Hello, there! Thinking about how to keep more money in your pocket while running your California business? Imagine buying inventory without paying sales tax upfront! This is exactly what a California Resale Certificate can provide for you.
Before you start reaping the benefits, you’ll need a California Seller’s Permit. This must-have permit lets you collect sales tax from your customers and is the first step toward obtaining your resale certificate.
Do you want to simplify your purchase process and save big on taxes? Curious about the steps to get these crucial permits? Let’s dive into how obtaining a California Seller’s Permit and Resale Certificate can transform your business operations and boost your profitability! Ready to learn more? Let’s get started!
California Sales Tax
Sales tax is a tax on sales or receipts from sales. The statewide sales tax rate in California is 7.25%. However, local jurisdictions can add district taxes, ranging from 0.10% to 1.00%, which can increase the total tax owed by the seller. Some areas may have multiple district taxes in effect, making the overall tax rate higher.
What Is a California Seller’s Permit?
A California Seller’s Permit is a state license that allows you to sell merchandise, goods, or other items at wholesale or retail levels. It also lets you issue resale certificates to suppliers, enabling you to buy items tax-free for resale. Operating without this permit is illegal and can result in fines and penalties. Sometimes people mistakenly call it a resale number or permit, but its official term is a seller’s permit.
If you make three or more taxable sales in a 12-month period, you must register for a California seller’s permit and pay the associated taxes. When selling at a location for less than 90 days, you must obtain a temporary seller’s permit and register each temporary location. However, if you have a permanent seller’s permit, you only need a sub-permit for additional temporary locations.
Resale Certificate in California
Now, about the resale certificate. A resale certificate is a document that allows registered sellers to purchase items without paying sales tax, provided the items are intended for resale. When purchasing items for resale, sellers can present this certificate to their supplier to avoid paying sales tax upfront. The certificate must include (not limited to):
- The purchaser’s name and address.
- The purchaser’s seller’s permit number (if applicable).
- A description of the property being purchased.
- A statement indicating that the property is being purchased for resale.
- The date of the document.
- The signature of the purchaser or an authorized representative.
Sellers can also accept resale certificates from buyers who intend to resell the purchased items. While the certificate can be in any form, a blank resale certificate is available online for convenience. Proper documentation is essential for compliance with California’s sales tax regulations.
California Seller’s Permit Vs. California Resale Certificate
People often get confused between the two concepts of “California Seller’s Permit” and “California Resale Certificate.” And we don’t want the same confusion to overwhelm our readers’ minds. So, we will now briefly explore the differences between these two.
Understanding the differences could prove quite essential for business owners to ensure compliance and optimize their operations. Here’s a quick comparison:
- A seller’s permit is required for all businesses engaged in selling or leasing tangible personal property in California.
A resale Certificate is used by businesses to purchase goods for resale without paying sales tax upfront. - Seller’s Permit is Issued by the California Board of Equalization (BOE) and allows you to collect sales tax from customers.
A Resale Certificate allows you to avoid paying sales tax on goods purchased for resale, ensuring sales tax is only paid when the final customer buys the product. - A seller’s permit is necessary if you have an office, warehouse, or sales agent in California.
A resale certificate Requires a valid Seller’s Permit and must be presented to suppliers for tax-exempt purchases. - Seller’s permits apply to all sales, including the sale of goods and any taxable labor.
A resale Certificate is only for goods intended for resale, not for items used personally or within the business. - In the case of a seller’s permit, You may need a separate permit for each business location.
A resale certificate is submitted to each supplier; one certificate can cover multiple purchases from the same supplier. - A seller’s permit is the first step before obtaining a resale certificate.
A resale certificate ensures you’re not taxed twice on the same goods—once when buying from a supplier and again when selling to a customer. - Seller’s permits are required to report and pay sales tax to the state.
In a Resale Certificate, you must include the purchaser’s name, address, permit number, description of goods, and a statement that items are for resale.
What Are the Types of California Resale Certificates?
California does not actually issue different “types” of resale certificates. There is just one standard form, the CDTFA-230, titled “General Resale Certificate.” This single form serves all businesses in California that need to claim a sales tax exemption on purchases they intend to resell in the regular course of business.
Eligibility for California Resale Certificate
To qualify for a California Resale Certificate, you first need to obtain a seller’s permit. You must get a California seller’s permit if:
Engage in Business in California: Whether you’re running a shop, an online store, or any other business selling goods in California, you’re required to have a seller’s permit.
