Publication 64, Jewelry Stores
Taxability of Purchases

As a jewelry store owner, you frequently purchase merchandise to resell, supplies for repairs, and other materials to use in the operation of your business. This webpage provides you with general information on the application of sales and use tax to your business purchases.

Use tax

Merchandise purchased for resale

If you purchase taxable property for resale without paying California tax and use the property for another purpose, you must generally pay use tax. The use tax rate is the same as the sales tax rate.

To pay use tax, you report the purchase price of the taxable items under Purchases Subject to Use Tax on your sales and use tax return. Those purchases become part of the total amount subject to tax.

The sections below describe some common ways in which use tax applies to your purchases.

When you use a resale certificate to purchase items for resale, you generally do not pay sales or use tax at the time of purchase. Instead, sales tax applies when you sell the merchandise at retail.

However, if you purchase taxable merchandise for resale but use it for business or personal purposes, you must pay use tax to CDTFA. This includes:

Merchandise you donate. However, donations to certain organizations may be exempt. For more information, see Donating items withdrawn from resale inventory.
Merchandise you give to friends, employees, and others.
Merchandise you use yourself.

If you know at the time of purchase that you will not resell the merchandise, you should not use a resale certificate for that purchase. For more information, see Misuse of resale certificates.

If you purchased merchandise for business or personal use and paid an amount for tax, but resell the item prior to making any use of it, you can take a deduction on your tax return when you report the sale. You may deduct the amount you paid before sales or use tax was added under Cost of Tax-Paid Purchases Resold Prior to Use on your sales and use tax return.

Items used for demonstration and display

In general, merchandise you use exclusively for demonstration or display while it is held for sale is not subject to use tax. Sales tax applies when the item is sold.

If you use a demonstration or display item for any other purpose, including personal use, the purchase price must be reported under Purchases Subject to Use Tax. Again, sales tax applies to the subsequent retail sale of the merchandise. For more information, see Regulation 1669, Demonstration, Display and Use of Property Held for Resale—General.

Purchases from out-of-state retailers

In general, if you purchase taxable merchandise from an out-of-state retailer without paying tax and use the merchandise for a purpose other than for resale, the purchase is subject to use tax and must be reported.

If you paid another state’s sales tax on the purchase, you may receive credit for the tax paid by reporting the amount of the purchase under Purchases Subject to Use Tax and then deducting the amount of tax paid under Sales or Use Tax Paid to Other States on your sales and use tax return. You can be credited up to the amount of California use tax due. Please be aware that you may only claim a Sales or Use Tax Paid to Other States deduction for purchases that you use or consume; this deduction may not be used for purchases that are resold by you in the regular course of business.

Some out-of-state retailers are authorized to collect and pay California use tax. If your sales receipt indicates that the correct amount of California use tax has been collected on your purchase and shows the retailer’s seller’s permit or Certificate of Registration—Use Tax number, you do not need to report the purchase on your return.

Misuse of resale certificates

Many wholesale jewelry marts allow only retailers to enter or purchase at the mart. If you are purchasing resale inventory, you may purchase those items without tax by issuing a resale certificate to the vendor. However, if you are purchasing items you know you will use for yourself, give away as personal gifts, or otherwise not resell during the course of your business, you may not issue resale certificates for such purchases. You must pay sales tax on such items. Also, you may not allow someone else to use your permit to issue a resale certificate and make a purchase without paying tax.

If you give a resale certificate to purchase property that you know at the time will not be resold in the regular course of business, you will be liable for:

The amount of tax that would be due had the certificate not been used, and
Interest on the tax due (computed from the time the property was purchased).

In addition, we may revoke your seller’s permit, and you may be required to pay one or both of the following:

A penalty of 10 percent of the tax or $500, whichever is greater, for each purchase made for personal gain or to evade payment of tax.
A 25 percent penalty for fraud or intent to evade the tax.

It is a misdemeanor to issue a resale certificate to a seller to evade payment of tax. Each offense is punishable by a fine of $1,000 to $5,000, imprisonment for up to one year in the county jail, or both.

Supplies and equipment

You are not required to collect sales tax on sales of repair parts unless you charge separately for the parts and materials, or their retail value is more than 10 percent of the total charge. For more information, see Parts. If you paid tax on parts for which you later charge a customer sales tax, you may claim a deduction on your sales and use tax return. You may deduct the amount you paid for the parts (before tax was added) under Cost of Tax-Paid Purchases Resold Prior to Use.

Gift-wrapping and packaging supplies

Gift-wrapping and packaging supplies used to wrap merchandise may be purchased with a resale certificate.

Other equipment and supplies used in your business

Purchases of items used in your business are subject to sales or use tax. Such items include display fixtures, equipment, supplies, and maintenance materials. If items are bought from an out-of-state retailer that does not charge California use tax, the purchase must be reported on your sales and use tax return under Purchases Subject to Use Tax. If you later sell any of these items at retail, the sale would be taxable.

Donating items withdrawn from resale inventory

In general, your business owes use tax when you remove items from your resale inventory and use them for a purpose other than to sell or for demonstration and display. You will not owe use tax if you donate those items to certain nonprofit or governmental organizations without first making any other use of the items. The organization must be operated for educational, scientific, or literary purposes, or be a religious or other organization described in Internal Revenue Code section 170(b)(1)(A). This exemption applies only to property which has been purchased for resale.

Property purchased specifically for donation to a qualified organization remains subject to the tax. A person is guilty of a misdemeanor if a resale certificate is issued for property which they know at the time of purchase will be donated rather than resold.

Please refer to Regulation 1669, Demonstration, Display and Use of Property Held for Resale—General, and publication 18, Nonprofit Organizations. For information on qualifying charitable organizations, contact our Customer Service Center at 1-800-400-7115 (TTY:711).

Revision July 2026

Publication 64, Jewelry Stores Taxability of Purchases