For California Interior Designers
You Finally Got the Trade Account. Does Your Entity Actually Qualify?
The showroom approved you. Net pricing, the trade desk, your own account number. It feels like the moment the studio became real.
Now look at what you signed to get it. Whose name is on the account. Whose seller's permit number is on the resale certificate. And whether page two of the credit application had a line that said "personal guarantee."
A trade account is not just a discount. It puts you in three legal roles at once:
1A seller
in the eyes of the state.
2The buyer of record
for every order.
3Often a guarantor
on page two of the credit application.
Most designers step into those roles in whatever name they happened to be using that month. That usually works fine, right up until the first large order goes sideways.
What the showroom is really asking for
Many to-the-trade showrooms ask for proof that you are a real business before they open an account:
- A resale certificate
- A business license
- Sometimes a federal EIN
- A website or portfolio
Requirements vary from showroom to showroom. The one that carries the most legal weight is the resale certificate.
A resale certificate tells the vendor you are buying the item to resell it, so the vendor does not charge you sales tax at purchase. In California, you can issue one only if you hold a seller's permit.
If you sell any merchandise to clients, including samples or finished drawings, you need a seller's permit. The permit itself is free.
CDTFA Publication 35, Tax Guide for Interior Designers and Decorators CDTFA Publication L-642, Proper Use of a Resale Certificate
So your trade account and your tax account are linked. That matters in three ways.
The permit belongs to the owner, not the studio name
A seller's permit is issued to the owner named on it. If you got yours as a sole proprietor and later formed an LLC, the state treats forming the LLC as a change of ownership. The LLC generally needs its own permit.
That means the resale certificates on file at every showroom may still carry the permit number of the old you. Same studio name on the door. Different legal buyer on paper.
If you formed an LLC after opening your trade accounts: get the permit in the LLC's name first, then update the resale certificate, the account name, and the billing entity at each showroom.
You are the buyer of record
When you order through your own trade account, the showroom generally looks to the account holder for payment. Not your client. If the client refuses the piece, changes their mind after the workroom cuts the fabric, or simply stops paying, the vendor still expects to be paid by you.
Picture a $38,000 custom upholstery and drapery order on a project where your design fee is $12,000.
As a sole proprietor, that obligation sits on you personally. In a properly formed and properly run LLC, it generally sits on the business.
Then there is the personal guarantee. Many trade credit applications include one. If you sign it, the protection you formed the LLC to get generally does not cover that account. That is not always a reason to refuse. Sometimes it is the only way in. It is a reason to read page two, and to know which of your accounts you have personally guaranteed.
The resale certificate is for resale
This is where designers get into trouble without meaning to. The trade price on a dining table is excellent, and the table is going in your own dining room.
When you buy with a resale certificate and then keep the item, you generally owe use tax on what you paid. Using a certificate improperly to avoid tax can also carry a penalty of 10 percent of the tax or $500, whichever is greater, for each purchase.
The simple habit: keep personal and studio furnishings off the resale certificate, or pay the tax at purchase.
The trade account handles the buying. Your agreement decides the risk.
A trade account answers how you buy. It does not answer who carries the loss when something goes wrong between the order and the install. That is your client agreement's job, and it should say, at minimum:
- Which way you are buying. As your client's purchasing agent, or reselling at a markup. The answer changes who holds title and how sales tax applies.
- Written approval per item before any order is placed.
- A signed acknowledgment that custom and made-to-order pieces cannot be cancelled or returned.
- Payment for goods before the order goes in, not at delivery.
If those terms are not in your agreement, the trade account is extending your studio's credit on the strength of a client's verbal yes.
Set it up in the right order
- Decide the entity first. An LLC or corporation before you scale the accounts. Budget for California's $800 annual minimum franchise tax; it is part of the cost of doing this right. Cal. Rev. & Tax. Code § 17941
- Get the seller's permit in the entity's name.
- Match the name. If your studio name is not your entity's legal name, you generally need to file a fictitious business name statement with your county, within 40 days of starting to use it. Cal. Bus. & Prof. Code §§ 17900, 17910
- Open or update every trade account in the entity's name, with the entity's resale certificate.
- Keep a list of which accounts carry a personal guarantee.
- Keep personal purchases off the resale certificate.
- Put the procurement terms into your client agreement before the next order goes in.
The bottom line
The trade account feels like arriving. Legally, it is the moment your studio starts buying other people's furniture on its own credit.
The cheapest time to decide whose name is on that credit is when you set it up. The most expensive time is after the first refused order, when the showroom, your client, and the state each want an answer, and the paperwork gives three different ones.
Make the studio as real as the account.
The Design Studio Setup covers your entity formation, a custom client services agreement, a procurement and trade agreement, and a strategy session. After that, per-contract review or ongoing counsel keeps your paperwork matched to how the studio actually works.
Book a consultationAttorney advertising. The information in this article is for information and educational purposes only and does not establish an attorney-client relationship, nor is it intended to be legal or tax advice. You should contact an attorney for advice regarding your individual situation.