Understanding the Resale Certificate – Making Sales In California

Understanding the Resale Certificate – Making Sales In California


[Music] Hi, I’m Greg. And I’m Donna. Welcome to “Understanding the Resale Certificate” A resale certificate is a document used to
support that a sales transaction was for resale and not subject to tax. A resale certificate is NOT a seller’s permit or a business license. If you’re a seller, you will accept resale
certificates from purchasers. If you’re a purchaser, you will provide
a resale certificate to the seller. Donna, can you explain what sellers need to
do when they accept resale certificates? Sure Greg. If you’re the seller, you need to obtain
a resale certificate from each purchaser who plans to resell the merchandise, to document
that the sale is exempt from tax. For example, if you manufacture bicycles and
you sell those bicycles to a bike store who will resell them, you need to obtain a valid
resale certificate from the purchaser to document that the sale is for resale. Resale certificates must contain some essential
information: the name and address of the purchaser’s
business; the seller’s permit number, or an explanation stating why a seller’s permit
is not required; a description of the item purchased; a statement showing the item is
for resale, which must contain the phrase “for resale”; the date that the resale certificate is issued;
and the signature of the purchaser. Any document that contains all of this essential
information can act as a resale certificate- such as a letter, memo, or purchase order. If any of the essential information is missing,
such as the type of property being purchased, or the signature, the resale certificate may
not be valid, and could expose you to a potential tax liability. You need to obtain the resale certificate
timely. This means that you should obtain the resale
certificate before you bill the purchaser for the sale, at any time within your normal
billing cycle, or at any time prior to, or upon delivery of the item sold. And you must keep the resale certificate in
your records for at least four years since you may be asked to provide it to document your sale
was exempt. Resale certificates must also be accepted
in good faith. This means that you should only accept a resale
certificate from a person who is in the business of reselling the items they are purchasing
for resale. Generally a seller’s permit is required
for a purchaser to be able to use a resale certificate. You can easily verify that a seller’s permit
number is valid by looking on our website, or you can call our customer service center
for assistance. Resale certificates are valid until they are
revoked in writing. If you choose to obtain new certificates from
your customers each year, you must keep the old ones on file for at least 4 years. A new or reissued certificate does not cover
past transactions. Wow, thanks Donna. That was a lot of great information for seller’s. No problem, Greg. Why don’t you explain what purchasers need to do. Great idea. As a purchaser, if you purchase inventory
intended for resale, you need to provide a resale certificate to your vendor so that
you’re not charged tax on the transaction. For your convenience, The California Department
of Tax and Fee Administration provides you a sample certificate, form CDTFA-230. It’s available in our forms and publications
section on our website, and is easily printable for your business needs. For example, if you own a bike store, you
need to give a resale certificate to the supplier of the bikes you purchase for your store’s
inventory. Your resale certificate must contain all the
essential information, and you must provide it timely. If you make repeat purchases, you don’t
have to provide an individual resale certificate for each transaction. Instead, you can provide one certificate that
contains a general description of the products you intend to purchase for resale. Keep in mind, there are some instances in
which you can’t use a resale certificate. You can’t use your resale certificate to
purchase tax free items that are intended for your personal use. For example, let’s say you issue a resale
certificate to a warehouse club to purchase inventory for your business. You can’t use that resale certificate to
purchase a television for use in your home without paying tax. You need to let the store know your television
purchase is taxable, or you need to separate your taxable and non-taxable purchases into
different transactions. Misuse of a resale certificate is a misdemeanor
and carries a penalty. Business owners can be held responsible for
the misuse of a resale certificate by their employees. Resale certificates are necessary to document
those transactions that are sales for resale. So remember these tips when using or providing
resale certificates: the resale certificate must be filled out properly, it must be provided
timely, and it shouldn’t be used to purchase items intended for personal use. You can learn more about your responsibilities
by exploring our website, or watching our other video guides. Thank you for doing business in California!

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