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Get High Quality Brands Wholesale

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Q: I am going to be starting an online business for women’s clothing. What wholesalers provide clothing with better quality?

This question was sent over from our sister site OCBusinessStartup.com in reference to the buying wholesale page.

A: That’s a good question. I am not an expert, but I would venture to guess that a lot of the stuff that you will find at local wholesalers will be produced inexpensively so that independent store retailers, swap meet vendors and the like can get a good margin on the product. You will have to visit their locations and inspect the stitching, fabric … But with my family the term “quality” is used for “high status brands,” especially when my credit card is paying the bill.

That said, most high status fashion brands do what they can to keep their merchandise out of what we will call bargain outlets. The belief is that if “bargain shoppers” (read minorities or lower income people) start wearing their brand, it will devalue their brand.  The value of these brands is that they are aspirational in nature–for the most well-off and beautiful.  So they will not sell to small retailers even if they could charge the same or higher wholesale price.

Although brands don’t like to explicitly say that they are choosing their customers, but we can see from a few lawsuits that there is a general understanding that certain brands will not be made available to certain “non-high-end” consumers.

  • Michael Kors even sued that enclave of higher income White consumers– Costco– because it advertised their handbags.  Link
  • Diane Von Furstenberg (Famous Brand) sued a wholesaler because it was allowing the branded perfumes to be sold by “discounters” rather than high-end retailers like Nordstroms.  Link
  • Vera Wang was sued by a retailer because she put her name on a line of different products at Kohl’s Link  The retailer claimed that this made the brand less exclusive and hence could not sell the product at the high-end outlet.

So we don’t really know of any local wholesale outlets where you can get high-end brands, but we are not fashion experts.

One direction you may consider is to have the clothing made for you.  You can put your own label on it.  There are plenty of suppliers alibaba.com — mostly in China.  and indiamart.com–mostly in India.

That said, your best bet might be to get into the MAGIC show for retailers in Las Vegas and see if you can work out some deals.  This show is for retailers.  And they have more upper end fashion.  This is a link to the woman’s fashion event www.enkshows.com/enkvegas/  and this is a link to the entire event which happens every year www.magiconline.com/magic .  At the same time in Vegas there is another show at a different venue.  It’s called the Speciality Trade Show Women’s Wear in Nevada www.spectrade.com/Shows/WWIN/  They have a lot of custom hand made stuff.  Both of these shows happen in August.

Note: Even if you don’t find what you are looking for in Vegas, the trip (transportation, hotel stay, convention tickets) could be a tax deduction.  Ask your tax person.

They don’t like to advertise the shows too much as they are aimed at a focused audience who knows about them.  So we didn’t find any videos that give you a complete overview of the shows.  But you can see a sampling of vendors below.  Below is a sample video from the MAGIC trade show.  They have tons of styles, the ones featured seem to be aimed at the younger urban market.  We believe that they have other designers that focus on more traditional looks.


And this is a video of the Woman’s Wear Trade Show. As the name suggest they bring together designers and wholesalers with retailers. This show seems to happen at the same time as the Magic Show, so you might be able to check out both.

If anyone knows of a good place to get those quality brands at a wholesale price, please let us know by replying.


Make Money from Backyard Garden

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Dear Business Guy, I have a lot of great produce growing in my backyard garden.  Would it be a good idea to set up a fresh garden stand in my front yard?  I feel bad about letting all of my tomatoes, squash, zucchini … go to waste.  I also have an orange tree.

Thanks for reaching out to us.  I don’t know a lot about this topic, but it is possible for you to profit from your green thumb.  We found some interesting articles on our sister site ocBusinessStartUp.com.  If you can get your produce into a Certified Farmers Market, you can legally sell it to a lot of people who are into organic foods.  From what I understand, setting up a stand in your front yard or along the side of the road is not legal in of Orange County.

