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Resale Certificates in California: Proper Documentation is the Key

author photo of Monika Miles

In California, as in many states, companies purchasing items which will ultimately be resold to a final consumer in the ordinary course of business can purchase such items free of sales tax. The key is in the proper documentation both for the seller and the purchaser.

Example 1: California Company A sells Widgets to both end users and distributors. When it sells the Widgets to final consumers in California, it must collect and remit the proper amount of sales tax (state, county and city) from that consumer. However, when Company A sells the Widgets to a distributor in California that will ultimately resell the product, Company A can accept a properly executed resale certificate and then NOT charge sales tax. It is key that Company A is familiar with the distributor’s intent and that Company A truly accept the resale certificate in good faith. (If, for example, the distributor also is likely to use some of the Widgets in his side business, Company A should charge sales tax on sales of that product.) Most of the time, it will be clear that a distributor will be selling for resale, but not always. The acceptance in good faith is key for the seller. There are penalties for the illegal use of resale certificates.

Example 2: California Company B is a distributor of many electronic Gadgets, including Widgets. It purchases Widgets from Company A (above). Company B issues a resale certificate to Company A indicating that the company will ultimately resell the products to end consumers. Company A will likely accept the certificate in good faith and not charge sales tax. When Company B sells the Widget to the ultimate customer in California, the Company must charge the proper amount of sales tax.

What does the resale certificate look like?

Attached here is a sample copy of BOE Form 230: a resale certificate which notifies the seller that the purchaser will resell the items. The California State Board of Equalization (BOE) does not require that this particular form is completed, just that documentation is on file which includes the following:

  • Signature of either the purchaser, purchaser’s employee, or authorized representative of the purchaser
  • Name and address of the purchaser
  • The number of seller’s permit held by the purchaser (if purchaser is required to hold one)
  • A statement that the described property is being purchased for resale. The certificate must contain words that state the property will be “resold” or is “for resale”. Simply stating that something is “non-taxable” or “exempt” is not sufficient.
  • Date of the document
  • The signature of the purchaser or someone approved to act in their behalf.

Timing

In addition to the proper format, the seller must receive the purchaser’s resale certificate in a timely matter. This must be either a.) before the seller bills the purchaser for property, b.) at any time within the normal billing and payments cycle, or c.) at any time prior to the delivery of the property to the purchaser. In addition, the seller does not have to accept the certificate if they have reason to believe the property is being purchased for use other than resale. While there is no specific rule on how often to update this documentation, we recommend to our clients that resale certificates are updated at least annually.

If a purchaser has multiple transactions with a seller they can elect to use a blanket resale certificate noting that purchase orders should be reviewed for the exact quantities. These purchase orders must identify which items are for resale and those that are not, if applicable.

What about sales to out of state distributors?

If sales are made to out of state distributors, the seller will still generally want to collect a resale certificate.

Example 3: Company A (above) sells Widgets to out-of-state distributor, Company C for resale. Company A may likely still request a resale certificate from Company C to maintain in its records. As such, Company C should indicate on the resale certificate that the Company does not hold a California permit and the reason the permit is not required.

Remember, it’s all about maintaining proper documentation. In the case of an audit, the seller must maintain proper and organized documentation. This could be more difficult if they have a large or diverse customer base, so it’s important to maintain the data currently as indicated above. If the seller’s documentation is inadequate, or certain documents are missing or not thoroughly described, they could ultimately be liable for the sales tax.

Do you have questions about California (and/or multi-state) sales tax - or does your business need assistance with other tax issues?

Monika welcomes inquiries from SalesTaxSupport.com users and offers a complimentary 30 minute consultation to companies with multi-state activities. Please use the "Request a Consultation" link on FIRM PROFILE page to submit your question or consultation request.

Other recent “California (CA)” posts by Monika Miles, CPA:

NOTE: All blog content, comments, and participation subject to disclaimer at bottom of page.

Comments

6 Responses to Resale Certificates in California: Proper Documentation is the Key

  • Posted by Andrew on January 19, 2017 1:18pm:

    We sell products sold to us by a CA business. Schillers resale certificates for MO and Ill. We want the CA business to ship direct to another CA business but not charge us sales tax as we are a reseller. What forms should I provide the the CA business from who I am purchasing product?

    • Posted by Author photo of Monika Milesmonikamiles on January 19, 2017 5:50pm:

      Andrew,
      I'm not sure if you are from out of state (outside CA). Do you have nexus (taxable presence) here in CA? And are you registered as a retailer in CA? If so, you should provide your supplier with a CA resale certificate. If you are out of state, with no presence in CA, then see if Example 3 above applies. If your fact pattern falls outside of that, let's chat off-line because I'll need a little more detail. Feel free to contact me at the email address above.

  • Posted by Hugo on September 24, 2016 1:05pm:

    Hi there. I need a CA resale cert for purchases I am making from LA distributor and then selling in US online, in order to avoid paying them sales tax. Problem is I am not resident in US? Can you tell me what I need to do and can you do it for me?
    Thank you.
    Hugo Clancy.
    Ireland.

    • Posted by Author photo of Monika Milesmonikamiles on September 27, 2016 4:17pm:

      Hugo,
      State taxability is not dependent upon where you have residency - it's more about where you have a taxable presence. If you're not registered to do business anywhere in the US, the resale question can become a little tricky due to the documentation requirements. That said, depending on your facts, perhaps you should be registered to do business somewhere here in the US. It sounds like your facts and circumstances may be a little more complicated than is feasible to answer in this forum. The short answer to your questions are - Yes, I can probably tell you what to do (given more background). Depending on the answer to that question, we could determine next steps. If you'd like more assistance, please reach out to me directly at info@milesconsultinggroup.com. Thanks!

  • Posted by Monika on March 31, 2016 4:10pm:

    Chris,
    If possible, collect a CA resale certificate from them. Then you are covered in CA. If they are not registered to do business in CA, then collect a current NV resale certificate with the similar information as would be on the CA resale cert (the link is included in the blog article above). The key, of course, is to make sure that you are accepting the resale certificate in good faith. If you have any question as to whether they might be using it for personal use (the sale of just one cart for resale might sound a little strange), then assess the tax. But if you are comfortable that it's indeed for resale, accept the certificate, and don't charge tax.

  • Posted by Chris on March 31, 2016 12:53pm:

    We are a golf cart dealer located in CA. I am selling a golf cart to a company in NV. They have a NV resale license. They are picking up the cart from our CA location with the intent to resell the cart in NV. Do I collect sales tax from them?

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