What is a resale tax certificate
General Guidelines Documenting and
Reporting Sales Additional
Sales for Resale
Purchasers who are engaged in the business of selling tangible personal property may issue resale certificates when purchasing items they will sell in the regular course of their business operations. When a seller accepts a valid resale certificate in good faith and in a timely manner, the seller does not owe tax on that sale. A form BOE-230, General Resale Certificate, can be issued by purchasers when purchasing goods they will resell in the regular course of their business operations.
Generally, resale certificates are used:
- When purchasing finished items for resale.
- When buying materials that will become a physical part of an item that will be held for resale.
- When purchasing items solely for demonstration or display while holding them for sale in the regular course of business operations.
Purchasers should not use a resale certificate when buying a product they will:
- Use rather than sell*,
- Use in their business before they sell it,
- Use for a personal purpose, or
- Hold as an investment for appreciation in value and for sale in the future.
*See Table of General Guidelines for examples, by business type.
Purchases for resale should be legitimate
It's important for sellers to note the general nature of the purchaser's business before accepting a resale certificate. If a purchaser is buying an item that is not something they ordinarily sell, the seller should require a resale certificate that states that the specific property is being purchased for resale in the regular course of business.
Property purchased for resale must be described on the resale certificate either by:
- A list of the particular items to be purchased for resale, or
- A general description of the type of items to be purchased for resale.
For example, if a furniture maker attempts to buy office supplies for resale, the seller should ask whether the purchaser intends to sell the office supplies in the regular course of business. If the answer is yes, the seller should protect themselves by having the furniture maker specifically list "office supplies" on the resale certificate; otherwise, the seller should treat the sale as taxable. Purchasers are subject to penalties and interest for the misuse of a resale certificate. Intentional misuse of a resale certificate can result in criminal prosecution.
If a purchaser paid sales tax to its supplier for items it purchased for business or personal use, but resold the items before any taxable use, the purchaser can take a deduction on its tax return when it reports the sale. The purchaser may deduct the amount it paid before sales or use tax was added, under "Cost of Tax-Paid Purchases Resold Prior to Use" on its sales and use tax return.
All sales of counterfeit goods are taxable
If a person is convicted in trafficking counterfeit goods, then all of their sales and purchases of those counterfeit goods will be considered taxable. This applies whether they are a manufacturer, wholesaler, distributor, or a retailer of the counterfeit goods. A person may no longer claim a resale deduction for the sale of counterfeit goods, and any purchases made of counterfeit goods for subsequent resale will also be taxable.
Counterfeit goods commonly refer to property with a counterfeit mark. In general terms, a counterfeit mark is a mark that is identical with or substantially indistinguishable from a mark registered with the United States Patent and Trademark Office. In California, it is illegal for any person to willfully manufacture, intentionally sell, or knowingly possess for sale, counterfeit goods.
The BOE may bill the convicted trafficker of counterfeit goods for unpaid sales or use tax within one year after the last day of the calendar month following the date of conviction. By billing convicted counterfeit goods traffickers, the BOE is discouraging the criminal sale of counterfeit goods and leveling the playing field for all businesses.
If you suspect counterfeit goods are being sold, please visit our TRaCE Task Force webpage. There, you will find information on how the BOE is teaming up with other agencies to combat illegal business activities and how to report a
Note: This publication summarizes the law and applicable regulations in effect when the publication was written, as noted above. However, changes in the law or in regulations may have occurred since that time. If there is a conflict between the text in this publication and the law, decisions will be based on the law and not on this publication.
Verifying a seller's permit number on a resale certificateThere are three ways to verify that a customer holds a valid seller's permit:
- Select the Verify a Permit or License feature on our website. A seller can also use this feature to verify a cigarette/tobacco license and an eWaste Recycling Fee account.
- A seller can also call our automated toll-free number at 1-888-225-5263, available 24 hours a day, seven days a week. The seller will need the seller's permit number that they want to verify.
- Use our free mobile application to verify a permit or license from the convenience of your smart phone.
However, a purchaser is not required to hold a seller’s permit to issue a valid resale certificate. If the purchaser is not required to hold a permit because of the type of property it sells, instead of a seller’s permit number, the purchaser must include on the certificate an explanation stating why it is not required to hold a seller’s permit.
Misuse of a resale certificate
If a purchaser knowingly issues a resale certificate when purchasing items that they will not resell, they will owe:
- The amount of tax that would be due had the certificate not been used, and
- Interest on the tax due (computed from the time the item was purchased).
In addition, the purchaser may have their seller's permit revoked and may be required to pay one or both of the following:
- 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, or
- A 25 percent penalty for fraud or intent to evade the tax.
Purchasers may be found guilty of a misdemeanor under Revenue and Taxation Code section 7153, if they give a completed resale certificate to the seller with the intent to evade reporting or paying tax to the seller. Intent is shown if the purchaser knew at the time of purchase, the item would be used rather than resold. Each offense is punishable by a fine of not less than $1,000 and not more than $5,000, imprisonment not exceeding one year, or both fine and imprisonment.
As part of the audit process, we routinely examine resale certificates to ensure that they support legitimate purchases for resale.
Content of a resale certificate
Any document, including a letter, note, purchase order, or preprinted form, can serve as a resale certificate, provided it contains all of the following information:
- The name and address of the purchaser's business.
- The purchaser's seller's permit number or an explanation stating why the purchaser is not required to hold a seller’s permit.
- A description of the property to be purchased. See “Repeat customers and customers who use purchase orders.”
- A statement that the described property is being purchased for resale. The document must contain the phrase “for resale.” Phrases such as “non-taxable” or “exempt” are not acceptable. See “Repeat customers and customers who use purchase orders.”
- The date of the document (an otherwise valid resale certificate will not be considered invalid solely because it is undated).
- The signature of the purchaser, purchaser's employee, or authorized representative.
Note: Certain businesses are not required to hold seller's permits. They may, for example, sell only in interstate and foreign commerce or sell only products that are tax-exempt (such as raw fruits and vegetables). Such businesses should note on their resale certificates that they do not hold a permit and state the reason they are not required to hold a seller’s permit.
We do not provide resale certificates. However, a purchaser may download a BOE-230, General Resale Certificate or obtain a copy through our Customer Service Center faxback system at 1-800-400-7115. Resale certificates for specific industries are available under the Additional Information tab.Source: www.boe.ca.gov