 

 

———————–

If you just feel bad about filling up your trash can with eatable stuff, consider donating to a good cause.  The Harvest Club of Orange County collects stuff grown in OC backyards and helps distribute it to those in need.  And they can also help harvest your backyard fruit.  Check with your accountant, but if you are in a high tax bracket you might be better off donating the food to this non-profit and taking a write off on your Schedule A.  But we have been wrong before and we’re not tax experts so you really need to run this buy your CPA.

The Overgiving Tree — Shortened from Felixx Cho on Vimeo.

 

 

© OCSmallBusiness.com

 

 


How can I get a Good Phone Number for My Business ??

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Dear Business Guy, we are starting a business and need a good phone number.  How can we buy a good phone number?

That’s a great question, and to be honest with you we don’t have a clue.  But we’ll take a stab at it by having our college intern look around the internet.    A good phone number can make or break a business.  Think of 800Flowers.  This company wouldn’t work as 800GoRoses.  Punching out FLOWERS on you phone pad is just so simple.  And they even use it for their web address by adding .com.  We wanted to look at all the possibilities.  And just to be clear, except for Amazon links, we do not get any commission or kickbacks if you click on a link below.

Buying a Phone Number — Technically Illegal

We looked and looked and didn’t find any market for phone numbers, we assumed that there must be some on-line marketplace for phone number like there is for domain names.  It turns out, there’s a good reason:

According to the FCC (link), ” ‘Warehousing’ by toll-free service providers is prohibited by the FCC’s rules. A toll-free service provider may not legally reserve a toll-free number without having an actual toll-free subscriber for whom the number is being reserved. RespOrgs or toll-free service providers who warehouse numbers are subject to penalties.  “Hoarding” by subscribers is similarly prohibited and illegal. A subscriber may not acquire more toll-free numbers than the subscriber intends to use. Hoarding also includes “number brokering” – it is illegal for a subscriber to sell a toll-free number for a fee.”

So this explains why there is no godaddy of phone numbers.  And they are pretty serious about the rules.  In 2008 a man was arrested by an undercover FBI agent for selling an 800 number on e-bay.  We assume–but are not sure–the same rules apply for local numbers.  Okay as with the sale of most banned items, entrepreneurs have been trying to find a way to skirt the law.  Here are a few that we found:

  • Buy the Business that’s going out of Business.  A phone number is a legitimate business asset.  When a company goes out of business or sells out to another company this business asset can be sold.  If a company with a good phone number or one of your competitors is going out of business, contact the owner and offer to buy the assets of the business which might include the phone number along with furniture, computer equipment, a customer list …  From we have read, you cannot just buy the phone number, but if you buy it as part of the business that’s okay.
  • Buy a Business for the sake of getting their phone number.  Then have the business owner form a new business and buy back most of her assets from you.  You are hiding the fact that the only business asset you want is the phone number so this one seems a bit questionable.
  • Leasing a phone number.  The owner of a phone number will forward calls to your phone for a lease fee.  This seems like it would violate the policy above as the lessor of the number is not using it for their use, but we’re not sure.
  • Marketing Package.  The phone number is registered as a domain name and the seller selles the phone number and domain name as a marketing service.  Again we’re not sure this one is legit.
 So where do the numbers come from?  A phone company cannot just make a number for you to use if you find one that’s not in use.  There is an obscure agency that distributes numbers to phone companies in blocks of 10,000 numbers.  When they have used most of them up, they get another block of numbers.  The North American Numbering Plan Administrator www.nanpa.com  is charged with Assigning (or denying) numbering resources in a consistent, neutral manner and Reclaiming resources (read phone numbers) no longer needed or improperly used.   ehow article  The take-away is that the no phone company has a lock on the “good numbers” so it behoves you to search multiple companies to find the perfect number. 
 Know What You Want and Understand it Will Take Time The key thing to remember is that this is a non-market exchange.  Unless you want to use the tactics above, getting a groovy number means spending time at the store, dealing with customer service reps over the phone, and spending time plugging things into internet shopping pages.  First Make a list of numbers that you want.

