Resale Certificate vs Sales Tax Permit: What's the Difference?

If you're starting a business that involves selling products, you've probably encountered terms like "resale certificate," "sales tax permit," "seller's permit," and "sales tax license." It's easy to get confused—these terms are often used interchangeably, but they actually refer to different things.

In this guide, we'll clear up the confusion once and for all.

Business Documents

The Quick Answer

Here's the fundamental difference:

• Sales Tax Permit = Authorization to collect sales tax from customers
• Resale Certificate = Authorization to avoid paying sales tax on items you'll resell

Think of it this way: The sales tax permit is about what you collect. The resale certificate is about what you don't pay.

What Is a Sales Tax Permit?

A sales tax permit (also called a seller's permit, sales tax license, or certificate of authority) is a state-issued license that authorizes your business to:

1. Collect sales tax from customers on taxable sales
2. Remit that collected tax to the state
3. Report your taxable and non-taxable sales

Key Facts About Sales Tax Permits

What Happens Without One?

Operating without a sales tax permit when required is illegal and can result in:

• Fines and penalties
• Back taxes plus interest
• Potential criminal charges
• Business license revocation

What Is a Resale Certificate?

A resale certificate is a document that allows you to purchase goods tax-free when those goods will be resold to customers. It's essentially proof to your suppliers that you're a legitimate business buying for resale, not for personal use.

Key Facts About Resale Certificates

How You Use It

When you buy inventory from a wholesaler or supplier:

1. Present your resale certificate
2. The supplier skips charging you sales tax
3. You resell the item and collect sales tax from your customer
4. You remit that tax to the state

How They Work Together

Here's a practical example of how both documents work in a real business scenario:

Scenario: You own a clothing boutique in Texas

1. You register for a Texas Sales Tax Permit

   • This gives you a Texas Sales Tax ID number
   • You're now authorized to collect sales tax from customers

2. You receive a Texas Resale Certificate

   • Often issued along with your permit
   • You can now buy inventory tax-free

3. You buy $5,000 of clothing from a wholesale supplier

   • You present your resale certificate
   • You pay $5,000 (no sales tax added)

4. You sell that clothing for $12,000 to retail customers

   • You collect $990 in sales tax (8.25% Texas rate)
   • Customers pay $12,990 total

5. You remit the $990 to the state

   • You file your sales tax return
   • You send the collected tax to Texas

Result: Sales tax is collected once—from the end consumer—not at every step of the supply chain.

State-by-State Terminology

One reason for confusion is that states use different names for these documents:

Do You Need Both?

In most cases, yes—if you're running a retail business, you need both:

You need a Sales Tax Permit if you:

• Sell taxable goods or services to consumers
• Have physical presence or economic nexus in a state
• Are required to collect sales tax

You need a Resale Certificate if you:

• Buy products specifically to resell them
• Purchase raw materials for manufacturing
• Need to open wholesale accounts

The Exception

Some businesses only need one or the other:

• Service-only businesses (no tangible products) may only need a sales tax permit in states where their services are taxable
• Businesses in no-sales-tax states don't need either for in-state transactions

Common Misconceptions

Misconception 1: "They're the same thing"

Reality: They serve completely different purposes. One is about collecting tax; the other is about not paying it on business purchases.

Misconception 2: "I only need a resale certificate"

Reality: The resale certificate doesn't authorize you to collect sales tax. You need the permit for that.

Misconception 3: "I can use my resale certificate for personal purchases"

Reality: This is tax fraud. The certificate is only for business inventory intended for resale.

Misconception 4: "One document works in all states"

Reality: Each state has its own requirements. You may need separate permits and certificates for each state where you do business.

How to Get Both Documents

Step 1: Register for a Sales Tax Permit

1. Visit your state's Department of Revenue website
2. Complete the sales tax registration application
3. Provide your business information (EIN, business type, etc.)
4. Submit and wait for approval

Step 2: Obtain Your Resale Certificate

In many states, you'll automatically receive a resale certificate when you register for a sales tax permit. In others, you may need to:

1. Download the official resale certificate form
2. Fill it out with your permit information
3. Provide it to suppliers when making purchases

Or simply use a service like ResaleCertificate.org to handle both registrations for you.

Multi-State Considerations

If you sell in multiple states, you may need:

• A sales tax permit in each state where you have nexus
• Resale certificates for each state where you buy inventory

The Streamlined Sales Tax program can simplify multi-state registration, allowing you to register in multiple states at once.

Key Takeaways

Both documents are essential for running a compliant retail business. The sales tax permit authorizes you to collect; the resale certificate saves you money on purchases.

Get Started Today

Ready to get your business properly registered? ResaleCertificate.org can help you obtain both your sales tax permit and resale certificate quickly and correctly.

Start Your Application →

Have questions? Contact our team for personalized assistance.