Selling on Amazon can be confusing with lots of different parts to manage in your business. Selling in California can add a layer of complexity on top of that. In this article we’re going to discuss the California Resale Certificate and whether or not you should or should not get it for your Amazon business.
What is a California resale certificate?
Otherwise known as a resellers permit, this certificate allows individuals and business owners to purchase products or goods in the state of California and avoid paying the state sales tax at the time of purchase.
California sales tax rate: The statewide California sales tax rate is 7.25%. This rate is made up of 6.00% state sales tax rate and an additional 1.25% local rate. You can read a breakdown of California’s statewide tax rate by county and city here.
Do I need to have a California resale certificate?
The short answer is NO. The better answer is YES.
If you don’t secure the California resale certificate then you’ll essentially be paying double tax on everything you buy that you resell on Amazon.
Let’s say you visit your local Home Goods store in Sacramento and you find an incredible deal on some pots and pans that you know you can flip on Amazon and make a decent profit.
If you don’t have your California resellers certificate than you’ll pay tax at the counter and you’ll then need to pay sales tax as you sell those pots and pans on Amazon.
What is the difference between a California sales permit and the resale certificate?
In California, this is an important distinction because while you might only need one, using both may save you a significant amount of money if you use them properly.
An easy way to remember the difference between the two is like this:
A California sales permit gives you the legal authority and right to sell products or goods in the state of California as an individual or business. All businesses that are engaged in business in California and sell or lease “tangible personal property” that is ordinarily subject to sales tax must have a Seller’s Permit issued by the California Board of Equalization.
You must have a California sales permit to be an FBA or MF seller in the State of California. If you are doing retail arbitrage, you technically need this permit if you are doing it in the State of California.
A California resale certificate allows you to defer the sales tax on all purchases of goods or products that you fully intend to resell later on. It is against the law and a misdemeanor crime if you knowingly buy goods with your California resale certificate and don’t actually resell it.
Can I use an out-of-state resale certificate to buy products in California?
Currently, California is one of 9 states that will not allow you to use an out-of-state resale certificate to qualify for deferred sales tax when purchasing products in the state.
You can go through a process that varies by state to reclaim sales tax you incurred while buying product in California but it’s messy.
So if you are doing any retail arbitrage trips and thinking about heading into one of these nine states, you may want to first do your homework around resulting sales tax implications.
California, Florida, Hawaii, Illinois, Louisiana, Maryland, Massachusetts, Washington, Washington D.C.
Why is this so complicated?
The short answer is because the internet and the explosion of internet sales is still relatively new, believe it or not. In addition to this, the US government just hasn’t caught up with technology and how fast eCommerce markets are moving.
More importantly however, there are powerful lobbying groups on both sides of the reselling industry that wouldn’t mind if the tax question never gets solved.
How do ensure I’m paying taxes correctly?
You will always want to hire a CPA when doing your taxes but this the tax issue isn’t going away and companies like TaxJar and others have already gotten ahead of the issue and can help you sort all of your tax needs out.
How do I obtain a California Resale Certificate?
The certificate may be in any form, but a blank resale certificate is available online. The certificate may be in any form so long as it contains:
- The name and address of the purchaser.
- The purchaser’s seller’s permit number (unless they are not required to hold one1).
- A description of the property to be purchase.
- An explicit statement that the described property is being purchased for resale.
- The date of the document.
- The signature of the purchaser or someone approved to act on his or her behalf.