A Texas resale license allows Texas businesses to purchase taxable items and then resell them for a profit. However, not every person who sells items will need to obtain this kind of license. This guide contains what you need to know if you want to begin selling items for profit in the state of Texas.
What Is a “Resale”?
Retailers purchase inventory from manufacturers, wholesalers, or distributors with the intention to resell those items to customers. The act of selling those purchased products to customers in order to make a profit is called a resale. The sale of taxable personal property requires a Texas seller’s permit.
What Does a Texas Resale Certificate Allow Businesses to Do?
When a business purchases its inventory from a distributor, wholesaler, or manufacturer, it can do so without having to pay tax on those items. However, this is only possible if it holds a resale license. The license guarantees the inventory item sellers that the business intends to resell those items for profit and, therefore, does not need to pay tax at the time it purchases those items.
Texas Resale License vs. Sales and Use Tax Permit
Where the resale license allows businesses to purchase inventory without paying sales tax, the sales and use tax permit authorizes a Texas business to collect sales tax from the products and services it sells to its customers.
Items that Businesses Can Purchase with a Resale Certificate
A resale certificate can be used to purchase tangible personal property for resale. It can also be used to purchase taxable services performed on tangible personal property without having to pay sales tax. As well, the resale certificate can be used:
What Is Tangible Personal Property?
Tangible personal property is officially defined as any property that can be felt, measured, weighed, seen, or otherwise perceived by the senses. Examples of tangible personal property include:
Which Taxable Services Must Possess a Texas Resale Permit?
In addition to tangible personal property, some taxable services also require a resale license to perform their services on the tangible personal property in a business’s resale inventory. They include:
What Information Is Included on a Resale License, and How Do You Use It?
The Texas resale license contains the names and addresses of the seller and the buyer. It also contains a general description of the items that are being sold, as well as the Texas sales tax permit number of the buyer.
A resale certificate must be submitted each time the purchase of goods with the intent to resale is made. It is illegal for a seller to sell items tax-free without an original resale certificate that’s been filled out completely and properly. The buyer needs to provide the certificate to the seller at the same time they make a purchase.
If all of the items you’ll be purchasing from a seller in the foreseeable future will be for the purposes of resale, you can provide them with what’s known as a blanket resale certificate. This type of document doesn’t provide a description of the items being purchased, but only that all items purchased from the seller will be intended for resale.
Do You Need a Texas Resale License?
Only those individuals who are considered to be engaged in business need a Texas sellers permit. The state considers many factors when determining whether a person is engaged in business, including:
Any business identified as needing a resale license can obtain one at no cost.
Responsibilities of Buyers and Sellers
Businesses that are purchasing inventory are bound by law to ensure their resale license is current and valid. Should a business be purchasing several items, but not all of those items are intended for resale, this must be clearly indicated to the vendor.
The seller’s responsibility is to not only understand Texas tax laws but also be aware of the buyer’s nature of the business. For example, a seller should be aware enough of the nature of a buyer’s business to be able to confirm that a submitted resale certificate accurately reflects that business. It’s also the seller’s responsibility to not accept any certificate if they have reason to believe the items are being purchased for a reason other than resale.
Before accepting any resale license, the buyer should always ensure that the resale certificate is completely and accurately filled out. To ensure the license is valid, sellers should always verify the certificate by searching the Comptroller of Public Accounts Taxpayer database.
What Information Do You Need to Provide to Get a Permit?
You will need to provide information about your business, such as its name and address, as well as your SSN or EIN. You’ll also need to detail what products your business sells, and give a description of the items you will be purchasing from the seller.
What Are the Consequences of Misusing a Resale License?
Both buyers and sellers can be charged with serious offenses and significant fines for the illegal acceptance or issuance of resale certificates. A buyer who knowingly enters false or fraudulent information onto a resale certificate and then presents that certificate to a seller with the intention to have it accepted as valid can be fined.
A seller can also be liable for the payment of fines and subject to charges if they accept a resale license knowing that the information contained in it is fraudulent or false.
Generally speaking, the misuse of a Texas sales tax resale certificate to avoid paying taxes is an illegal act. The results of misuse can range from misdemeanors to felonies, depending on the amount in taxes that was evaded as the result of the illegal transaction.
What Happens if a Seller Doesn’t Accept a Resale License?
No seller is required to accept a resale license, although the majority of sellers will. Of course, there’s always the possibility that a seller will not accept a resale license. Should this happen, the onus will be on the buyer to pay the sales tax on the items they wish to purchase, but they will typically be able to obtain credit for this tax when they file their return.
More Than a Resale License Is Needed
In addition to a resale license, any business in Texas that sells or plans to sell tangible personal property that is taxable needs to also obtain a sales tax and use permit. As mentioned previously, the sales tax and use permit authorizes a business to collect sales tax on the items it resells to customers.
To obtain a sales use and tax permit, you will need to gather personal and business identification and registration documents, fill out the application form, and send it to the Texas Comptroller’s office. You should receive your permit within two weeks.
If you want to avoid the wait and eliminate the hassle of filling out forms and going through several channels before your license request is answered, choose FastFilings. We check your application for errors and completeness before ordering permits directly through district offices for faster processing. To learn more about the benefits of using our BBB-accredited service, visit FastFilings online.