Do I Need a Seller’s Permit in California?

Income tax and sales tax are handled by different agencies in California. The Franchise Tax Board handles income tax. Sales and use tax, and the seller’s permit that goes with it, belong to the California Department of Tax and Fee Administration, the CDTFA. Many new business owners in Los Banos find this out only when a supplier or market organizer asks for their permit number. Here is what the CDTFA says about who needs one.

Who needs a seller’s permit?

According to the CDTFA, when you sell or lease merchandise, vehicles or other tangible personal property in California, even temporarily, you are generally required to register and pay sales tax on your taxable sales. The requirement applies to individuals as well as corporations, partnerships and limited liability companies, and to both wholesalers and retailers.

Who usually does not?

Situation	What the CDTFA says
Occasional sales	No permit if you are not otherwise required to hold one and make no more than two sales in a 12-month period
Selling only products bought from a qualifying retailer, without a storefront	You may be treated as the retailer’s agent, and the retailer remits the tax
Selling only cold food that is not hot prepared	Sales are generally nontaxable and no permit is required
Services only, with no goods	Pure services are generally not sales of goods; ask if any materials are transferred

The line between taxable and nontaxable can be fine. Food, farm products and items sold together with a service each have their own rules, so check the CDTFA’s guidance for your industry or ask your CPA before assuming you are exempt.

What about farm sales?

Many sales of food products for human consumption are not taxable, and farm operations often buy certain items under agricultural exemptions. But a farm that also sells taxable goods, such as crafts, plants for landscaping or prepared food at an event, may still need a permit. This is a good question for a CPA who works with local farms.

What does the permit cost?

The CDTFA does not charge for a seller’s permit. Depending on the type of business and expected taxable sales, it may ask for a security deposit. Registration is online and free on the CDTFA website.

Temporary sellers

If you sell at a fair, a festival or a seasonal event, the CDTFA has separate guidance for temporary sellers. The event organizer may ask you for a permit number before you can set up.

What comes with a permit?

• collecting sales tax on taxable sales at the correct rate for the location;
• filing sales and use tax returns on the schedule the CDTFA assigns;
• keeping records of sales, including exempt sales and resale certificates;
• notifying the CDTFA if you close, move or change ownership.

What records does a permit holder keep?

Once you hold a permit, the CDTFA expects your records to support every sales tax return. That means daily or weekly sales totals, the location of each sale if you sell in more than one place, and documentation for any sale you did not tax, such as a resale certificate from a buyer who will resell the item or proof that an item was exempt. Keep purchase invoices too, because items you bought without paying tax and then used yourself may owe use tax.

The simplest setup records taxable and nontaxable sales separately from the first day. A point-of-sale system or even a spreadsheet with two columns saves hours at filing time and makes it easy for your CPA to check that your sales tax returns match the income reported on your income tax return.

Closing or selling the business

If you stop selling, sell the business or change its legal form, for example from a sole proprietorship to an LLC, notify the CDTFA. A new owner or new entity usually needs its own permit, and the old account should be closed so returns do not keep coming due.

How a CPA fits in

A CPA can tell you whether your sales are taxable, set up your records so sales tax returns come straight from your books and reconcile sales tax returns with your income tax return each year. When you interview candidates, ask whether sales tax returns are part of their services, one of the scope questions in What Should a CPA’s Engagement Letter Say, and What Should I Bring?. If you are setting up as an LLC at the same time, see What Does a California LLC Owe Each Year?.