Multistate Exemption Certificate Used to Support the Resale Exemption

All businesses engaging in interstate commerce should be familiar with the Multistate Exemption Certificate, which can be used to support the resale exemption from sales and use tax in a substantial majority of states. Although each state has its rules with respect to whether a particular sale is exempt, the Multistate Tax Commission has created a form which has been accepted by 38 states. Accordingly, the Multistate Exemption Certificate is a powerful tool for vendors in supporting the sales tax exemption for all purchases by customers, especially if the customer is making purchases in multiple states.

The Multistate Exemption Certificate – a relatively simple form – functions slightly differently from state to state, as a review of the notes section following the certificate is imperative. The resale exemption is generally available for purchases where the customer will resell the item purchased in the same form or will incorporate the item into a product for sale. Holding a valid Multistate Exemption Certificate accepted from a customer in good faith will absolve your duty to collect sales tax on all sales to that customers in the states where the certificate has been approved, unless the customer informs you that a particular purchase is taxable. As you can imagine, or have already experienced, properly supporting your sales tax exemptions can greatly reduce one’s time, and more importantly one’s liability, during a sales/use tax audit. While your current operations might appear limited enough that you do not need to comply with its sales tax laws, the state taxing authority may see things differently. Having this documentation in place can protect you by supporting non-collection of sales tax in the event of an adverse nexus finding.

When in doubt as to whether you have a sales tax collection obligation, it is always prudent to obtain a properly executed Multistate Exemption Certificate to support an exemption in those states that have accepted the certificate. Taking a moment to familiarize yourself with this short form, the states that accept it, and the way it is used from state to state will save you exposure in the event of an audit.  As usual, this form comes with plenty of fine print (the form itself is 1 page, but the instructions and notes are 3 pages).

We at the Ohio State Tax Blog are able to answer your, and your customer’s, questions regarding the how, why and when concerning the Multistate Exemption Certificate. Contact us today to help determine whether you are properly supporting the resale exemption with the Multistate Exemption Certificate.