(a)
Resale Certificate.
The burden of proving that a sale of tangible personal
property is not at retail is upon the seller unless the seller timely takes in
good faith a certificate from the purchaser that the property is purchased for
resale. If timely taken in proper form as set forth in subdivision (b) and 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 as required by
Regulation 1699, Permits, the certificate relieves the seller
from liability for the sales tax and the duty of collecting the use tax. 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. A resale certificate remains in effect until revoked
in writing.
(b) Form of
Certificate.
(1) 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 following essential
elements:
(A) The signature of the purchaser,
purchaser's employee, or authorized representative of the purchaser.
(B) The name and address of the
purchaser.
(C) The number of the
seller's permit held by the purchaser. 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 this state, the purchaser must include on the
certificate a sufficient explanation as to the reason the purchaser is not
required to hold a California seller's permit in lieu of a seller's permit
number.
(D) A statement that the
property described in the document is purchased for resale. The document must
contain the phrase "for resale." The use of phrases such as "nontaxable,"
"exempt," or similar terminology is not acceptable. The property to be
purchased under the certificate must be described either by an itemized list of
the particular property to be purchased for resale, or by a general description
of the kind of property to be purchased for resale.
(E) Date of execution of document. (An
otherwise valid resale certificate will not be considered invalid solely on the
ground that it is undated.)
(2) A document containing the essential
elements described in subdivision (b)(1) is the minimum form which will be
regarded as a resale certificate. However, in order to preclude potential
controversy, the seller should timely obtain from the purchaser a certificate
substantially in the form shown in Appendix A of this regulation. If a
purchaser operates an auto body repair and/or paint business, a specific resale
certificate in substantially the same form as shown in Appendix B of this
regulation should be used, rather than the general resale certificate shown in
Appendix A.
(3) Blanket Resale
Certificate. If a purchaser issues a general (blanket) resale certificate which
provides a general description of the items to be purchased, and subsequently
issues a purchase order which indicates that the transaction covered by the
purchase order is taxable, the resale certificate does not apply with respect
to that transaction. However, the purchaser will bear the burden of
establishing either that the purchase order was sent to and received by the
seller within the seller's billing cycle or prior to delivery of the property
to the purchaser (whichever is the later), or that the tax or tax reimbursement
was paid to the seller. The purchaser may avoid this burden by using the
procedures described in subdivision (b) (4) below.
(4) Qualified Resale Certificate. If a
purchaser wishes to designate on each purchase order whether the property being
purchased is for resale, the seller should obtain a qualified resale
certificate, i.e., one that states "see purchase order" in the space provided
for a description of the property to be purchased. Each purchase order must
then specify whether or not the property covered by the order is purchased for
resale. The use of the phrases "for resale," "resale = yes," "nontaxable,"
"taxable = no," or similar terminology on a purchase order, indicating that tax
or tax reimbursement should not be added to the sales invoice will be regarded
as designating that the property described is purchased for resale provided the
combination of the purchase order and the qualified resale certificate contains
all the essential elements provided in subdivision (b)(1). However, a purchase
order where the applicable amount of tax is shown as $0 or is left blank will
not be accepted as designating that the property is purchased for resale,
unless the purchase order also includes the phrase "for resale" or other
terminology described above to specify that the property is purchased for
resale. If each purchase order does not so specify, or is not issued timely
within the meaning of subdivision (a), it will be presumed that the property
covered by that purchase order was not purchased for resale and that sale or
purchase is subject to tax. 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. For example, a
purchase order issued for raw materials for resale and also for tooling used to
process the raw materials should specify that the raw materials are purchased
for resale and that the sale of the tooling is subject to tax.
The seller shall retain copies of the purchase orders along
with the qualified resale certificates in order to support the sales for
resale.
(5) If the seller
does not timely obtain a resale certificate, the fact that the purchaser
deletes the tax or tax reimbursement from the seller's billing, provides a
seller's permit number to the seller, or informs the seller that the
transaction is "not taxable" does not relieve the seller from liability for the
tax nor from the burden of proving the sale was for resale.
(c) Good Faith. In absence of evidence to the
contrary, a seller will be presumed to have taken a resale certificate in good
faith if the resale certificate contains the essential elements as described in
subdivision (b)(1) and otherwise appears to be valid on its face. If the
purchaser insists that the purchaser is buying for resale property of a kind
not normally resold in the purchaser's business, the seller should require a
resale certificate containing a statement that the specific property is being
purchased for resale in the regular course of business.
(d) Improper Use of Certificate. Except when
a resale certificate is issued in accordance with subdivisions (h), (i) or (j):
(1) A purchaser, including any officer or
employee of a corporation, is guilty of a misdemeanor punishable as provided in
section 7153 if the purchaser, for the purpose of evading payment to the seller
of tax or tax reimbursement, gives a resale certificate for property which the
purchaser knows at the time of purchase will be used rather than
resold.
