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How to Get a California Resale Certificate?

Resale Certificate

When you set up a business in California, you are mandated to apply for a handful of permits and licenses that ensure that all your business activities are conducted legally. Irrespective of the kind of business you manage, an LLC, a partnership or a sole proprietorship, you have to apply for these permits.

However, there is one permit that only those entrepreneurs must apply for, who sell taxable and tangible products or provide taxable services. This permit is referred to as the seller’s permit. Similarly, when these businesses make purchases for the purpose of reselling, they must apply for a California resale certificate.

In this article, let’s learn more about a resale certificate, what it is, how it differs from a seller’s permit, who needs to apply for this certificate and more. The article will only cover the Californian legislation regarding the seller’s or resale permit

What is a Resale Certificate?

A resale certificate is a permit that allows a seller to make purchases from other businesses without paying a sales tax. This permit is only applicable in situations where the purchase is for the sole purpose of resale.

In other words, if a retailer business purchases goods from a wholesaler to distribute it further to its consumers, the retailer is exempted from paying a sales tax.

This does not mean that no sales tax is being collected. In this case, the sales tax is collected at the final sale of commodities, when the products are sold to the consumer for the purpose of consumption. Here, the consumer will pay the tax to the retailer who will remit the sales tax to the state’s revenue department.

Resale certificates are used in the following cases:

  • When purchasing products for resale,
  • When purchasing material to be added as a physical part to a product to be sold
  • Purchasing products for display which are later to be sold during the business’ regular course of sales

A California resale certificate cannot be used in the following cases:

  • When products are purchased for use rather than resale
  • When products are used for business before resale
  • When products are used for personal purposes before resale
  • When products are held as investment for appreciation in value and then resold when more lucrative

However, before you get your hands on a resale certificate, you must apply for a seller’s permit in California.

Is a Resale Certificate the Same as a Sales Tax ID?

In multiple states, a sales tax ID and a resale certificate are almost synonymous with each other. However, both these permits stand for different purposes.

A seller’s tax permit enables you to collect sales tax from consumers on every sale. This includes the wholesale or retail sale of tangible and taxable products, the provision of taxable services or the renting/ leasing of personal property. This tax collected on every sale must be recorded regularly and remitted to the state authorities at the time of tax returns.

On the other hand, the resale certificate allows these businesses to purchase products from other businesses for the purpose of resale, without paying these taxes.

Now that we know that the two permits are very different, why do some states use them synonymously?

That is so because in most of these states, when a business applies for a seller’s permit, they automatically receive a resale certificate. On the other hand, you cannot apply for a resale certificate without a seller’s ID. So even though the permits differ in their purpose, they go hand in hand.

However, in states like California, you are required to apply for a resale certificate, provided that you already have a sale permit.

Getting Started!

One common question you’ll find yourself or any new business owner asking is this – Do I Need a California Resale Certificate?
Simply put, yes, yes you do.

Any seller who wishes to purchase commodities for the purpose of resale must apply for a California resale certificate. Without a resale certificate, a business will have to pay the sales tax at the time of purchase.

How to Apply for a California Resale Certificate?

Businesses operating in California are required to apply for a sales tax permit and a resale certificate. You can find a California Resale Certificate on the website of California Department of Tax and Fee Administration. Here, you’ll be required to fill in your seller’s permit number, description of the property you are purchasing to be resold, details of the purchaser and more. Other information you might be asked to specify can be:

  • The name and address of purchases
  • A statement that the property in question is being purchased for the sole purpose of resale.
  • The date of the document and signature of the purchaser or their legal representative.

How to Fill Out the BOE-230 California Resale Certificate

When registering with the California Department of Tax and Fee administration, seller’s must fill out the BOE-230 resale certificate. When it comes to such applications, any minute error can make you liable to paying sales taxes along with penalties and interests. Therefore, here is the process of filing out the form spelled out for you!

