Resale Certificates Explained

From smSmallBiz

Question:

I have a business with a Nevada address. I also have manufacturing operations with a California address. Do I need a resale certificate in California? –Frank Gonzales

Answer:

A resale certificate is a document that allows businesses to buy merchandise tax free in a particular state, as long as it eventually gets resold within that state. Since your goal is to create products that eventually get sold to consumers who pay California sales tax, you shouldn’t also pay that tax, says John D. Stoller, a certified public accountant in Encino, Calif. To avoid the tax hit on the manufacturing materials you purchase from other companies, you’ll need to present a California resale certificate, he says. To obtain one in the state of California, fill out Form BOE-230 with the California State Board of Equalization.

If, however, you sell products to vendors rather than the public, you’ll need to verify your vendors’ resale certificates. These resale certificates affirm why you didn’t collect sales tax from them, which could come in handy if you’re audited. Attach a copy of the certificate to your sales invoice and hold onto it for at least three years.


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