Using a Resale Certificate
- Why are resale certificates required?
- What information must a resale certificate include?
- What are my responsibilities as a buyer using a resale certificate?
- Do I need to submit a resale certificate each time I make a purchase?
- What are my responsibilities as a seller accepting a resale certificate?
- Can I find out if a seller's permit number is current?
- Are there any penalties for the illegal use of a resale certificate?
Why are resale certificates required?
If you purchase tangible personal property for resale, the transaction is not subject to sales or use tax provided the sale is properly documented. As a result, your supplier will ask you to provide a resale certificate as proof that the property was purchased for resale. As explained below, the certificate must be taken on a timely basis, and it must include certain specific information.
What information must a resale certificate include?
The certificate may be in any form, such as a note, letter, or memorandum. However, the certificate must contain the following information:
- The name and address of the purchaser.
- The number of the seller's permit held by the purchaser (if the purchaser is not required to have a seller's permit, see note below).
- A description of the property to be purchased.
- 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. The use of words such as nontaxable or exempt or similar terms is not acceptable.
- The date of the document.
- The signature of the purchaser or someone approved to act in his or her behalf.
The Board of Equalization does not furnish resale certificate forms. However, certificates are available in many office supply and stationery stores (you should ensure that the certificates are designed to provide the required information noted above). The Board-approved form is reproduced in Regulation 1668, Resale Certificates.
Note: Some businesses are not required to hold a seller's permit (for example, a business may not make sales in this state or it may sell property whose sale is not subject to sales tax when sold at retail). 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.
Resale certificates provided electronically can be considered valid as long as they contain all the essential elements of a valid resale certificate (as stated above). A "digital signature" has the same force and effect as a manual signature provided the program used meets certain requirements. California Government Code section 16.5 explains that a digital signature can be accepted when the program used has the following attributes:
- It is unique to the person using it.
- It is capable of verification.
- It is under the sole control of the person using it.
- It is linked to data in such a manner that if the data are changed, the digital signature is invalidated.
- It conforms to regulations adopted by the Secretary of State.
The BOE may accept digital signatures from taxpayers and feepayers provided they meet the requirements above. The Secretary of State's website has a list of Approved Digital Signature Certification Authorities.
What are my responsibilities as a buyer
using a resale certificate?
You should not use a resale certificate if there is any question whether you will resell the property. If you are purchasing a combination of items where some are for resale and others are taxable (for personal use, for example), you must clearly indicate to the vendor which items are being purchased for resale.
There may be times when you are not sure whether the items you are purchasing are for resale or for personal use. In such cases, you should pay sales tax reimbursement or use tax to the supplier. If, at a later date, you resell the item before making use of it, you can take a deduction on the tax return on which you report the sale.
Do I need to submit a resale certificate each
time I make a purchase?
No. If you make several purchases from one vendor, you may file one resale certificate with that vendor to keep on file. If purchase orders are used, in the part of the resale certificate where you describe the property being purchased, you may enter "See purchase order". When you make purchases from that vendor, you must then clearly indicate on the purchase order which items are being purchased for resale. The Board assumes that items not marked for resale are being sold to you at retail and are therefore subject to tax.
What are my responsibilities as a seller
accepting a resale certificate?
As a seller, you should always note the general character of the purchaser's business. If the nature of the business is such that the property purchased would not normally be resold, you should question the use of the certificate.
For example, a resale certificate describing the business as a service station should not be accepted for the purchase of a sofa or similar item not regularly sold by service stations. If the purchaser insists that the item is to be resold, you should ask for a resale certificate stating that the specific property is being purchased for resale in the regular course of business. If the purchaser is unwilling to provide one, you should consider the sale as taxable.
You should not accept the certificate if you know or have reason to believe the property is being purchased for other than resale.
You are required to take a resale certificate in a timely fashion. That is, it must be taken:
- Before you bill the purchaser for the property, or
- At any time within your normal billing and payment cycle, or
- At any time prior to delivery of the property to the purchaser
You must retain the resale certificates you accept from others to substantiate claims that a sale was for resale and therefore not subject to tax.
Can I find out if a seller's permit number is
Yes. If another seller has given you a resale certificate to make a purchase for resale, you can verify the seller's permit number using the Board's online Seller's Permit Verification feature or by calling toll-free at 888-225-5263.
Are there any penalties for the illegal use
of a resale certificate?
Yes. 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
- Interest payments on the tax due
In addition, you may have your seller's permit canceled and 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
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.