Sales Tax Fundamentals
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How to Use a California Resale Certificate
byMarch 2, 2016
If you buy products at retail in order to resell them, you can often avoid paying sales tax when making the purchase.
In California, this involves presenting a California Resale Certificate to the merchant from whom you’re buying the products.
This quick guide will explain what you need to know about buying products in California for resale.
If you Wish to Use a California Resale License
Let’s say Jamie lives in California and buys kid’s toys at retail stores and sells them through Amazon FBA. When Jamie goes to buy toys – which are taxable in California – she has to pay sales tax on that purchase unless she can prove that she is buying the toys in order to resell them.
In this case, Jamie would need to show the retailer she’s purchasing from her resale certificate (sometimes referred to as a resale license or reseller’s certificate.)
California doesn’t issue a specific “resale certificate” to individual businesses. Instead, you can print out the approved California resale certificate template found at the California Board of Equalization website.
When presenting the certificate to the retailer you’re buying from, be sure to include the following information:
- Your name and address
- Your California sales tax license number
- A description of the item(s) you’re purchasing
- A statement that the items will be resold. (Important: Say that the item(s) “will be resold” or are “for resale.” The state will not accept the terms “nontaxable” or “tax exempt” on a resale certificate.)
- Your signature
- The date of the purchase
Don’t use your resale certificate if there’s a chance you are not buying the item(s) to resell them.
Fraudulently using a resale certificate could result in penalties which may include:
- The tax due on the item
- Interest on the tax you didn’t pay on the item
- Cancellation of your sales tax permit
- A penalty of 10% of the tax owed on the item or $500, whichever is greater
- A 25% penalty for fraud or intent to evade the tax
If you are buying some personal items on a trip and some items you intend to resale, pay for the transactions separately.
If You are Presented with a California Resale License
As a seller, you may find yourself presented with a California resale certificate from time to time.
Keep in mind that the buyer must present you with all of the information above – including identifying information and their business type. The California Board of Equalization warns that retailers should watch out for fraudulent resale certificates. For example, if the business type is a toy store but the buyer wants to use their resale certificate to buy adult sized clothing tax free, be suspicious.
You should verify resale certificates with the California Board of Equalization by using the online Seller Permit Verification system or calling 1-888-225-5263.
Be cautious here. It’s a misdemeanor to issue a resale certificate in order to avoid collecting sales tax from a buyer. The offense is punishable by a fine of $1,000 to $5,000 and/or imprisonment for up to one year in the county jail.
A Couple More Facts about California Resale Certificates
Retailers don’t have to accept your resale certificate. Target, for example, is notorious for their policy against selling to resellers.
California is one of ten states that will not accept an out-of-state resale certificate. If you don’t have a California sales tax permit and want to source products to resale in California, check out this post on strategies for recovering sales tax you paid on items you intended to resale.
Do you have questions or comments about California resale certificates? Start the conversation in our Sales Tax for eCommerce Sellers Facebook group!
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