Sales tax tends to be an undue burden for many resellers. With a California resale certificate, it is possible to avoid paying them when buying products at a retail price to resell them.
Steps When Using a California Resale Certificate
John lives in Auburn, California. He buys video games at retail cost and resells them at his own set price. John makes the purchases in-state thus paying taxes in California. He then is responsible to pay taxes, again, when he resells the console. Unless — he proves he bought the games to resell them.
All John has to do in the state of California is show his reseller’s certificate, or resale license, to the video game retailer in order to avoid paying taxes twice.
California does not issue resale certificates to individuals. Resellers can print the approved California resale certificate template.
Presenting the certificate to a retailer means including all the information:
- Name and address
- California sales tax number — If someone does not have a permit number, they must state on the certificate as to why not.
- Description of items being purchased
- Date of purchase
Another part of the California resale certificate is a detailed statement. It lists the items that will be resold. It is essential to remember to list the products as “will be resold” or “for resale”. California will not accept “nontaxable” or “tax-exempt” on the paperwork.
Personal items and things not being resold need to be paid for separately to avoid fraud.
Penalties for fraud include:
- Tax due on the non-resale items
- Interest on those taxes
- Cancellation of tax permit
- A 10% penalty of the tax or $500 — whichever is greater
- A 25% penalty for tax evasion or fraud
Further Facts about Resale Certificates
Here is the thing, retailers are not obligated to accept resale certificates. It is pretty well known that larger retailers have explicit policies against it.
Ten states do not accept out of state resale certificates. California is one of them.
When someone purchases from a specific retailer on a regular basis, they can ask that the certificate be put on file for future use.
Retail certificates are not retroactive. It is up to the buyer to present it in a timely manner.
If not filled out accurately, a resale certificate is likely to be rejected. It is because retailers end up having to pay the unpaid taxes of the buyer if the paperwork is faulty or fraudulent.
Resale certificates are handy to have for resellers in California. It just a matter of using them lawfully and in the best way to save the biggest buck.