Steps For Filing Out the BOE-230 California Resale Certificate

Step 1: Download the BOE-230 form available online!
Step 2: Specify your seller’s permit number
Step 3: Specify the nature of your business
Step 4: Specify the name of the vendor you’re buying from
Step 5: Provide description of the commodity being purchased for resale
Step 6: Provide basic information such as your name, signature, address and contact details

Note: You aren’t required to register or submit this application with the tax and fee department. You must provide the copies of this form to any vendor you purchase from.

Exceptions: Some businesses might not hold a sales tax permit and yet make a purchase for the purpose of resale. Such a business must specify that they do not hold a seller’s permit and clarify the reason for the same in the form. The exception could be because the business does not conduct sales in the particular state or the products being resold are not subjected to a sales tax at retail.

However, in any other situation, applying for a California resale certificate without a seller’s ID isn’t possible.

If you haven’t already applied for a seller’s permit, you won’t be able to conduct any legal business sales. You must also remember that other licenses or documents like the Employer Identification Number (EIN) are also required to set up your business as a legal entity.

Before this gets any more confusing than it already is, you can register with service providers to file all crucial licenses.

All you need to do it, register onto the website, provide basic information about yourself and your business, and wait while professionals get your documentation sorted.

Do All States Have a Resale Certificate?

Not all states have a separate resale certificate. Instead, they combine the resale certificate with the sales tax permit. In some states, the resale certificate is popular by other names such as reseller’s permit, resale license and of course, a sales tax permit.

Out of the 50 U.S. states, 45 states require businesses dealing in the sale and resale of taxable goods and services to collect and remit sales taxes. Therefore, these 45 states require businesses to apply for a sales tax ID and the resale certificate to conduct business legally.

Does a California Resale Certificate Expire?

No, a California resale certificate does not expire until the purchaser decides to revoke it( in writing). You aren’t required to update your certificate unless you indulge in the sale of tobacco or cigarettes. In such a case, you must renew your permit on a yearly basis.

Are Seller’s Required to Accept Resale Certificates?

Not necessarily. A vendor can refuse to accept the purchaser’s resale certificate, in which case the purchases must pay the sales tax at the time of buying merchandise.

California, is also one of the nine states that do not accept out of state resale certificates. In this case, the buyer must apply for a California resale certificate for sales tax exemption.

Steps a Business Should Take Before Accepting a Resale Certificate?

A vendor is responsible for ensuring that the buyer presents them with a valid certificate, is purchasing for the purpose of reselling and that all the information provided is true.

To verify the certificate before accepting it, vendors should:

  • Ensure the certificate is filled properly and no information is left out
  • Verify the validity of the sales tax permit from the tax administration’s verification page
  • Ensuring that the products being bought can be resold by the business (If a car dealership buys televisions – this purchase may not be eligible for tax exemption)
  • Keep a copy of the purchaser’s certificate and maintain records

Penalties for the Misuse of a California Resale Certificate

Here are some of the consequences you might face for misusing the resale certificate in California.
1. When a purchaser makes use of their resale certificate while purchasing items that they,

  • Do not resell
  • Use for personal use before resale
  • Use for business purposes before resale
  • Hold to experience appreciation of value,

They can be penalized. They can also be found guilty of misdemeanor.

2. In such circumstances, the purchaser will have to,

  • Pay the tax due on the commodities purchased
  • Pay interest on the tax that is computed from the date of purchase.

3. Other than this, the purchaser would lose their seller’s permit and be required to pay either of the understated penalties

  • 10% of the tax or $500 – When purchase is made to evade tax payment and personal gain
  • 25% – For fraud and intent to evade tax.

4. Purchasers can be punished with a fine of $1000-$5000, imprisonment of upto a year or both.

Conclusion

Businesses that deal in the sale of taxable commodities or services in the state of California must apply for a sales tax permit. However, when these businesses require to make purchases with the purpose of resale, a California resale certificate will prove to be their best friend. This certificate is their license to make these purchases without paying any taxes at the time of purchase.

Businesses who are looking forward to applying for a seller’s or reseller’s permit can do so themselves or find service providers to do the manual work for them.

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