Publication 103, Sales for Resale
Sales and Purchases for Resale
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. CDTFA-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 their tax return when they report the sale. The purchaser may deduct the amount they paid before sales or use tax was added, under Cost of Tax-Paid Purchases Resold Prior to Use on their 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 CDTFA 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 CDTFA 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 the CDTFA's TRaCE Task Force webpage. There, you will find information on how the CDTFA is teaming up with other agencies to combat illegal business activities and how to report a crime.
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.
Valid Resale Certificates
Verifying a seller's permit number on a resale certificate
There are three ways to verify that a customer holds a valid seller's permit:
- Select the Verify a Permit or License feature. A seller can also use this feature to verify a cigarette/tobacco license and an eWaste Recycling Fee account.
- A seller can also call the CDTFA's 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 the 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 "nontaxable" 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 CDTFA-230, General Resale Certificate, on the CDTFA website. Resale certificates for specific industries are available under the Additional Information tab.
Digitally signed 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) including the signature of the purchaser, purchaser's employee, or authorized representative. A "digital signature" has the same force and effect as a manual signature and may be used on a resale certificate provided it meets the requirements of California Government Code section 16.5, and its implementing regulations. Specifically, a digital signature can be accepted when it 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 Secretary of State regulations require that the signature be created by one of the acceptable technologies identified in the regulations. For more information, the Secretary of State website, www.sos.ca.gov, contains a FAQ webpage on the use of digital signatures.
Table of General Guidelines
|Type of Business1||Purchase May Qualify for Use of Resale Certificate1||Purchases Generally Taxable1|
|Restaurant, bar||Disposable "take-out": food containers, paper napkins, plastic eating utensils, cups, straws, toothpicks, stirrers, paper place mats for use by an individual patron||Dishes, flatware, utensils, cleaning supplies, paper towels, coffee filters, office equipment and supplies, cloth or paper tablecloths|
|Barber shop, beauty shop||Items for resale to customers for off-premises use: shampoos, hair tonics, brushes, cosmetics||Items used to service customers on-site: shampoo, brushes, cosmetics, cleaning supplies, office supplies|
|Auto repair shop, service station2||Tires, batteries, auto parts, seat covers, auto paint, antifreeze, and oil for resale to customers||Hand tools, machinery, masking tape, lubricants, solvents, rags, cleaning supplies, office equipment, office supplies|
|Florist, plant nursery, landscape gardener||Fertilizers, flowers, shrubs, potting soil, and garden tools for resale to customers on an itemized invoice||Hoses, garden tools, lawn mowers, rakes, office equipment, supplies for use in day-to-day operations|
|Convenience store||Household supplies, key chains, lighters, and motor oil for resale to customers||Cash registers, business equipment; items used in daily operations: cleaning supplies, office supplies|
|Pet shop||Items intended for resale: pet food when fed to animals held for resale, pet litter for resale to customers, brushes, pet dishes for resale to customers, pets||Items for use in day-to-day store operations: litter (purchased for use), pet dishes used on the premises, office supplies, cleaning supplies|
|Building contractor, painter, wallpaper hanger||Fixtures, machinery, and equipment the contractor will install. Examples include: plumbing fixtures, air conditioners, TV antennas, and refrigerators3||Ladders, wheelbarrows, hand tools, power tools, sandpaper, solvents, masking tape, drop cloths, brushes, tools, materials (for example, paint, bricks, lumber) office equipment, office supplies3|
|Service provider: janitorial service, laundry service, dry cleaner||None. Service providers are generally considered to be the end-users of products they use in providing services to customers. Purchases are usually taxable||Cleaning supplies, cleaning equipment, office equipment, office supplies, solvents, detergents|
|Attorney, accountant, architect, real estate agency, doctor, dentist, daycare center, nursing home||None. These businesses are generally considered service providers (see paragraph above). Purchases are taxable||Office furniture, office equipment, office supplies, computer hardware and software, bandages, cotton balls, mouthwash, toothbrushes, toys, bedding, cleaning supplies, vacuum cleaners, appliances|
1 These listings are intended as general guidelines and may not apply in every situation. Lists include examples only and are not complete.
2 Auto-body repair and paint shops are encouraged to use an industry-specific resale certificate (CDTFA-230-A, Resale Certificate for the Auto Body Repair and Painting Industry).
3 Contractors are generally considered the end users of equipment, tools, materials, and supplies they use in constructing real estate. In certain circumstances, contractors can be resellers of building materials. Please see publication 9, Construction and Building Contractors, for more information.
Documenting and Reporting Sales
Repeat customers and customers who use purchase orders
Repeat customers do not have to issue a seller an individual resale certificate for each of their purchases. They can, instead, provide one blanket resale certificate with a general description of the products they will buy. If they make a purchase that is not for resale, they must let the seller know so that the seller can properly apply tax.
A customer who wishes to use purchase orders to designate which purchases are for resale should issue a "qualified" resale certificate which states "see purchase order" in the property description section of the resale certificate. Each purchase order must then specifically state whether or not the property covered by the purchase order is purchased for resale. The use of the phrases "for resale," "resale = yes," "nontaxable," "taxable = no," or similar terminology on a purchase order, indicating that tax or tax reimbursement should not be added to the sales invoice will be regarded as designating that the property described is purchased for resale, provided the combination of the purchase order and the qualified resale certificate contains all the essential elements of a resale certificate (as provided in Content of a Resale Certificate).
However, a purchase order that only shows the tax amount as $0 or is left blank, will not be accepted as designating that the property is purchased for resale. The purchase order must also include the phrase "for resale" or other terminology described above to specify that the property is purchased for resale. If each purchase order is not specific, or is not issued timely, as explained below, it will be presumed that the property covered by that purchase order is subject to tax. If the purchase order includes both items to be resold and items not for resale, the purchase order must specify which items are purchased for resale and which items are purchased for use. For example, a purchase order issued for raw materials for resale and also for tooling used to process the raw materials, should specify that the raw materials are purchased for resale and that the sale of the tooling is subject to tax.
Documenting sales for resale
A seller should retain copies of all resale certificates and any purchase orders issued with the qualified resale certificates in order to support its sales for resale.
Timely acceptance of resale certificate
When a seller makes a sale for resale, the seller must obtain a resale certificate from its customer in a timely manner. Timely is considered to be any of the following:
- Before the seller bills the purchaser for the sale;
- At any time within the seller's normal billing and payment cycle; or
- At any time prior to, or upon, delivery of the item sold.
Accepting a resale certificate late does not relieve the seller from liability for the tax. If we question a transaction and the seller accepted a certificate late, the seller will be required to present other satisfactory evidence to verify that the sale was a nontaxable sale for resale (see Regulation 1668, Sales for Resale).
Properly completing the sales and use tax return
Sellers must report their total gross sales for the reporting period on their sales and use tax return. If the seller's total sales include amounts they received from sales for resale, the seller should take a deduction for those amounts on the line set aside for sales to other retailers for purposes of resale. If the seller doesn't take the deduction, they will pay more tax than they owe.
If you have a general tax question, please call the CDTFA's Customer Service Center at 1-800-400-7115 (TTY:711). Customer service representatives are available Monday through Friday from 8:00 a.m. to 5:00 p.m. (Pacific time), except state holidays.
CDTFA-230 General Resale Certificate
CDTFA-230-A Resale Certificate for the Auto Body Repair and Painting Industry
CDTFA-230-F California Resale Certificate – Sales by Auto Auctions and Auto Dismantlers
73 Your California Seller's Permit
1668 Sales for Resale