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Sales to Mexican Merchants May Be Exempt from California Sales Tax

This article is reproduced with permission from Spidell Publishing, Inc.

Did you know that sales to Mexican business merchants may be treated as nontaxable sales for resale, even though the Mexican merchant does not have a California seller’s permit and will not be reselling the items purchased in California?

Under the Mexican Merchants Program, businesses located in Baja California or in the northern part of the state of Sonora that are participants in the following business chambers may make nontaxable purchases for resale from California businesses as long as the merchants will resell the property in Mexico:

  • CANACO, the Chamber of Commerce;
  • CANACINTRA, the Chamber of Industries;
  • CANACOPE, the Chamber of Commerce of Small Merchants; and
  • CANAGRAF, the Chamber of Graphic Arts.

To substantiate the resale exemption, a seller must keep copies of the following records:

  • A copy of the Mexican merchant’s official identification card issued by one of the chambers (this includes a resale registration number provided by the BOE’s San Diego office to the Mexican merchant) or an imprint of the card on each sales invoice; and
  • A timely Mexican merchant resale certificate or a timely Border States Uniform Sales for Resale Certificate.

A California seller must make sure that the card presented is signed and not expired and must keep a copy of the card with the business’s records. The card is not a “blanket exemption.” The purchases may not be made for the purchaser’s personal or business use. A seller can be held liable for tax on a nonqualified purchase.

Sales to nonparticipants
Sales to Mexican businesses not participating in the Mexican Merchants Program can also qualify as nontaxable sales for resale as long as the seller obtains adequate documentation that the transaction is a valid sale for resale and the documentation is accepted in good faith.

This applies to business purchasers who are not required to register with one of the participating chambers or who are unable to register because they do not operate in Baja California or the northern part of the state of Sonora. Buyers from Mexico who are not members of the chambers listed above may not issue Mexican Merchant and Border States Resale Certificates for their purchases. Instead, sellers must
obtain from the purchaser:

  • The same kind of resale certificate that would be obtained from a California seller (e.g., Form BOE-230);
  • A statement as to why the purchaser does not have a California seller’s permit (e.g., “I do not conduct business in California and do not sell property in California.”); and
  • Documentation that proves that the purchaser is a legitimate business (see BOE Publication 32 for a complete list of acceptable documents).

For more information about this article, please contact our tax professionals at taxalerts@windes.com or toll free at 844.4WINDES (844.494.6337).

 

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