Why does everyone bug me for a California Resale Certificate?
Wow! I have lived in California for about a year now and it seems to me that doing business here requires extensive research into tax law. I have just started working as an inside sales support representative and three times this week I have heard the statement “where is our California Resale Certificate?” My response to the companies financial guy was “Huh?” It is possible that everyone except me already knows about this California Resale Certificate thing, however, for those of you who do not know, this is what I found out through the California Bureau of Equalization (BOE).
Why do we need a California Resale Certificate? My scheming mind is saying, so California ensures you do not cheat them out of getting their sales or use tax. How else are we going to pay for plowing the snow off our state roads. Anyway, the BOE states If you purchase tangible personal property for resale, the transaction is not subject to sales or use tax provided the sale is properly documented. Your supplier will ask you to provide a resale certificate as proof that the property was purchased for resale. The certificate must be taken on a timely basis, and it must include certain specific information.
The certificate can be in any form such as a memo, letter or note. The certificate must have the date of the document, the signature of the purchaser or someone approved to act in his or her behalf, the name and address of the purchaser, the number of the seller’s permit held by the purchaser, a description of the property to be purchased, a statement that the described property is being purchased for resale and the certificate must contain words that state the property will be resold or is for resale.
You can get an approved California Resale Certificate form from an office supply store or click on this link . Some businesses are not required to hold a seller’s permit. especially if they are not making sales in California. If you are selling to a purchaser who is not required to hold a seller’s permit but who wishes to make a purchase using a resale certificate, the purchaser must indicate on the certificate that he or she does not hold a seller’s permit and why a permit is not required. The BOE can be reached at 888-225-5263 to verify a seller’s current permit number.
As a buyer, you need to determine what is being purchased for personal use and what property will be for resale. If you are not sure, pay the sales tax. If you ended up not using the property for personal use you can deduct it on your tax return. It is a misdemeanor to issue a resale certificate to a seller to evade payment of tax. Each offense is punishable by a fine of $1,000 to $5,000 or imprisonment for up to one year in the county jail, or both.
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As a seller, you need to ensure the property being purchased is for resale. You should accept the California Resale Certificate before you bill the purchaser for the property or during your normal billing cycle or prior to delivery of the property to the purchaser. If you give a resale certificate to purchase property that you know at the time will not be resold in the regular course of business, you will be liable for the amount of tax that would be due had the certificate not been used and interest payments on the tax due and you may have your seller’s permit canceled. In addition to this you may be required to pay a penalty of 10 percent of the tax or $500, whichever is greater, for each purchase made for personal gain or to evade payment of tax and/or a 25 percent penalty for fraud or intent to evade the tax.
So, now you know why you and I get bugged about that California Resale Certificate. If you need additional information I recommend visiting these three internet sites:
http://www.taxes.ca.gov/Sales_and_Use_Tax/ResaleCertificate.shtml
https://boe.ca.gov/sutax/faqresale.htm
http://www.boe.ca.gov/formspubs/pub103/index.html
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