Specific Key Word in your phone number  Start by making a list of 4-7 letter words that describe your business.  For instance, if your are a plumber think drain, pipe, clog so you will know what your are looking for.  Then put those words into touchpad numbers.  For instance Drain, Pipe, and Clog are 37216 7473 and 2564.  If the word is more than 4 letters, you have to get an exchange that has the third or second and third letter(s) of your word.  For instance, the word DRAIN, will have to have an exchange that ends with 3, so your number will have to be (714) XX3-7216.  This limits your ability to shop.  There are fewer numbers available, and not all phone companies will have an exchange that ends in 3.

Look for good numbers.  Again you may want to have a list of good numbers, but you will know one when you see it.  Don’t forget about years, like 1776.  People are used to dealing with years so they are easier to remember.  And consider Asian customs.  Generally 8 implies good luck and 4 implies bad luck.  So people have been searching for numbers with 8’s, and rejecting numbers with 4’s.

Be Flexible Another way to go about this, if you don’t need a specific word is to use this web tool that allows you to type in a proposed number and see what the numbers spell out.  If you just want something that people can remember, see what pops out with this tool.  You would be surprised what how many words a phone number can make.    Word Search Phone  # Tool dialabc.com/words/search  Just be sure to put it on the American Standard

Avoid Trashed Numbers  The do-not-call list was a good idea.  But that hasn’t stopped a lot of telemarketers from calling, calling, and calling.  But today, a lot of people will google a phone number to see who has been calling.  If people are saying “don’t answer this is a total fraud, I got ripped-off” on the internet based on calls you they have received from your new number, they just won’t call you back or do business with you.  And you might never know because no one will write you a letter saying “We don’t want to do business with you because…”   Who know how long these comments will stay up on the internet?  So, google the phone number before you pay for it, because potential customers will google it to see who’s calling.  

 

Phone Number Matching Service.  We did find one company that helps you find the phone number you want.  www.tollfreenumbers.com  From what we understand, the have a search program that looks up numbers and finds out what’s available.  Then they get you signed up with the phone company that has that number in their inventory.  The nice feature with their website is you can just search for any key word by putting it into their keyword search and they will come up with a list of (8**) ### – WORD numbers from different providers.  They also have a site for local numbers http://www.vanitynumbers.com  and a site called VanityNumbersForSale.com.  They can even hook you up with a private investigator to help find the owners of a business number so you might be able to “make an arrangement” with them for the use of their primo number.

They seem to be skirting the law as they are not a phone company and they do not take possession (i.e. own, warehouse  or hord) the numbers.  They just sell information and help you get hooked up.  And yes you pay them a “search fee” for their help in your quest for a great number.  The advantage of using this type of service is that you end up “owning” the phone number and you do not have to pay extra fees for it.

 

Phone Number Licensing /Forwarding Services

The deal is they are not selling you the phone number, they are licensing you to use it and routing the call to the appropriate call center or your business.  One one hand, working with one of these companies would be the fastest way to get a primo number; and they may have access to numbers that you cannot get on your own.  Additionally, some of the pricing for basic forwarding service seems really reasonable.  On the other hand, there is the possibility that you may have to pay more for your number in the future, and someone else could come along and license the number for their use.  Money Talks.  Also, it’s not clear what happens if one of these companies goes out of business.  As we see it youy are basically paying these companies for the right to use their number; you are not paying for “your” number.  

We found this Forbes Article which explains how a company called Dial800 www.dial800.com sells you access to an 800 number for a licensing fee.  They a tool to search their inventory on their homepage.  For an okay number, it cost $99/month plus 11c per minute in 2005.  They also analyse your calls, as to offer other marketing services.  They don’t currently provide pricing on their website, and they seem to dominate for the big corporate market.  They might also have the ability to rout calls based on where the call is coming from, so you can save money–or they can make more money depending on how you look at it–by sharing the number with other businesses. For instance if your are a window washer in Wilmington, the calls in Southern California will go to you.  Calls from Clear Water Florida will go to a business in the flower state.

Another service we ran across “hosts” phone numbers.  Hosted Phone Number   http://www.hostednumbers.com/ This company offers local numbers and toll free numbers.  This is a link to their app that searches their phone number inventory  www.hostednumbers.com/vanity-phone-number  They appear to license phone numbers.  They forward calls to your existing phone equipment.  Plans start at about $8/month, but it appears that as with other licensing schemes you don’t own your number, you just pay for the use of the number.

