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Buy Products or Services for Resale?
Haiying Wang, CPA
Manager, Tax Services
August 10, 2009
If you buy products or certain services for resale, the rules for exemption from Washington State's retail sales tax have changed.
As a result of a new law to improve sales tax compliance, signed by Governor Gregoire on May 19, you'll need to replace your current self-prepared resale certificate with a free, state-issued reseller permit before January 1, 2010. Applications for reseller permits will be available from the Washington State Department of Revenue as early as September.
If you're a seller, the new law imposes certain recordkeeping requirements on you, as well.
Existing Rules for Sales Taxes on Wholesale Purchases
Currently, if you buy products for resale, you provide the seller with a resale certificate―which you can download from the Washington State Department of Revenue (DOR) website―to support the wholesale nature of the sale.
If you're a contractor or subcontractor in the construction industry, the products and certain services you buy for use in custom construction projects generally qualify as wholesale purchases. The products and services you buy for speculative projects do not.
If you sell products or services, you're not required to charge your buyer sales tax if the buyer provides you with a completed resale certificate at the time of the sale or within a 120-day period after the sale.
New Rules for 2010
Beginning January 1, 2010, resale certificates are not longer valid. You must have a reseller permit, instead.
A reseller permit, like the resale certificate it replaces, allows businesses that regularly purchase products and certain services for resale in the ordinary course of business to avoid paying retail sales tax in Washington State.
Unlike resale certificates, reseller permits are issued by the DOR. The DOR is authorized to deny your permit if it determines that doing so is necessary to ensure the collection of taxes. The DOR can also revoke your permit if it determines that you've used or otherwise allowed your permit to be used inappropriately.
If you sell products or services, you're required to obtain a reseller permit from your buyer. In the absence of a reseller permit, and with limited exceptions, it's your responsibility to prove that the transaction was not a retail sale.
Obtaining a Reseller Permit
Many businesses, selected based on industry and reporting history, will automatically receive reseller permits by mail. The DOR will notify these businesses in September and they can expect to receive their permits in October.
If you're not notified that you'll automatically receive a permit, beginning in September you can apply for one using an application form that is available at all DOR offices and downloadable from the DOR website. After you apply, the DOR must rule on your application within 60 days.
Renewal Periods
Reseller permits are generally valid for a four-year term, although there are exceptions. The period of time your initial reseller permit is valid depends on when your business first registered with the DOR.
 Four-year initial term: If you registered with the DOR before January 1, 2009, your initial permit is valid for four years.
Two-year initial term: If you registered with the DOR on or after January 1, 2009, your initial permit is valid for two years.
There is a special exception to the four-year rule for businesses in the construction industry. Reseller permits for qualified contractors are only valid for twelve months.
If You Don't Have a Reseller Permit
If you don't have a reseller permit, either because you don't qualify or haven't applied for one, you'll have to pay Washington sales tax on your purchases.
You can deduct any sales tax you pay for qualifying wholesale purchases on your combined excise tax return, or request a credit.
For More Information
The Washington State Department of Revenue publishes updated information regarding the new state-issued reseller permit on its website at http://dor.wa.gov/resellerspermit.
The site includes a detailed comparison of resale certificates and reseller permits at http://dor.wa.gov/content/doingbusiness/businesstypes/industry/vessel/vessel_resale.aspx
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