Sales for Resale (Publication 103)

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 California Department of Tax and Fee Administration (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, we are 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 our TRaCE Task Force webpage. There, you will find information on how we are teaming up with other agencies to combat illegal business activities and how to report a crime.

Please 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.