It’s important to keep up-to-date on state and local regulations that govern the purchase and sale of goods within Washington state, including which sales taxes may affect your business. Washington no longer uses resale certificates; instead, it requires every business that sells goods at wholesale to apply for a reseller permit to present to vendors. Reseller permits allow you to purchase goods (or services) that you intend to resell without having to pay retail sales tax on the original purchase. If you run a business that purchases items that you are intending to resell, you should obtain a reseller permit in order to avoid any unnecessary tax consequences for your purchases. Today’s post details some of the key issues that surround reseller permits in Washington state.
How can you obtain a reseller permit? You can visit the Washington Department of Revenue (“DOR") website to apply for a reseller permit. The easiest way to apply is to create an account on the DOR website, then complete the application through the “manage business account" link. The steps are simple and the DOR guides you through the application. Reseller permits are issued to most businesses for free.
It’s important to note that some reseller permits will be automatically issued and renewed. Qualifying businesses will receive the reseller permit automatically when they successfully complete the Master Business License application with the DOR. Similarly, some reseller permits will automatically renew. Keep in mind, if your permit does not automatically renew, you will receive a notice and you must reapply within 90 days from expiration date of the permit.
Making a purchase for resale without a permit You’re allowed to make a purchase for resale without a reseller permit; however, you are required to pay retails sales tax on your purchase. You may be able to take a Taxable Amount For Tax Paid at Source deduction on your tax return, or you can seek a refund from the DOR, but these processes can be burdensome. It’s much easier to obtain a reseller permit to avoid any of these hassles.
How do you know if your reseller permit is still active? Through the DOR website, you can check your reseller permit status. Click “manage business account" and search for “reseller permit status." The status of your reseller permit should appear.
If you applied for a reseller permit prior to January 1, 2009, your permit is valid for four years. If you applied after January 1, 2009, you permit is valid for two years but can be renewed for four.
In the case of an audit, what documents should you keep on hand? Just in case your business is audited, it’s important to keep certain documentation in your records. A reseller must provide documentation to prove that a sale is a wholesale sale rather than a retail sale. You must keep that documentation for five years after it was last used. You have up to 120 days from the date of the sale to collect the information for the documentation. The options for the documentation include (a) a paper (or electronic) copy of the reseller permit, (b) a printed copy of the customer’s information on the DOR Business Records Database, or (c) the confirmation codes that you receive through the DOR’s Reseller Permit Verification Service.
What do you do if your buyer doesn’t have a reseller permit? If your buyer claims to be a reseller, but does not have a valid reseller permit, you are required to collect sales tax. You have the right to refuse to make the sale without charging tax if believe the buyer isn’t going to resell the goods or his reseller permit is expired (or doesn’t exist).
What are you allowed (and not allowed) to purchase with a reseller permit? You’re allowed to purchase merchandise and inventory, and ingredients, components, or chemicals to be used in a new product that will be resold. You can purchase feed, seed, fertilizer, and spray materials for your farm. And you can purchase materials and contract labor for retail and wholesale construction jobs.
You’re not allowed to use a reseller permit to purchase goods to be used for personal or household uses, business supplies that are not going to be resold, promotional gifts, tools, equipment, or materials and contract labor for public road construction, government contracting, or speculative building.