Tax season is upon us and if you are starting a new business, chances are one of the first elements you will be taking care of when setting up your business is how you will be collecting sales tax. If you are in California, or plan on doing business there for a short period of time (for a fair or a tradeshow, for instance), you probably have heard of a seller’s permit or a resale certificate before. However, many people use the these terms interchangeably, regardless of the fact that these are two different documents that serve distinct purposes. If you need to collect sales tax and are confused as to which document you need to obtain, this post should make everything a little more clear.
This post is meant to be taken as general information, not legal advice. If you need assistance with obtaining a seller’s permit or drafting resale certificate for your suppliers, you may email firstname.lastname@example.org.
Seller’s permit vs resale certificate: what’s the difference?
Seller’s permits allow you to make sales in California when you are doing business in the state (whether that would be having a warehouse in California, an office, sales representatives in the state, etc.) and when you have the intention of selling or leasing tangible personal property that would ordinarily be subject to sales tax (which means seller’s permits are not needed if your business is selling services/labor). These permits are issued by the California State Board of Equalization and are absolutely necessary, whether you plan on making sales at a wholesale or retail level. If you do not typically do business in California but will be making sales in the state for a short amount of time (for a tradeshow or a fair for instance), the Board of Equalization issues temporary permits as well. Seller’s permits are also what allows you to issue resale certificates to your suppliers.
Resale certificates are documents that allow you not to pay any taxes on merchandise you purchase from a supplier for resale purposes. You will of course need to collect taxes once you sell the merchandise to your customers, but will not have to pay for it yourself initially. A certificate will have to be issued to every supplier you are purchasing from, but not for every order.
What information is required to obtain a seller’s permit or a resale certificate?
In order to apply for a California seller’s permit with the State Board of Equalization, you will need the following information:
• Social Security Number(s) (corporate officers excluded)
• Driver License(s) or another form of identification such as a U.S. passport
• Email address (contact and business)
• Federal Employer Identification Number (FEIN)
• State Employer Identification Number (SEIN)
• Corporate name, corporate number, State and date incorporated (if you are a corporation)
• Name, address and phone number of partner(s), corporate officer(s), member(s) or manager(s)
• Name(s) and phone number(s) of personal references
• Name(s) and address(es) of supplier(s)
• North American Industry Classification System (NAICS) code
• Standard Industrial Classification (SIC)
• Bank Information (name and address)
• Name and account number of the merchant credit card processor
• Name, address, and phone number of the person(s) who maintains the books and records
Resale certificates, on the other hand, do not have to be issued by any state entity. In fact, although the California State Board of Equalization makes a blank certificate available on its website, it can take any form, as long as it contains the following information:
• Name and address of the purchaser
• Number of the seller’s permit held by the purchaser
• Description of the property to be purchased
• A statement that the described property is being purchased for resale
• Signature of the purchaser or someone authorized to act on his or her behalf
How do I register for a seller’s permit?
You can register online on the California State Board of Equalization’s website or in person at of BOE’s field offices. Registering is free but keep in mind that depending on your business’ history with tax payment, the BOE might ask for a security deposit (the exact amount will be determined when you register).
As with all Law On The Runway posts, this is just general information, not legal advice. If you have any questions, please send us an email at email@example.com