Tossable Phone Number.  They have a nice search feature http://www.tossabledigits.com/findnumber.php?subftr=vanity&doSearch=Search&query=1????????00 (Second search box) and plans start at $7/month plus a few cents per minute after you go over a limit.  They also have toll free numbers.  As with the other services, they get the number and charge you to forward it to your existing phone.   This service was originally designed for people advertising on the internet and going on dating websites.   

 Getting the Number Yourself from the Phone Company

Okay, your have read the part above, but you want to save some money and just get a phone number the old fashion way, from the phone company.  At any given time, each phone company has an the remainder of it’s blok of numbers to assign.   We did not read any thing that said the old monopoly phone companies get the best numbers, but the do seem to have on local exchanges (see graphic below) along with VOIP companies.  ATT and Verizon have numbers and you have to be located in their respective territories to get a one of their local number.  VOIP companies also have the exchange part of the number based on territory.  Cell phone companies have their own exchanges part of the number, and when a customer looks up your number, 800Notes or other services will let them know it’s a Cell Phone Number from…   This distention might be good or bad.   If you aren’t super interested in the local exchange as part of your number, you have a lot of other options.

Don’t get married to your phone company

Think about it like someone you are living with–you are in a committed relationship but you are keeping your options open in case someone better wants to be in a relationship with you.  There are no better rates or access to numbers for customers who have been loyal customers.  They just don’t care.  (Click here to see what can happen with traditional phone company business lines.)  So if you think you can get a good number because you have been writing a check for an overprice bill to your phone company for twenty-five years think again.  Shop around to get the best number.  It might take a while.  When you call or walk in in to get a phone, they will typically offer you three phone numbers to choose from.  There is not law that says you have to take the numbers offered.  If you are not happy with their numbers just say, “Gee, this is a big decision.  I’ll have to think about it.”  Don’t accept or pay for service until you get what you want.  Over the phone, customer reps is getting paid to process calls, and it does not look good if he or she spend half a day going through numbers with you.  You might need to try several companies several times.  If you get a good number with a not so good company, that’s okay.  Look at it as the cost of getting the number.  And you can always move with your number to another phone company (This is calle port or porting).  They will try to lock you into a multi-year plan.  Just say No.  Again, don’t get married to the phone company.  Get your number than just move it to a company that offers the service/pricing package that works for YOU.  The phone companies might not like this, but according to government FCC regulations the choice is yours.

According to the FCC, “subscribers remaining in the same geographic area can switch from a wireless, wireline, or VoIP provider to any other wireless, wireline or VoIP provider and still keep their existing phone numbers.  link  (FN1)

And this can save you a lot of money.  For instance, if you are paying $50/month for a wired line and paying for a cell phone, you can just drop your cell phone number and re-assign your in line number to your cell saving you at least $600/year.  The only restriction on moving or porting is that you must be in the same general geographic area.  But that’s not defined, and with cell phones and VOIP you can be anywhere so we don’t know if that restriction is strictly enforced.

This video below explains how you can “shop” for a number at a cell phone store:


How to Get a Cell Phone Number — powered by ehow

Advantages of a Local vs National-toll free number

Phone Number

What your local phone number is made of.

People simply like to shop local and know that they are dealing with someone in their local area.   And these days, most people have free calling to the US and Canada, so the fact that you have a “Toll Free” number might not be that big of a deal.  (It was a big deal in the 1970’s when long distance rates were high.)  When they call a business with a local number they assume that they are not going to be speaking to a rep in India or the Philippines.  And locals recognize what numbers are around them.  In addition to the 714 vs 949 distention, local numbers have been assigned to local areas via the exchange part of the number.  When people see a local exchange, they know they are dealing with people around the block.   On the other hand, if you are trying to convey the message that you have a big multi-national company, getting an 800 number is the way to go.  It really depends on what type of business–big or local–your customers would like to deal with.

