Everything You Need to Know About California Resale Certificates
- Sales Tax
- December 7, 2016 | Suzanne Kearns
If you run a business in California, chances are you’ll either need to give or accept a resale certificate in the course of doing business. Here’s the information you need to use these certificates in the state of California.
What Is a California Resale Certificate?
The California Board of Equalization (BOE) requires sales tax be collected on nearly every tangible personal property item sold, but the tax isn’t always collected on every sale. Notably, if you purchase goods for resale, it’s unnecessary to pay sales tax because you will collect the tax when you resell the item to an end user.
To avoid paying sales tax in such instances, a valid resale certificate is required that allows products to be purchase without sales tax being collected (provided certain guidelines are followed).
What Are the Resale Certificate Guidelines?
California doesn’t issue resale certificates instead rlying on business owners to provide their own. You can use a note, a memorandum, a letter, or a form. But no matter how you submit the certificate, the following information must be on it for it to be legitimate in the eyes of the state:
- The name and address of the purchaser.
- The purchaser’s seller’s permit number. If you aren’t required to hold a seller’s permit number, you can state that on the resale certificate and explain why. For instance, you may purchase products in California, but sell them in other states where you don’t have nexus. Or you may purchase products that would require sales tax if sold individually but don't call for it due to the way you use them. For example, you may purchase twine to use on your canned food items, which you sell tax-free.
- A description of the product you are purchasing.
- A statement that the product is for resale or that it will be resold. The California Board of Equalization will only accept a statement containing these exact words. It will not accept statements that contain the words “nontaxable” or “exempt” instead.
- The date of the certificate, plus the signature of the purchaser or someone who can legally act in their place. The BOE will accept digital signatures as long as it’s unique to the person using it, it can be verified, it’s under the control of the person using it, it conforms to the Secretary of State regulations, and it’s “linked to data in such a manner that if the data are changed, the digital signature is invalidated.” In addition, the California Secretary of State provides a list of approved digital signature certification authorities.
If you make multiple purchases from the same vendor, you can request that they keep your resale certificate on file rather than asking for a new one every time.
What Else Do I Need to Know?
In addition to having all of the required information on the resale certificate, the California BOE asks that you only use the certificate when you’re sure you will resell the item. If you’re not certain, you should pay the sales or use tax, and then take a tax deduction on your tax return if you do sell it. If you are buying multiple items and not all of them are for resale, be sure to specify the resale items to the seller.
If you’re accepting a resale certificate from a buyer, it’s your responsibility to note the general character of the business and make sure the purchase makes sense. For example, if the resale certificate shows that a buyer runs a surf shop and the purchaser is buying a television, you should either insist that the resale certificate states plainly that the television is for resale, collect sales tax, or refuse the sale.
California has multiple penalties for the illegal use of a resale certificate ranging from repayment of the tax to imprisonment, so be sure you use it wisely.
Finally, if you want to verify a seller’s permit number, you can call 888-225-5263, or use the online Seller’s Permit Verification site.