Sam Brotman, JD, LLM, MBA August 23, 2014 5 min read

CDTFA Audit of Sales for Resale

A Claimed Sale for Resale is Allowed if Supported by Valid Resale Certificate

A claimed sale for resale will be allowed in a CDTFA audit if it is supported by a resale certificate that is proper in form and is timely taken in good faith from a person who is engaged in the business of selling tangible personal property and who holds a California seller’s permit. If the purchaser is not required to hold a permit because the purchaser sells only property of a kind the retail sale of which is not taxable, e.g., food products for human consumption, or because the purchaser makes no sales in California, an appropriate notation to that effect will be entered in lieu of a seller’s permit number on the resale certificate under Regulation 1667 governing exemption certificate requirements. A certificate will be considered timely if it is taken at any time before the seller bills the purchaser for the property, or any time within the seller’s normal billing and payment cycle, or any time at or prior to delivery of the property to the purchaser. CDTFA auditors can be stringent when enforcing the resale certificate requirement.

In a CDTFA audit Any document, such as a letter or purchase order, timely provided by the purchaser to the seller will be regarded as a resale certificate with respect to the sale of the property described in the document if it contains all of the essential elements in Regulation 1668. A signed resale certificate that has been scanned and transmitted electronically or via a facsimile machine (faxed) is acceptable provided that it contains all of the information required by Regulation 1668, is timely and accepted in good faith, and contains the date and time of transmission and telephone number of the sender either on the document itself, or on the proof of transmission such as a copy of the email, or on the standard fax cover sheet.

What Can Be Considered a Resale Certificate in a CDTFA Audit

The California Department of Tax and Fee Administration provides detailed guideline for CDTFA audits about what can be considered as resale certificate (http://www.cdtfa.ca.gov/taxes-and-fees/staxmanuals.htm). CDTFA provides following examples:

  1. A purchase order that contains all the elements of a valid resale certificate, containing words “for resale".
  2. A valid qualified resale certificate taken timely and in good faith, combined with a purchase order that contains any of the following phrases or similar terminology to indicate that tax or tax reimbursement should not be added to the sales invoice.
  3. • “for resale”
  4. • “resale = yes”
  5. • “taxable = no”
  6. • “nontaxable”
  7. • “exempt”
  8. If the purchase order includes both items to be resold and items to be used, the purchase order must specify which items are purchased for resale and which items are purchased for use. A seller must retain copies of the purchase orders along with the qualified resale certificates in order to support sales for resale.
  9. A letter covering a specific purchase from an out-of-state retailer or from a California purchaser if all the elements of a resale certificate are shown.
  10. Contracts of sale where all the essential elements of a resale certificate are included.

Other evidence of the validity of a claimed sale for resale may be accepted by the California Department of Tax and Fee Administration too in a CDTFA audit.

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Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law

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