(2) Any person, including
any officer or employee of a corporation, who gives a resale certificate for
property which he or she knows at the time of purchase is not to be resold by
him or her or the corporation in the regular course of business is liable to
the state for the amount of tax that would be due if he or she had not given
such resale certificate. In addition to the tax, the person shall be liable to
the state for a penalty of 10 percent of the tax or five hundred dollars
($500), whichever is greater, for each purchase made for personal gain or to
evade the payment of taxes, as provided in sections 6072 and 6094.5.
(3) In addition to the penalty of 10 percent
or five hundred dollars ($500), whichever is greater, if the person fails to
report and pay the use tax due on the use of the property purchased improperly
with a resale certificate, the person may be liable for the 10 percent penalty
for negligence or the 25 percent penalty for fraud, as provided in sections
6484 and 6485.
(e) Other
Evidence to Rebut Presumption of Taxability. A sale for resale is not subject
to sales tax. A person who purchases property for resale and who subsequently
uses the property owes tax on that use. A resale certificate which is not
timely taken is not retroactive and will not relieve the seller of the
liability for the tax. Consequently, if the seller does not timely obtain a
resale certificate containing the essential elements as described in
subdivision (b)(1), the seller will be relieved of liability for the tax only
where the seller shows that the property:
(1)
Was in fact resold by the purchaser and was not used by the purchaser for any
purpose other than retention, demonstration, or display while holding it for
sale in the regular course of business, or
(2) Is being held for resale by the purchaser
and has not been used by the purchaser for any purpose other than retention,
demonstration, or display while holding it for sale in the regular course of
business, or
(3) Was consumed by
the purchaser and tax was reported directly to the Board by the purchaser on
the purchaser's sales and use tax return, or
(4) Was consumed by the purchaser and tax was
paid to the Board by the purchaser pursuant to an assessment against or audit
of the purchaser developed either on an actual basis or test
basis.
(f) Use of XYZ
Letters. A seller who does not timely obtain a resale certificate may use any
verifiable method of establishing that it should be relieved of liability for
tax under subdivision (e). One method that the Board authorizes to assist a
seller in satisfying its burden to show that the sale was for resale or that
tax was paid, is the use of "XYZ letters." XYZ letters are letters in a form
approved by the Board which are sent to some or all of the seller's purchasers
inquiring as to the purchaser's disposition of the property purchased from the
seller. An XYZ letter will include certain information and request responses to
certain questions, set forth below. The XYZ letter may also be further
customized by agreement between the Board's staff and the seller to reflect the
seller's particular circumstances.
(1) An XYZ
letter may include the following information: seller's name and permit number,
date of invoice(s), invoice number(s), purchase order number(s), amount of
purchase(s), and a description of the property purchased or other identifying
information. A copy of the actual invoice(s) may be attached to the XYZ letter.
The XYZ letter will request the purchaser to complete the statement and include
the purchaser's name, seller's permit number and nature of the purchaser's
business. The statement shall be signed by the purchaser, purchaser's employee
or authorized representative, and include the printed name of the person
signing the certificate, title, date, telephone number and city.
(2) An XYZ letter will request that the
purchaser, purchaser's employee or authorized representative check one of the
boxes provided inquiring as to whether the property in question was:
(A) Purchased for resale and resold in the
form of tangible personal property, without any use other than retention,
demonstration, or display while being held for sale in the regular course of
business;
(B) Purchased for resale
and presently in resale inventory, without having been used for any purpose
other than retention, demonstration, or display while being held for sale in
the regular course of business;
(C)
Purchased solely for leasing and was so leased. Tax has been paid directly to
the Board measured by the purchase price or rental receipts ("tangible personal
property"); or tax has been paid measured by the purchase price or fair rental
value ("mobile transportation equipment");
(D) Purchased for resale but consumed or used
(whether or not subsequently resold); or
(E) Purchased for use.
(F) When the purchaser answers either (D) or
(E) affirmatively (box checked), the XYZ letter will inquire further whether:
1. The tax was paid directly to the Board on
the purchaser's Sales and Use Tax Return, and if so, in what amount;
2. The tax was added to the billing of the
seller and remitted to the seller, and if so, in what amount;
3. The tax was paid directly to the Board by
the purchaser pursuant to an assessment against or audit of the purchaser
developed either on an actual basis or test basis; or
4. The purchaser confirms that the purchase
is a taxable transaction and that tax is
applicable.