Also, keep in mind that there are some exchange numbers that are easy to remember.  For instance Yorba Linda has  777, Anaheim has 222.  From what we understand, You have to go through your monopoly phone company to get the local exchange number for your area.  

VOIP Companies ~~> Numbers in the Cloud

 

Money Saving Tip  A lot of businesses are using VOIP exclusively for their phone service, and just ordering internet from the phone company, cable provider, or even 4G providers.  4G may be the way to go.  It provides fast speed, and you can take it with you.  You get get a small box that ties in your laptop to the internet and you can run VOIP off of that.  No paying $10/night for internet in a hotel room, and if you are really cheep, you can cancel your home internet service.  Just take the 4G router box home with you.  Clear and Virgin offer 4G this service at about the same cost you would pay for fust a business phone line.  (They just don’t promote the fact you can do VOIP because they both sell phone service.)

Voice Over Internet companies will let you shop on line for that perfect number.  And you may be able to get the local exchange.  They all have advanced features such as call blocking, voice mail to e-mail text, call routing to your cell, home, or business phone.  They all have business plans available, but a lot of people just get the home plan because it’s less expensive if you just need a phone line.  And to our knowledge, there are no phone police going after people who talk business on a “home” phone.  We have tried to link to parts of their sites that let you know what numbers they have available.  

  • Ring Central www.ringcentral.com  This is a VOIP replacement for a PBX system.  Plans start at around $40/month for the first user, and $30/month per user for the second user, and get down to only $20 if you have more than 100 users.  (That’s less than an ATT business phone without long distance.)  As with the other companies, they have a bunch of features for free.  You can add extensions over the internet, and to add an employees line.  They have a nice feature that allows you to search for good phone numbers, and they have numbers in the 714, 760 but not 949 area codes.  Tool Free Search tool works well www.ringcentral.com/features/toll-free-numbers/overview.html  Just plug in the digits you want and it will let you know if they have that for you.  The local number selection tool is not as good http://www.ringcentral.com/features/local-numbers/overview.html   You select the area code and area, and it will show you about 8 available phone numbers.  The cool thing about this service is that you can see what they have available before you sign up.
  • Vonage http://www.vonage.com  They charge about $30/month for their unlimited plan, and they charge another $5 if you want to add on an 800 number.  You have to sign up to pick a number, or if your are an existing customer you can pick a number as an add on number.
  • Phone.com  http://www.phone.com/pricing  This seems to be one of the less expensive voip services starting at $15/month for two numbers and 300 free minutes.  They have an app to check for available toll free phone numbers (a bit more expensive) www.phone.com/features/vanity_toll_free.php  Local Numbers.  Looks like you have to sign up, but they allow you to select from their inventory and if you don’t find a number that you like, you can backorder one.  So you can get it when a number that meets your specs becomes available to this company.
  • ooma www.ooma.com  With this service “Ooma, you get … nationwide calling–plus all the phone features you’re used to–for free. You pay only applicable taxes and fees.”  It costs a couple hundred bucks for the box, but after that it’s free.  They give you an opportunity to select a phone number, but only after you have purchased the ooma device and registered it on line.  They do not have toll free numbers.
  • evoice   www.evoice.com/pricing  Plans start at $10/month which includes 300minutes, and its month-to-month.  They have a utility that shows you toll free and local numbers available in their inventory.  They don’t have a search feature, but they will list out a bunch of numbers to choose from.  But they serve up the numbers five at a time, but their site is fast.  www.evoice.com/evoice-signup/choose-your-number 
  • Google Voice http://www.google.com/googlevoice/about.html#  This is an interesting option because it’s basically free.  According to their website” All the features are free, except for calls placed outside the United States or Canada; you’ll be able to make those calls through Google Voice at an affordable price.”  (link)  It basically gets you a phone number for free, and works over your existing equipment.

The video below shows how Google voice routs your calls and shows how you can hunt for a good number on their service.  We believe the other VOIPs are do the same sort of thing.