Sell or Lease Tangible Personal Property: If the items you’re selling would ordinarily be subject to sales tax if sold at retail, you need a seller’s permit. This applies to a wide range of goods, from electronics to clothing and everything in between.
Who Can Apply?
The requirement to obtain a seller’s permit isn’t limited to just one type of business structure. It applies to:
- Individuals: Sole proprietors and single-owner businesses.
- Corporations: Larger entities structured as corporations.
- Partnerships: Businesses owned and operated by two or more people—a partnership.
- Limited Liability Companies (LLCs): Businesses with a structure that offers limited liability protections aka LLCs.
Temporary Seller’s Permit
Not planning to sell year-round? If you’re making sales during temporary periods—like Christmas tree sales, seasonal pop-up shops, or rummage sales—you’ll need a temporary seller’s permit. These permits are typically issued for operations lasting no longer than 90 days at one location.
Who Can’t Use the California Resale Certificate?
While a California Resale Certificate offers significant benefits for many businesses, not everyone is eligible to use it. Here’s a short breakdown of who can’t use the California Resale Certificate:
Consumers Purchasing for Personal Use
The resale certificate cannot be used to buy items for personal or household use. It is strictly for purchases intended for resale.
Contractors
Contractors cannot use the resale certificate to buy materials for construction projects. Instead, they must use the Contractor Exemption Certificate for tax-exempt purchases related to their work.
Businesses Without a Seller’s Permit
Only businesses with a valid California Seller’s Permit are permitted to use a California resale certificate. If you do not have a seller’s permit, you are not eligible to use the resale certificate.
Out-of-State Purchases for Use in California
If you are an out-of-state business purchasing goods to be used in California rather than resold, you cannot use a resale certificate. The certificate only applies to items that will be resold in the ordinary course of business.
Where the California Resale Certificate Can Be Used
A California Resale Certificate can be used in several situations:
- When purchasing finished items to resell.
- When purchasing materials for use as a physical component of a resale item.
- When purchasing items solely for demonstration or display and holding them for sale in the normal course of business operations.
Where the California Resale Certificate Can’t Be Used
A California Resale Certificate cannot be used when purchasing items that will be:
- Used rather than sold.
- Used in business before selling.
- Used for personal purposes.
- Held as an investment for future appreciation and sale.
Using the certificate in these situations can lead to penalties and fines.
How to Apply for a California Resale Certificate
The CDTFA offers a secure, convenient, and quick online registration process for seller’s permits, completely free of charge. The system walks you through each step of the process, assisting you in identifying and applying for the permits your business requires.
After receiving your Seller’s permit, you can issue a resale certificate by completing the required form CDTFA-230.
Required Information
When you register for a permit, you’ll need to provide some essential information about your business. If you have a business partner or if the business is managed by corporate officers, LLC managers, members, or officers, they will also need to provide some of the necessary details.
The required information for a Seller’s Permit is included but not limited to:
- Social Security Number (SSN)/ Individual Identification Number (ITIN).
- Driver License Number.
- Email Address.
- Federal Employer Identification Number (FEIN).
- State Employer Identification Number (SEIN).
- For Corporations: corporate name, corporate number, State, and date incorporated.
- Name, address and phone number of partner(s), corporate officer(s), member(s) or manager(s).
- Name(s) and phone number(s) of personal references.
- Name(s) and address(es) of supplier(s).
- North American Industry Classification System (NAICS) code.
- Standard Industrial Classification (SIC).
- Bank Information (name and address).
- Name and account number of the merchant credit card processor.
- Name, address, and phone number of the person(s) who maintains the books and records.
- If you purchased the business, the name, and contact information of the previous business owner.
Required Information for Non-Residents
The requirements for a California Seller’s Permit for non-residents are the same as for residents. However, non-residents can use an ITIN instead of an SSN. Obtaining an ITIN is simple: Form a US company!
Required Fee
There is no charge for obtaining a California Seller’s Permit or California resale certificate. In some cases, the California Department of Tax and Fee Administration (CDTFA) may require a security deposit to cover any potential unpaid taxes if the business closes.
What Should I Do After Getting a California Seller’s Permit?
After getting your California Seller’s permit, you should do the following:
- Collect Sales Tax: Start collecting sales tax from your customers on all taxable sales.
- Maintain Records: Keep detailed records of all sales and purchases, including receipts and invoices.
- File Returns: File your sales tax returns quarterly, monthly, or annually as instructed by the CDTFA.
