdictions, each with its tax regulations.
Maryland: For business tax exemptions, the business is required to register for a Maryland Sales and Use Tax license. If the tax exempt status was issued erroneously, the business may suffer fines or loss of some business privileges.
Massachusetts: One must register for a Massachusetts Sales Tax Permit to enjoy resale exemptions. There is a robust system in place in the state for the validation of resale certificates.
Washington: Businesses are mandated to secure a Washington reseller permit for tax-exempt resale purchases. The state has strict policies concerning the use and renewal of business permits.
Washington, D.C.: Residents must apply with the D.C. Office of Tax and Revenue to obtain a resale tax permit.
Some sources suggest that the states of Vermont and Virginia do not honor out-of-state resale certificates; however, there are contradictory accounts as to whether these states require out-of-state registration for all businesses.
Consequences of Using an Out-of-State Resale Certificate in a Non-Accepting State
With regards to a business trying to execute an out-of-state resale certificate where it is not accepted, the business risks the following factors:
Failed Tax Exemption: The vendor is likely to outright refuse the certificate, which means the business will have to incur a sales tax burden.
Penalties and Audits: Some business entities that operate with resale certificates may be audited and subsequently face noncompliance penalties.
Suspicion Trust Of The Vendor: Vendors and suppliers will not look favorably at or continue doing business with companies that redeem resale certificates in bad faith.
How to Obtain a Reseller Certificate That Works Nationwide
Business operators that conduct transactions in various states for purposes of tax compliance may consider any of the following:
Permits for Sales Tax in Multiple States: A few selected states are part of SST, which enables them to give some tax compliance assistance.
Registration Compliance With Multiple States: It is more strategic to satisfy warranty claims as opposed to denying them because that results in blocked resale certificates.
Through Tax Compliance Services: Relatives can be personnel to help in obtaining reseller certificates, which are compliant in some states.
Pitfalls to Avoid
A company trying to utilize an out-of-state resale certificate where it is not accepted could face problems like:
Rejection of Tax Exemption: The vendor might not accept the certificate, which leads to the particular business paying for sales tax out of pocket.
Audits and Penalties: With Core Business Supplies, businesses that try to use improper resale certificates will most likely get audited and be fined for non-compliance.
Loss of Vendor Trust: Businesses trying to misuse resale certificates can find it difficult to deal with vendors who want to stop supplying to them.
How EasyFiling Can Help Get a Resale Certificate
Our services include EasyFiling, helping simplify the application for a qualified business resale certificate by:
- Assisting in registration with state tax authorities
- Ensuring compliance with specific state requirements
- Guiding on maintaining tax exemption records
With EasyFiling, businesses can save time and focus on their operations while ensuring they meet all necessary tax regulations.
Final Words
Businesses with an out-of-state filing certificate should thoroughly know which states do not accept an out-of-state filing certificate.
Meeting state tax requirements eliminates the legal problems as well as allows seamless flows of operations alongside the stability of finances.
With the continued change of laws, businesses will have to stay informed in order to avoid penalties from the tax requirements that seem to appear from nowhere.
By actively seeking solutions to such problems now, businesses can handle sales tax issues with confidence in 2025 and the years following.
Frequently Asked Questions (FAQs)
Can I apply a resale certificate from my home state in a different state?
Some states allow out-of-state resale certificates, while others ask for registration in the state where you are conducting business.
What if I don’t get a resale certificate from a restricted state?
You could face non-compliance, pay sales tax, which could be more expensive, or even receive penalties or audits.
Do online sellers need resale certificates for multiple states?
Yes, if they have nexus (a significant presence) in those states. States may require registration for sales tax collection and resale certificates if you meet their nexus criteria.
How frequently do I need to renew my resale certificate?
Each state within the US has specific rules governing its resale certificates. Some may issue them as valid for a year, while others could take up to a few years before needing renewal.
Can a resale certificate be used for both services and goods?
This is at the discretion of the specific region’s tax laws. Certain states allow only some resale certificates for certain taxable services, while others issue them only for goods.
Swostika Silwal