 Cell Phone Companies

Even if you don’t want a cell phone, that company may have been allocate a primo number.  Be sure to check out the no-contract plans with services like Boost, Metro, Cricket, and Virgin.  According to the FCC rules, you can always move your number to the phone company of your choice.  You’ll may have to buy a cheep cell phone to get started on their network.  They usually have a model for less than $40.  And technically Vernon and Vernon Mobil are two different companies so they should be working off two different blocks of phone numbers.

Monopoly Landline Phone/Cable Companies

ATT and Verizon are the local phone providers for OC.  Time Warner and Cox also provide service.  Be forewarned  they will insist on installing a business line in your business location (installation charge) and their business salespeople have been trained to get you into a multi-year contract.  Again you might have to go through the these companies if you need a local exchange, and we are not saying that there is nothing wrong with them.  The monopoly phone companies make the phones work.  But you have to decide if the extra “service” is worth the extra cost.  VOIP and Cell service have become so clear that it’s hard to say that they are not as good as phone service over the old network of coper wires.

FN1  Based on the fact that the FCC attached a complaint form to this information sheet, we can infer there has been some issues with porting.

Danger Danger Danger This article is reporting information on the internet by people who don’t know the legal implications.  Contact your lawyer or the FCC to see if the advice above is legal.

© OCSmallBusiness.com

 

 

 


How Can I make a prototype or sample product ?

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How Can I make a prototype or sample product ?

Dear Business Guy,  I have an invention and I need a sample or prototype to show to investors.   But I need to make it first.  Is there such a thing as a plastic-smith who can make up a few, or would I have to have it made in China? 

 If you make your sample product out of duck tape and popsicle sticks nobody will take you seriously.

Well, we are not experts, but to have it made in China, you will have to get molds made up for your invention.  That could cost hundreds of thousands of dollars.  And it would take a while.  We checked, and did not find any “plastic-smiths” who could carve your idea out of plastic.

I would suggest you go to a 3D printing company.  We have a local company in Lake Forest.  They can make a prototype for as little as $300-$600.  Before you say that costs too much for a product you will sell for $19.95, think about the real costs.   You can your prototype product to your investors and people who might be your customers.  And you can test your product.  For instance, if your product is a bicycle handlebar mount for an iphone, you want to make sure that the iphone will not fall off when you’re jumping curbs.

 The beauty of spending a few dollars on prototyping is that if people don’t like it, you can just cut your losses and throw it away.  Or you can modify your design, and improve it.  And with the 3D printing process, you can make it look just like it will look when it’s coming out of a production facility.

 This Lake Forest company, GROWit    is a leader in the field of prototyping.  And they work with a lot of new designers that get their products up on sites like kickstarter.com.  They can make you sample out of the right material—sample quality plastic to show off, PVC or even metal.  And it’s amazing what the can print.  We pulled some sample pictures off of their website (see below).

iPhone Case by  TAKTIK

Growit 1

This is an excellent example of a prototype we did that is a huge consumer product success story right now.  See an article about this product http://www.growit3d.com/growit-blog/kickstarter-series-lunatik/

Small Scaled Tires — Printed

3D printed Tires

GROWit makes rubber-Like materials. They can scale any model, from tires to entire city blocks. Article http://www.growit3d.com/blog/pow-diversitires/

 

Vehicle Design 3D Printed

3D Printed Car

Make it look like the real deal GROWit can even do small- to medium-production runs if desired. Article http://www.growit3d.com/blog/pow-vehicle-design-3/

 

3D Printed Toy Designs

3D Printed Prototype Toy

Prototype Toy see Article http://www.growit3d.com/blog/pow-break-dancin-elephant/

 

Sample Product ChargeCard for iPhone

printed prototype for iphone

Sample Product ChargeCard for iPhone http://www.growit3d.com/growit-blog/kickstarter-series-chargecard/

 

© OCSmallBusiness.com


Where can I find Hispanic Food Wholesale for my business ?

9 comments

Dear Business Guy,
I am looking for specific information on Latin American products…food products specifically.  I love your website but could not find information on this specific category–Dry foods primarily, imported from Mexico, Central and South America. I need large quantities but not too large. Up to 100 count. Please let me know where/ how I can find it Thanks.