- Issue Resale Certificates: When purchasing items for resale, issue and provide resale certificates to your suppliers to avoid paying sales tax upfront.
Ensure you comply with all state tax regulations and stay updated with any changes.
What Should I Do If I am Presented with a California Resale Certificate?
When a customer presents you with a California Resale Certificate, ensure its validity by:
- Check that all required information is filled out, including the purchaser’s name, address, seller’s permit number, and a description of the property being purchased.
- Ensure the certificate states that the items are for resale in the regular course of business.
- Keep the resale certificate on file for your records to support the tax-exempt sale in case of an audit.
How to Verify a Resale Certificate in California
Verifying a seller’s permit in California is quite essential to ensure that your business transactions are legitimate and compliant with state regulations. Here’s how you can do it:
Visit the CDTFA Website
Go to the California Department of Tax and Fee Administration (CDTFA) website’s online services page.
Access the Verification Tool
Navigate and visit the “Verify a Permit, License, or Account” page. This tool allows you to verify the validity of a seller’s permit.
Enter the Required Information
You will need to select the “seller’s permit” option and then enter the seller’s permit number to perform the verification.
Check the Status
The system will provide you with the current status of the seller’s permit, confirming whether it is active and valid.
Filing of Sales Tax and Resale Certificate in California
When you have a seller’s permit in California, you need to collect sales tax from your customers at the time of sale, equivalent to what you’ll owe to the state. Depending on your business’s sales volume, you’ll file your sales and use tax returns either quarterly, monthly or annually. The California Department of Tax and Fee Administration (CDTFA) will inform you of your filing frequency when you get your permit.
California also has district taxes that can increase the total tax rate you owe. These district tax rates range from 0.10% to 1.00% and may vary depending on the location.
You must report and pay sales tax on every taxable sale, keeping detailed records of all transactions, including sales, purchases, and the sales tax collected. During your tax return filing, you’ll also need to submit your seller’s permit as part of the required documentation.
Filing your returns is straightforward with the CDTFA’s online system, which allows you to calculate the tax due and submit your return efficiently.
Note: Keep detailed records of your sales and purchases, including receipts, invoices, and resale certificates. These organized records are essential for accurate reporting and audit preparedness, ensuring smooth operations and avoiding penalties.
Penalties for Sales and Use Tax in California
Failing to pay your sales and use tax on time can lead to significant penalties. Here’s what you need to know:
- A 10 percent penalty applies if you do not file your tax return by its due date.
- A 10 percent penalty is charged if your tax payment is late.
- If you file a late return and make a late payment, the penalty will not exceed 10 percent of the total tax due for the reporting period.
For example, if you owe $1,000 in tax and file a late return with a late payment, the maximum penalty will be $100, which is 10 percent of the total tax due.
Penalty Interests for Sales and Use Tax in California
If your sales and use tax payment is late in California, you will owe interest charges in addition to penalty charges. Interest accrues for each month or fraction of a month that the tax payment is late.
When you file your return late, the California Department of Tax and Fee Administration (CDTFA) will automatically calculate your interest and penalty charges. If you are submitting a late paper return with a late payment, you can calculate and report the interest due by using the interest rate indicated on your return. This rate is based on an annual rate but is shown as a monthly rate for ease of calculation.
If you fail to report the interest due on a late return, the CDTFA will determine the amount and send you a bill. It’s important to file and pay on time to avoid these additional costs and ensure compliance with California tax laws.
Penalties for Misuse of California Resale Certificate
Misusing a resale certificate by knowingly purchasing items for personal use or without the intent to resell can result in misdemeanor charges under Revenue and Taxation Code section 6094.5.
- If someone, including a corporate officer or employee, knowingly gives a resale certificate for items they don’t intend to resell, they are committing a misdemeanor. This act is considered an attempt to evade paying the necessary tax to the seller and is punishable under Section 7153 of the law.
- Individuals misusing a resale certificate are liable for the tax due on each purchase, plus a penalty.
- If someone, including corporate officers or employees, uses a resale certificate for items they know won’t be resold in the normal course of business, they owe the state the tax that should have been paid. Additionally, they face a penalty of either 10% of the tax due or $500, whichever is greater, for each purchase made for personal use or to avoid paying taxes.
- Legal consequences include both financial penalties and potential criminal charges for tax evasion.
- You may face a 10% penalty for negligence if you fail to report and pay use tax on items bought improperly with a resale certificate. In cases of fraud or intentional tax evasion, the penalty increases to 25%.
