A resale certificate allows a business to purchase goods or services for resale without paying sales tax. In order to do so, the retailer will need to provide a California Resale Certificate to their vendor.
Learn how the California Resale Certificate works, how to get one, and more.
Table of ContentsWhen retailers purchase products to resell, they often don’t pay the state sales tax to the supplier on the purchase. The sales tax will still be paid, but instead of the retailer paying sales tax, the retailer charges sales tax to their customer on the final value of the merchandise.
For example, let’s take an electronics store in San Francisco, California. When the store purchases laptops from suppliers to sell in their store, by having a resale certificate, the electronics store owner won’t typically pay sales tax on the inventory purchases. When a customer buys a laptop at the store, the retailer adds California’s sales tax to the total price. Then, at the end of a specified period, generally each month, the electronics store will add up all the sales tax it has collected from its transactions and send this collected sales tax to the California Department of Tax and Fee Administration.
Be aware that the sales tax exemption is only intended to be used for inventory that will be resold and not intended for the tax-free purchase of items used in normal business operations, such as paper, pens, etc.
Before a business starts selling products or providing taxable services, it must first get a California Seller’s Permit (sometimes referred to as a sales tax permit) from the California Department of Tax & Fee Administration. After registering for the permit, the California Department of Tax & Fee Administration will issue a sales tax number that will be used to fill out the Resale Certificate.
Step 1: Begin by downloading the California Resale Certificate Form BOE-230
Step 2: Enter the seller’s sales tax permit number
Step 3: Describe the business activities of the seller
Step 4: Enter the business name of the seller
Step 5: Describe the property being purchased for resale. Be sure to be descriptive and use either an itemized list or a general description.
Step 6: Enter the name, signature title, address, and phone number of the purchaser
There is no cost for a Resale Certificate in California.
A resale certificate in California is valid until it is revoked in writing by the seller unless the certificate was issued for a specific transaction, which is generally good for up to one year.
In California, the certificate is not filed with any government agency. Instead, it is kept by the seller (the business selling the merchandise to the reseller).
Sellers are not required to accept resale certificates, however, most do. If the vendor doesn’t accept the certificate, the buyer will have to pay sales tax on the merchandise being purchased. In most cases, a credit for the sales taxes paid is available by filing the California sales tax return.
If the seller is out-of-state, California is one of a few states that don’t recognize out-of-state resale certificates. In order to purchase tax-free from vendors in other states, the buyer will have to register for a sales tax permit in the seller’s state.
The Seller’s Permit and Resale Certificate are commonly thought of as the same thing, but they are actually two separate documents. The Seller’s Tax Permit allows a business to sell and collect sales tax from taxable products and services in the state, while the Resale Certificate allows the retailer to make tax-exempt purchases for products they intend to resell.
Also, in addition to these, your business may need to register for additional items. For more information, check out our guide to California business licenses.
When a business is presented with a resale certificate, the burden of proof is on the seller to verify that the buyer’s information is correct and to keep these records.
Failing to verify this information may put the liability of paying California sales taxes on the seller. It’s also important to note that a seller could end up with a misdemeanor charge if they issue a resale certificate in order to avoid collecting sales tax from a buyer. This charge can come with a fine of $1,000 to $5,000 and/or imprisonment for up to one year.
Before accepting a resale certificate, a seller should:
– Review the resale certificate to make sure it is completely filled out.
– Verify the purchaser’s sales tax permit by visiting the California Department of Tax and Fee Administration’s verification page or calling 888-225-5263.
– Sellers are also responsible for examining the certificate and evaluating whether the goods sold are reasonably consistent with the purchaser’s line of business. For example, if the buyer’s business is a car dealership but they want to purchase office supplies tax-free, the seller may want to investigate further.
– Keep a file of resale certificates.