Thanks for your question.  To be honest, I am not really sure where to send you as I don’t really know this market.  We looked on the internet, and did not find very much.  If anyone has any leads on finding these types of products wholesale, please reply to this post.

It’s may not be practical for you to import small quantities of food directly from Central America as they have to be approved by the FDA and customs.  We were looking for distributors near Las Angeles that could help you out.

We found:

Mercdado Latino www.mercadolatinoinc.com in Los Angeles.  They are the supplier for Hispanic Grocery stores and carry many dry goods.

International Distributors internationaldistllc.com is another distributor.  The carry a lot of speciality Mexican foods and household goods.  They also supply Hispanic Grocery stores. http://internationaldistllc.com/ID_Products.html  You may need to call them or visit their 70,000 sqft warehouse in Los Angeles.  Their webpage is not working. (323) 859-9000

Another possibility is you could call GOYA 626-961-6161.  Ask them where you can buy their products wholesale.  Their whole sellers will most likely carry other foods that appeal to the Latino Community.

I am sure there are a few more out there, but they don’t need to advertise on the web, and they would rather not deal with bargain hunters trying to save a few bucks.  So they are hard to find on the net.

If anyone knows were to buy Hispanic/Mexican foods wholesale in LA or Orange County please share this information by replying  to this post.

Note, the reader was commenting on our Buying Wholesale in Los Angeles page.

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Do I need to pay sales tax on food?

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Do I need to pay sales tax on food?

Business Guy, When I go to the grocery store, I don’t have to pay sales tax.  Does that mean that I don’t need to charge my customers sales tax when I sell food?  Why should I pay tax on food?

California Sales Tax adds up

It all adds up!! Tacking on an extra 10% is a lot for many customers. Photo by spcbrass (cc) http://www.flickr.com/photos/spcbrass/

That’s a good question.  This is becoming a big issue as the sales tax rate seems to be ever-increasing.  It’s near 10% in many parts of California, and that’s a lot of money for price sensitive customers.  Many of your customers will notice a lower meal cost if you don’t charge sales tax.  And there is a basic issue of fairness involved.

Is it fair to tax food?  The logic behind the law that charged sales tax on prepared foods was that restaurant food was not a strict necessity; and people had the option of making their own food at home.  So food sold in a grocery store is not taxed; and food from a restaurant is taxed.   But for many people work away from home and it’s not practical to go home and prepare a meal in 45 minutes, in many cases it’s cheaper to buy a meal off the value menu than it is to cook a similar meal; and some people don’t have a kitchen.  So the sales tax on food seems regressive, we are charging low-income  working people who work long hours (security guards, truckers …) and  homeless people sales tax on their dinner while the executive who eats a meal prepared by his stay-at-home wife (or staff) pays no sales tax on his meal.

It’s basically our understanding that you need to get a Re-Sale permit and charge sales tax if you are selling food that’s ready to eat at or near the point of sale.  You need to fill out from 400SPA and you can get your resale permit from the California Board of Equalization (BOE) office in Irvine.  (See this page about getting started in business)

As with everything else in California, it’s not that simple  There are a lot of exceptions.

  • Exempt Prepared Meals  For instance, according to BOE publication 22 the following prepared foods are exempt from sales tax: Student meals, Sales of meals by religious organizations,  Meal and food sales by such institutions as hospitals,  meal programs for low-income elderly persons, meals delivered to homebound elderly or disabled persons, meals and food products served to condominium residents age 62 or older, and sales to air carriers engaged in interstate or foreign commerce.
  • Take Away Food Exemption There is also an exemption for food sold “to go” or “take away” under certain conditions.  BOE’s Publication 22 states that if your business meets the 80/80 rule (80% of your sales are food and 80% of your sales are taxable), your customers don’t have to pay sales tax on some “to go” food.  This only seems to apply to certain items: sales of cold products, separate sales of Hot bakery goods and hot beverages.  According to Publication 22 Cold products include (Cold food products include cold sandwiches, milkshakes, fruit smoothies, ice cream, cold salads, cold bakery items, and so forth), and  hot food exempt from sales tax includes “Examples of heating a food product above room temperature include; grilling a sandwich, dipping a sandwich in hot gravy, or using infrared lights, steam tables, or microwave ovens. Examples of hot prepared food products include hot sandwiches, pizza, barbecued chicken, soup, consommé, bouillon, steak, and so forth.”

