Do I need to pay sales tax on inventory I plan to resell?

If you properly use a resale certificate for items you will resell in the regular course of business, the seller generally does not collect tax on that sale when the certificate is accepted in good faith.

Can I use a resale certificate for supplies?

Usually no. The CDTFA says only items you plan to resell should be purchased without sales tax using a resale certificate. Supplies consumed by the business do not qualify.

Do I still collect sales tax from my customers?

If the sale to your customer is taxable, you generally collect and remit sales tax when the end customer buys the item. The resale certificate shifts the collection point — it does not eliminate the tax.

Sales tax

Are Resale Purchases Exempt From Sales Tax in California?

Learn how California resale certificates work, when resale purchases may be exempt from sales tax, and what happens if a resale certificate is misused.

Written by Matt Reese, CPA

How resale certificates work

In California, items purchased for resale may be bought without paying sales tax at the time of purchase — if the buyer properly issues a resale certificate. Purchasers engaged in the business of selling tangible personal property may issue resale certificates when buying items they will sell in the regular course of business.

This does not make the item tax-free forever. It shifts the sales tax collection point from your purchase to your customer’s sale.

What is CDTFA-230?

CDTFA-230is California’s General Resale Certificate. It tells the seller that the buyer is purchasing the item for resale rather than for business use or personal use. The certificate must be issued before or at the time of purchase to be valid.

When can you use a resale certificate?

You can generally use a resale certificate when buying tangible personal property you plan to resell in the normal course of business. Examples include:

Inventory bought for resale to customers
Materials that become part of the item sold
Products sold through your retail or online store

When you should not use a resale certificate

Do not use a resale certificate for items you consume, use, or keep in the business instead of reselling. The CDTFA gives a direct example: if a restaurant buys cleaning supplies, toothpaste, and take-out containers, the business should ask whether customers can purchase those items. If customers cannot purchase them, the resale certificate should not be used.

Items that typically do not qualify:

Office supplies and cleaning supplies
Equipment and tools used in the business
Furniture
Personal items

Consequences of misuse

Misusing a resale certificate creates real exposure. If you buy property with a resale certificate and did not intend to resell it, you will owe the sales tax that would have been due at purchase, plus interest, and may face penalties or permit consequences.

Intentional misuse is more serious — the CDTFA says it can result in criminal prosecution.

The key principle

A resale certificate is a powerful tool, but it is not a blanket sales tax exemption. Use it only for items you truly intend to resell in the ordinary course of your business. When in doubt, pay the tax at purchase and consult your CPA before issuing a certificate.

Frequently asked

Questions owners actually ask

Do I need to pay sales tax on inventory I plan to resell?: If you properly use a resale certificate for items you will resell in the regular course of business, the seller generally does not collect tax on that sale when the certificate is accepted in good faith.
Can I use a resale certificate for supplies?: Usually no. The CDTFA says only items you plan to resell should be purchased without sales tax using a resale certificate. Supplies consumed by the business do not qualify.
Do I still collect sales tax from my customers?: If the sale to your customer is taxable, you generally collect and remit sales tax when the end customer buys the item. The resale certificate shifts the collection point — it does not eliminate the tax.

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Educational content only.This article is for informational purposes and does not constitute tax, legal, or investment advice. Every owner’s facts are different; consult a qualified CPA and advisor before acting. Tax and accounting services are provided through Matt Reese, CPA; investment advisory services are provided through Measured Risk Portfolios, a registered investment adviser. Matt Reese, CPA and Measured Risk Portfolios are separate entities; clients are not required to engage both.