Expiration and Renewal of a California Resale Certificate
A California Seller’s Permit, which allows you to collect sales tax and issue resale certificates, does not have a set expiration date and generally remains active as long as your business is operational. However, the California Department of Tax and Fee Administration (CDTFA) may periodically review your account to ensure compliance and accuracy.
Can a California Resale Certificate be Revoked
Yes, a CDTFA seller’s permit can be revoked if you misuse it, such as providing a resale certificate for items you do not intend to resell. This can lead to owing the due sales tax plus interest, and additional penalties. These penalties may include misdemeanor charges, fines, and negligence penalties for improper use.
Does California Accept Out-of-State Resale Certificates?
No, California does not accept out-of-state resale certificates. To claim sales tax exemption in California, you must use a California resale certificate.
Does California Accept Multi-Jurisdictional Resale Certificates?
Yes, California does accept the Uniform Sales & Use Tax Resale Certificate—Multijurisdiction issued by the Multistate Tax Commission (MTC).
There are some obligations though:
In California, a multi-jurisdiction certificate isn’t valid as an exemption certificate. It’s strictly a resale certificate under Title 18, California Code of Regulations, Section 1668 (Sales and Use Tax Regulation 1668, Resale Certificate).
Using this certificate, the purchaser confirms that the property is bought for resale in the regular course of business as tangible personal property, including items incorporated into manufactured goods for resale.
When sales tax applies, the seller owes the tax unless they obtain a timely and valid resale certificate in good faith.
A valid resale certificate remains effective until revoked by the issuer.
In the Case of California Resale Certificate, Where Does Business Globalizer Stand?
Business Globalizer is your trusted partner in obtaining a California Resale Certificate. We simplify the application process, ensuring you comply with state regulations while providing expert guidance. If the whole concept or procedure of obtaining one seems complex to you, our premium consulting services help you secure your certificate efficiently, allowing you to focus on growing your business.
Let Business Globalizer handle the complexities so you can concentrate on what matters most—your business success.
FAQs
Q1: Is a California Seller’s Permit and a California Resale Certificate the Same?
Answer: No, they are not the same. A seller’s permit is a state license that allows you to sell items at wholesale or retail levels and to issue resale certificates to your suppliers.
Q2: What Is a Multi-Jurisdictional Resale Certificate?
Answer: Multi-jurisdictional resale certificate or Uniform Sales & Use Tax Resale Certificate—Multijurisdiction is a document issued by the Multistate Tax Commission (MTC). This certificate allows businesses to utilize a standard document that is accepted by multiple states, including California, provided it includes all required elements as specified in California’s Regulation 1668.
Q3: If I Am No Longer in Business, Can I Keep My Seller’s Permit?
Answer: No, your permit is only valid while you are actively conducting business as a seller. If you are no longer in business, you should return your permit to the CDTFA for cancellation. For more details, check publication 73, Your California Seller’s Permit. Also, the CDTFA may cancel your permit if they determine you are no longer engaged in business as a seller.
Q4: What Are My Obligations As a Seller’s Permit Holder?
Answer: As a seller’s permit holder, you have several key responsibilities:
- You must report and pay sales and use taxes regularly.
- Keep detailed and accurate records of all your sales and purchases.
Also, you must notify the CDTFA if you:
- Change your business address.
- Change the ownership of your business.
- Add or remove a partner.
- Sell your business.
- Buy another business.
- Discontinue your business.
Q5: How to Reinstate a Revoked Seller’s Permit in California?
Answer: If your seller’s permit has been revoked, you’ll need to contact the CDTFA office for help in resolving the issue that led to the revocation. They will guide you through the process of clearing up the cause and getting your permit reinstated.
Q6: Do Contractors Need a Seller’s Permit in California?
Answer: Construction contractors without a seller’s permit but with annual gross receipts of $100,000 or more must register with the CDTFA for a Consumer Use Tax Account.
Final Words
Getting a California Resale Certificate can significantly boost your business by allowing you to purchase items tax-free for resale. It’s a simple process that starts with obtaining a California Seller’s Permit. Remember, maintaining detailed records and staying compliant with state regulations is a must to avoid penalties.
If this process seems daunting, Business Globalizer is here to help. We simplify the application process, ensuring you meet all requirements so you can focus on your dream business.
Ready to take your US business to the next level? Let’s get started on securing your California Resale Certificate today! If you have any questions, our expert team is just a call away.
Thank you for reading, and here’s to your business success! Cheers!
