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Drop Shipping Exemption Certificates For AL, AR, AZ, CO and GA.

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Drop shipping can be an excellent strategy for many businesses, but it can create confusion for both resellers and vendors when it comes to sales tax. In general a vendor is required to collect sales tax if they have a link or connection (nexus) in the state where a product is delivered. In order not to charge their customer (reseller) the sales tax in the “ship-to” state a seller must receive some sort of proof of exemption, like a resale certificate, that is acceptable to the ship-to state. If the resale can not be properly documented than most states will not recognize it as a sale for resale and the vendor will need to charge the reseller the tax.

The confusion arises because not all states have the same guidelines as to what they will and will not accept as documentation for resale. Most states do not require you to register for a sales/use tax license in their state just so you can purchase an item for resale. However, there are ten states that make it almost impossible to avoid getting registered in their state to issue a valid resale certificate. These states are California, Connecticut, District of Columbia, Florida, Hawaii, Louisiana, Maryland, Massachusetts, Mississippi, and Tennessee. Please see my previous posts for more information on these states.

Today we will discuss the states of Alabama, Arkansas, Arizona, Colorado, and Georgia. Each of these states accept multiple alternative forms of resale documentation which is helpful to dropshippers who have no other reason to get registered there. Most resellers should be able to provide at least one acceptable type to their vendors, which will protect the vendors from liability and relieve the reseller from having to pay tax. See below for specific information by state.

If you wish more information on the mechanics of how sales tax works in drop shipping scenarios, please see the posts entitled Dropshippers: Are Exemption Certificates Required For Every State? or Drop Shipping Exemption Certificates For IL, NY, PA, & TX.

State Specifics:

Alabama - Alabama is different than most states in that it does not have nor does it generally require a resale certificate. Alabama requires a vendor to “properly document” the wholesale character of a sale. Proper documentation generally requires having a sales tax permit number on file. Many vendors require either a resellers home state certificate, a home state sales tax permit or the Multistate Tax Compact (MTC) multi-jurisdictional certificate with a home state number.

Arizona - Arizona is very flexible as to what documentation can be accepted as proof of resale when a reseller does not have nexus in Arizona. They will allow a home state certificate, the AZ certificate with a home state number, the Multistate Tax Compact (MTC) multi-jurisdictional certificate, or the Streamlined Sales Tax multi-jurisdictional certificate with a home state number.

Arkansas - Arkansas is a full member of the streamlined sales tax project (SSTP). Full members of the SSTP are generally very flexible when it comes to documenting resales. Arkansas will allow a home state certificate, the AR certificate with a home state number, the Multistate Tax Compact (MTC) multi-jurisdictional certificate, or the Streamlined Sales Tax multi-jurisdictional certificate with a home state number.

Colorado - Colorado is another state that is very flexible as to what documentation can be accepted as proof of resale when a reseller does not have nexus in Colorado. They will allow a home state certificate, the CO certificate with a home state number, or the Multistate Tax Compact (MTC) multi-jurisdictional certificate with a home state number.

Georgia - Georgia is a full member of the streamlined sales tax project (SSTP). Full members of the SSTP are generally very flexible when it comes to documenting resales. Georgia will allow a home state certificate, the GA certificate with a home state number, the Multistate Tax Compact (MTC) multi-jurisdictional certificate, or the Streamlined SalesTax multi-jurisdictional certificate with a home state number.

Summary:

The preceding five states are all fairly easy to work with as to what documentation they will accept. However, that does not mean they they are easy to work with if you have incomplete or incorrect documentation. If you are a vendor collecting a certificate, make sure it is completely filled out, signed and dated. The name on the certificate should also match the name on the invoice. If you do not remain vigilant, even an easy state can become a nightmare in an audit.

Coming up - In our next post we will discuss ID, IN, IA, KS, and KY.

Do you have questions about MULTI-STATE sales tax - or other state/local tax issues?

Michael welcomes inquiries from SalesTaxSupport.com users. Please call - or (ideally) if time allows, use the "Request a Consultation" link on this FIRM PROFILE page to submit your question and/or consultation request.

Other recent “Exemption Certificate Mgmt.” posts by Michael J. Fleming:

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