Don’t Get These Two Confused — Seller’s Permit vs. Sales Certificate

Running a small business is difficult — with so many permits, documents to file, and things to learn it can be tricky to sort it all out and have a solid understanding of the important permits and paperwork you may need. One source of confusion I hear often is that many small business owners do not realize there is a difference between a seller’s permit and a resale certificate.

What Is A Seller’s Permit?

A seller’s permit is what is required from a business or a self employed individual when they are engaged in business in the State of California and are selling tangible products. Unless they are utilizing the services of a marketplace facilitator, (you can learn more about a marketplace facilitator here), then they are going to be required to hold a seller’s permit, collect and remit California Sales Tax to the CDTFA.

On all your tangible sales — or on sales of labor that later result in the creation of a tangible product — you are required to collect and remit sales Tax to the CDTFA.

If you’re a business that resells items to your customers — you purchase them from a wholesaler or a supplier and then you resell them to your customers— then having a seller’s permit is not only required to collect and remit sales tax, but also allows you to issue a resale certificate. That means that you can purchase the items that you plan to sell from your supplier and the supplier is not required to charge or any sales tax from those items. Why? The CDTFA does not need to collect sales tax twice, and the sales tax will be collected when you resell the item to a customer.

What Is A Resale Certificate?

A resale certificate is something that states specific information about your business and the seller’s permit—this is required if you don’t want the supplier to charge and remit the sales tax. Again, because you are buying items wholesale and have plans to resell them, no sales tax is applied. Once you sell them, you will be responsible for collecting sales tax and remitting it over to the CDTFA.

The resale certificate does not have to be a specific document, however, the CDTFA does provide a template for you so that you can easily create them.

Want to learn more about seller’s permit and resale certificates? Watch the video here!