Q. (cont.) When a customer located in California places an order with us and we ask for a resale exemption, but are told the order is shipping to Maryland so we don't need one, is this true? Even if we aren't required to collect and remit taxes to Maryland, we still need the customer in California to verify that the sale is for resale? Correct?
A. In this case, you are not required to obtain a resale exemption certificate from either state. According to information Officer Jerome Watkins with the Maryland Comptroller’s Office, if your distribution company doesn’t have nexus in Maryland, than you are not required to withhold sales tax, provided you are using a common carrier to deliver the merchandise. Using a private fleet constitutes nexus. If you do not withhold sales tax, you are required to inform the recipient of the goods that there’s a chance they will be asked to pay use tax on the purchase. This is true for most if not all states.
Generally, if you have nexus in the ship-to state, in order to exempt a transaction you must obtain an exemption certificate recognized by the ship-to state. If you obtain an exemption certificate valid in the headquarters state, there is no guarantee that the states you are drop shipping into will honor it. However, many states do honor valid exemption certificates issued in other states. For example, if you are incorporated in one state, and have items drop shipped to Georgia, the State of Georgia will accept the other state's exemption certificate as is. Maryland is not one of these states and requires a certificate from Maryland.
So if you use a private fleet to deliver into Maryland, you do require an exemption certificate from Maryland.