Im Josh from the University of LaVerne Small Business Development Center. Here at the SBDC we provide small business owners with free one on one consulting and business tip videos just like this one. So if you are new here, consider subscribing to our channel.
And check out the companion article and resources in the description below.
Many people who are looking to start selling retail products will eventually come across this issue. That’s why it is one of the most frequently asked questions we get about licenses and permits: How do I get a resale certificate?
So in this video I'll go into what a resale certificate is and how it’s different than a seller’s permit; how to get one and fill it out; and how to use it when purchasing products for resale.
And check out the companion Article for all the resources in the description below
So what is a Resale Certificate?
Well a Resale Certificate is a document that allows you to purchase items tax free so you as a business can charge and collect tax to retail customers. So the next big question is how is this different from a seller permit?
If you haven't seen my video on what a seller’s permit is and how to get one, check it out in the card above. But to recap: a seller’s permit allows a business to charge sales tax to retail customers.
That tax is then paid to the state based on CDTFA filing instructions for businesses. You can find that on the website and those resources are the companion article below.
How to use a Resale Certificate?
Before we get into actually getting the resale certificate there are some rules on what you can and can not do. In fact there are 3 basic rules when using this certificate:
#1 When purchasing finished items for resale.
So in the case of Sally’s skate shop the example I have been using for starting a business. I can purchase fully built skateboards and gear like helmets and pads and that is a valid use of the certificate and then charge tax at the point of sale.
#2 When buying materials that will become a physical part of an item that will be held for resale.
Again, using our example, I do intend to build custom boards. So, I can purchase the deck, trucks, bearings, wheels and even grip tape that goes into making the board tax free.
Since all of these items will be used to build the board, I can then charge tax for the finished product at the point of sale.
And #3: When purchasing items solely for demonstration or display while holding them for sale in the regular course of business operations.
You are allowed to buy items tax-free for demonstration or display. The only rule beyond this is that you are not allowed to use the items for personal use even if you never intend to use items for resale.
If you are looking for more examples, don't forget about the companion article in the description below.
Complete Resale Certificate
So now that you know what a resale certificate is, let’s hop on my computer and show how it works.
Here is a general resale certificate that is provided by the CDTFA. You can definitely use this with the link in the companion article. Filling this certificate out is fairly straightforward with 6 sections... so let's begin.
Section 1 is going to be your seller’s permit number. As I said at the beginning of this video, you need to have a valid seller’s permit before you continue. If you don’t, pause this video, go get one and come back. So we're going to type in some random number because I don't have a seller’s Permit.
Next is Section 2, is where we are going to add what type of items we are selling in our business. I'm going to use Sally’s Skate shop to use as an example. At Sally’s we sell skateboards and skateboard parts.
We’re putting this in because we are going to sell completed skateboards but also skateboard parts, so customers can purchase for replacing and upgrading their own setups.
Section 3 is going to be the vendor name. That is the name of the company you are going to buy these parts from. You need to put the correct name, so make sure this is right.
In section 4, this basically a little explanation of the rules I shared earlier. It says you will only use this certificate for not owing tax only for items you normally use in the business that you intend to resell, demonstrate or display. Otherwise you will owe tax on it.
So in section 5, here is where you lay out what exactly you intend to purchase. Make this as specific as possible so there are no complications later as to what is subject to tax or not.
And in this last section is basically a warning. If you try to use this certificate to avoid paying taxes and misuse it for personal gain, you will be prosecuted and you will be penalized.
And there are basics you need to know about Resale Certificates. Remember you need a sellers permit to make your resale certificate valid.
You also need to make sure you read the rules and understand what you need to do to stay above board.
Finally, I showed you how to fill one out and you need to make sure you keep copies when you submit one to a vendor so you can have a record of it later.
Did you get your resale certificate yet? Did someone do this for you? How was your experience? Let me know down in the comments below.
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?View the original article and video here.
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