From what we understand there are some Subways (see receipt below sent in by a reader) and other fast food places that have it programmed into their system to help out customers buying cold sandwiches “to go.”  We are sure many small businesses just forgo these savings because of all the accounting work involved.  Unless you have a computerized Point of Sale device, it would be nearly impossible to figure this out.  And you want to check with your CPA to make sure you understand the rules and regulations — we certainly do not fully understand them and if you have read this far into this article you need the help of a tax professional.  The days when you could DIY your own taxes are over.  The BOE does give some interesting advice.  If you are in a complicated situation, they suggest that you get written advice from them.  “For your protection, it is best to get tax advice in writing. You may be relieved of tax, penalty, or interest charges that are due on a transaction if we determine that we gave you incorrect written advice regarding the transaction and that you reasonably relied on that advice in failing to pay the proper amount of tax. (Pub 22)”  And they give you a place to write in your questions : www.boe.ca.gov/info/email.html

  • Take away food not ready for consumption at your location  (The frozen pizza exemption)  According to Publication 22, “Sales of cold food products sold in a form that is not suitable for consumption on the premises and not eaten on the premises. A cold food product is not“suitable for consumption on the premises” if it requires further processing by the customer, or is sold in a size not ordinarily consumed by one person. For example, the sale of a frozen pizza is not taxable because it requires further processing by the customer.  The sale of a quart of potato salad, a quart of ice cream, or a whole pie would not be taxable because those amounts would not ordinarily be consumed by one person when sold without eating utensils or dishes for consumption on the premises.
Subway receipt

This company looks out for it’s customers. They know California Tax Law and don’t charge tax to tax exempt sandwiches. And a free cookie to boot!

 

References:

Check out publication 22 http://www.boe.ca.gov/pdf/pub22.pdf

Getting started in business–Regulatory Compliance http://startup.ocbusinessstartup.com/wp/regulatory-compliance/

© 2012 OCSmallBusiness.com

Follow Up Question:

Dear Business Guy, we sell our home made goods to a local store.  Do we need to pay/collect sales tax for the money we make from these sales?

Well we are not tax experts, but in general the answer in NO.  According to the BoE’s Website, “Retail sales of tangible personal property in California are generally subject to sales tax tax applies to the the sale of goods for their final use.  So the final use of your home made goods is when someone uses or eats them, not when they are put on the shelf at your local store.

In other countries, a Value Added Tax (VAT) is charged and you would pay tax on the amount of value you add to the products.  But fortunately, we don’t have this tax (yet??).

But you will need to verify that the the people buying from you are legitimate retailers who will pay sales tax; and if your are selling your goods without verification your may have to pay the sales tax plus big penalties out of your pocket.    A lot of businesses do this by making a copy of the retailer’s California Resale Permit.  The state has a verification website here:

https://efile.boe.ca.gov/boewebservices/verification.jsp?action=SALES

and you can find out more about resale certificates here:

http://www.boe.ca.gov/lawguides/business/current/btlg/vol1/sutr/1668.html

An as you may also be selling your product to customers, you should get a re-sale certificate yourself so that your are set up to pay in sales tax.  And as the definition of sales tax only on a good’s final use, you may be able to buy the supplies that go into your product without paying sales tax.  That could save you around 10% of your supply costs.  For instance, if you are making chocolate chip cookies, the chips you buy are not for their final use so you technically don’t have to pay sales tax on them.  But you would have to pay sales tax on a new oven, because you are the final user of the oven.  But you will need to show your supplier a resale certificate.  You can call the BoE directly at 1-800-400-7115, or consult an accountant.

 


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