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What is correct process for sales tax registration, collection and exemption certificates?

Full Question: We are resellers of computer software. We collect sales tax from the customer, located in PA based on the PA tax rate. The software vendor, registered in IL charges us sales tax when we are billed for the software with a note that if we have a valid tax exemption certificate, we don't need to play sales tax. Is the following the right procedure to deal with the situation? 1. Register in PA to collect Sales Tax. 2. Use this to complete a resale certificate 3. Use this to not pay sales tax to the supplier. 4. Pay the collected sales tax to PA state. If not, please advise what is the correct process. Thank you so much

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Answer:

Diane Yetter photoYour question is a little confusing as you have indicated that you are collecting PA tax from your PA customer. But it sounds like you are not registered in PA. You cannot collect tax in a state if you are not registered. If you have been collecting PA tax and not remitting it to the state, you should work with someone to help you resolve this as soon as possible. We would be happy to discuss our services with you. If you are not collecting PA tax and wondering what you should be doing - here is the correct approach. The type of transaction you are involved in is referred to as a drop shipment transaction. There are special rules related to drop shipment transactions. This answer assumes you have no presence in PA and are not required to be registered in PA. If you are not sure if you have nexus in PA, this should be evaluated. If you are only registered in your headquarter state of CA, then you will be able to use your CA resale certificate/number to claim a resale exemption in many states. PA is a state with limited rules on drop shipment transactions. PA will not accept your CA number. Rather you should submit a PA resale certificate to your supplier with a statement on it that indicates that you do not have nexus in PA and are not required to be registered. This should satisfy their requirement for a PA resale certificate. However, not all sellers accept the no nexus statement. If you should be registered in PA or would like to voluntarily register in PA to collect sales tax, then you should register as a retailer. You can then supply the registration number on a PA resale certificate to the software vendor to purchase the software free of tax as a sale for resale. You would then be required to collect sales tax on the sale to the end customer and remit the sales tax to Pennsylvania. For more information on drop shipments, please view link to learn more about helpful drop ship resource. If you have questions about nexus, view link to download a nexus whitepaper. If you would like assistance evaluating your situation, please feel free to contact me for information about our services.

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