Q: I have a business that just relocated from California to a new state. I have a sellers permit that allows me to purchase inventory with no taxes included. State of California is telling me I am now responsible for paying taxes on all inventory that hasn’t been sold since I am selling it in a new state. Is this accurate? Is there any legal way around this?
A: If this inventory was purchased for resale using a California sales tax permit, California’s position does not appear accurate. For example, an e-commerce seller registered for sales tax in California can purchase inventory for resale without paying sales tax at the time of purchase. If this seller subsequently ships the products to another state as part of an online sale, the sales tax on that transaction is determined by the rules of the destination state. In such cases, California does not require sales tax to be remitted on out-of-state sales.
It seems that California is treating the removal of inventory from the state as a 'use' of the property, which triggers a use tax liability under California law.
Here is what you can do: If your relocation was a transfer of inventory for resale (and not for personal use or consumption), you should document the relocation as a transfer of resale goods to your new state, including invoices, shipping records, and the sales tax registration in the new state. Submit this documentation to the California Department of Tax and Fee Administration (CDTFA) to demonstrate that the inventory was moved out of California for resale and is exempt from use tax. With proper documentation, the CDTFA should not assess use tax on inventory that has been relocated for resale in another state.