(3)
A response to an XYZ letter is not equivalent to a timely and valid resale
certificate. A purchaser responding affirmatively to questions reflected in
paragraphs (A), (B), (C), or (D) of subdivision (f)(2) will be regarded as
confirming the seller's belief that a sale was for resale for purposes of
subdivision (g). However, the Board is not required to relieve a seller from
liability for sales tax or use tax collection based on a response to an XYZ
letter. The Board may, in its discretion, verify the information provided in
the response to the XYZ letter, including making additional contact with the
purchaser or other persons to determine whether the purchase was for resale or
for use or whether tax was paid by the purchaser. When the Board accepts the
purchaser's response to an XYZ letter as a valid response, the Board shall
relieve the seller of liability for sales tax or use tax collection.
(4) When there is no response to an XYZ
letter, the Board staff should consider whether it is appropriate to use an
alternative method to ascertain whether the seller should be relieved of tax
under subdivision (e) with respect to the questioned or unsupported
transaction(s).
(g)
Purchaser's Liability for Tax. A purchaser who issues a resale certificate
containing the essential elements as described in subdivision (b)(1) and that
otherwise appears valid on its face, or who otherwise purchases tangible
personal property that is accepted by the Board as purchased for resale
pursuant to subdivision (f) and who thereafter makes any storage or use of the
property other than retention, demonstration, or display while holding it for
sale in the regular course of business is liable for use tax on the cost of the
property. The tax is due at the time the property is first stored or used and
must be reported and paid by the purchaser with the purchaser's tax return for
the period in which the property is first so stored or used. A purchaser cannot
retroactively rescind or revoke a resale certificate and thereby cause the
transaction to be subject to sales tax rather than use tax.
A purchaser who issues a resale certificate for property
which the purchaser knows at the time of purchase is not to be resold in the
regular course of business is liable for the sales tax on that purchase
measured by the gross receipts from the sale to that purchaser. The tax is due
as of the time the property was sold to the purchaser and must be reported and
paid by the purchaser with the purchaser's tax return for the period in which
the property was sold to the purchaser.
(h) Mobilehomes. A mobilehome retailer who
purchases a new mobilehome for sale to a customer for installation for
occupancy as a residence on a foundation system pursuant to section
18551
of the Health and Safety Code, or for installation for occupancy as a residence
pursuant to section
18613
of the Health and Safety Code, and which mobilehome is thereafter subject to
property taxation, may issue a resale certificate to the mobilehome vendor even
though the retailer is classified as a consumer of the mobilehome by sections
6012.8
and
6012.9
of the Revenue and Taxation Code. Also, a mobilehome retailer, licensed as a
mobilehome dealer under section
18002.6
of the Health and Safety Code, who purchases a new mobilehome for sale to a
customer for installation for occupancy as a residence on a foundation system
pursuant to section
18551
of the Health and Safety Code, may issue a resale certificate to the mobilehome
vendor even though the mobilehome retailer may have the mobilehome installed on
a foundation system as an improvement to realty prior to the retailer's sale of
the mobilehome to the customer for occupancy as a residence.
Where the mobilehome is acquired by a mobilehome retailer,
who is not licensed as a dealer pursuant to section
18002.6
of the Health and Safety Code, for affixation by the retailer to a permanent
foundation, or for other use or consumption (except demonstration or display
while holding for sale in the regular course of business), prior to sale, the
mobilehome retailer may not issue a resale certificate. The mobilehome retailer
shall notify the vendor that the purchase is for consumption and not for
resale. When a mobilehome manufacturer or other vendor is informed or has
knowledge that the purchaser will install the mobilehome on a permanent
foundation prior to its resale, the manufacturer or other vendor is not making
a sale for resale. Such vendor is making a taxable retail sale and cannot
accept a resale certificate in good faith.
(i) Mobile Transportation Equipment. Any
person, other than a person exempt from use tax, such as under Revenue and
Taxation Code section
6352,
who purchases mobile transportation equipment for the sole purpose of leasing
that equipment, may issue a resale certificate for the limited purpose of
reporting use tax based on fair rental value as provided in Regulation
1661.
(j) Counterfeit Goods. A sale
of tangible personal property with a counterfeit mark on, or in connection
with, that sale by a convicted seller is included in the definition of "retail
sale" per Revenue and Taxation Code section
6007,
and therefore taxable. "Storage" and "use" as defined in Revenue and Taxation
Code section
6009.2,
includes any purchase of tangible personal property with a counterfeit mark on,
or in connection with, that purchase by a convicted purchaser and is subject to
tax. This is regardless of whether the counterfeit goods were sold for resale
or held with the intent to be resold. A "counterfeit mark" is a spurious mark
that is used in a manner described in section
2320 of title 18 of the United
States Code.