The Legislature passed Senate Bill 6173 this year. It eliminates the use of resale certificates and replaces the certificates with a permit issued by the Department of Revenue. Effective January 1, 2010, businesses may not longer accept, honor or use resale certificates. Instead, to purchase goods for resale without paying sales tax, a buyer must have a reseller permit from the Department of Revenue and provide a copy to the seller. Permits are free and will be issued only to those businesses that make wholesale purchases.
The intent of the bill is to improve sales tax compliance without raising taxes. Misuse of the self-issued resale certificates costs the state an estimated $100 million per year in lost revenue. The resale certificate is based on the honor system. A business with legitimate reasons to purchase wholesale can download the certificate from the web site and use it to purchase goods for resale without paying sales tax. Problem - no controls over who should be using a resale certificate. Some use the resale certificate to purchase more than the law allows Through routine audits, we have examples of tires being purchased for personal cars, and a TV for a waiting room. Closing this loophole is projected to generate significant new revenue without imposing new taxes or raising existing taxes.
The legislation was passed quickly last spring. In order to communicate the change, the Department connected with more than two dozen stakeholder groups. These including large businesses (Costco, Amazon, Starbucks), trade associations and tax professionals to invite participation The application process, permit and correspondence were created with input from 20 state businesses that volunteered via contact with the stakeholder groups. The rollout developed minimized impact on their businesses. Feedback so far has been terrific.
Removing self-issue component of the resale certificate reduces misuse. The permits will be issued by the Department to businesses with a legitimate business purpose for having one. The Department maintains an online database of active reseller permit numbers. Businesses interested in checking whether a permit is valid can do so after January 1, 2010 - one year ahead of the statute’s requirement. And of course, the Department will continue to monitor wholesale purchases during audits.
In general, retailers, wholesalers and manufacturers, that are registered with the Department and actively reporting income are eligible for a permit. I’ll show you the approval stats in just a moment….
Although contractors will not receive their permit automatically, they will get a permit if they apply and meet the criteria. The business must reporting retail or wholesale construction and at least 25% or more of the materials purchased must be used on retail or wholesale construction projects.
The application is online now. We’ll have online application ready to rollout in the secure My Account section of the website in just a few days. The Department processes applications as soon as possible and in the order received. Our goal is to process within 10 business days, but the statute allows up to 60-days for a response from the Department. At the end of September, we were processing most applications in one or two days. Of the more than 12,000 applications received, 95% were approved. About 9 out 10 applications so far have been contractors. The most common reasons for denials were: Little or no retailing activity Businesses reported closed Incomplete applications In addition to all of auto-issued permits and approved applications, we mailed more than 326,000 letters with information about reseller permit to businesses to make them aware of the change on January 1.
More official-looking than resale certificates. Each permit number is unique to each business Alphanumeric, 9 characters: Last 2 digits are expiration year Effective date is printed in the upper-right corner
Reseller permits will be valid as indicated above. Permits can be renewed for four years. The permit process for contractors is a little different. Permits are valid for one year, and the contractor application includes more detail about materials and labor purchased. New businesses will receive an initial permit valid for two years. After that, permits are valid for 4 years. All other permits…for businesses other than contractors… will be valid for four years. Permits issued to contractors are valid for one year. Contractors need to renew each year.
Sellers must collect sales tax if a permit is not presented Buyers can recover sales tax paid by taking a deduction on a tax return using the Taxable Amount for Tax Paid at Source deduction from the retail sales tax classification or by requesting a refund directly from the Department.
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