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April 10, 2008
California Garment License for Out of State Companies
Refresher: Anyone manufacturing sewn products and clothing in the state of California needs to pay a fee and pass a test to be granted a special license. It doesn't matter if you're working out of your home and don't even own a sewing machine. It doesn't matter if you're producing items for pets or technical applications rather than people. If either you or your vendor needs a sewing machine to make your product, you need a license.
From a posting of one of our members, I was surprised to learn that anyone using a California contractor also needs a license. I interviewed a woman I'll call Amelia -a resident of Utah- about how she learned of it and how she went about getting her license. First a little bit about her.
Amelia has always loved fashion but she never went to school for it. Her dad wanted his daughters to be able to support themselves so he strongly encouraged technical education. No slouch himself, he has degrees (5) in electrical and mechanical engineering, history, meteorology and an MBA. So, although she was awarded a scholarship at the prestigious Art Institute of Chicago, Amelia majored in math. After several years working as an encryption analyst for an engineering firm, she decided to try her first love -fashion. She's been at it about three years now and has recently launched a second line. For the first two years she was manufacturing in China but decided she wanted to do it domestically (topic for another entry). That's how she came to discover the licensing problem in California. Also, she stresses that she thinks this is a terrific industry and the last thing she'd want to do is discourage anyone.
She found out about the licensing requirement due to a bad experience that happened to a friend of hers. Her friend (a resident of California) was working out of her home with an assistant. There they made patterns and a few samples. Production was jobbed out to vendors. Her friend found out she needed a license after a state auditor came to her house; the location listed as the place of business. That's when she found you can't sew in a residence or even hire someone to sew for you out of their home. Worse, not only did she need a license but her assistant did too because she was working under 10-99. Her friend was told she needed to have a separate location for the business with a separate mailing address. All told, she was facing penalties of eight thousand dollars. The fines were later reduced to $1,500 because the auditor could tell she was really trying but she was placed on probation and had to put five thousand dollars in an escrow account for three to five years. Pending future audits, she'll get the money back.
Based on her friend's experience, Amelia -again, a non-resident- asked around to see if she'd need a license because she used a contractor in California (she has another contractor in TN). She was told she did need one but she couldn't find out any information about it. Amelia says the website was very frustrating and not helpful for "foreign entities". She thinks the state should do more to facilitate out of state licensing.
She strongly recommends to fill out the paperwork first. You'll have to pay everything up front ($25 testing fee and $750 for the license). Always keep the number you're assigned handy. I've heard that over and over again so I guess it's a big deal. She says the clock starts ticking from the date of application; you have 90 days to take the test.
Testing
She says the test isn't hard. They send you four large booklets and an employment poster. The test is very pro-employee; you must know employee rights. The test will try to trick you up a bit but if you understand the philosophy behind it, you'll do okay. You have to know employment rules, who is underage, how wages are calculated (some math involved), how often you must pay, and how many days you have to supply someone their check after their last day. She says she passed the first time but some people there were taking it for the second or third time -many because they didn't renew on time so their licenses lapsed. You will get a notice by mail, seven to ten days later telling you whether you passed or failed.
You have the choice of taking the test in Los Angeles or San Francisco. If you're from out of state, she recommends selecting LA. The reason is that the Secretary of State office is three blocks away, and you can go over there for the rest of the day to finish up other paper work (later). The test is given every Friday at 9 AM. Come early! There's only so many seats available. If all the seats are taken, you have to come back another day, a problem if you're from out of state. Do not show up for testing without that letter, otherwise you'll have to pay an additional $25 fee. Only money orders are accepted so it's not as though you can write a check on the spot. Speaking of pressure, Amelia was in line with a guy who had to pass. The state was holding his products and he was frantic about getting the goods to his customers. If you're found operating without a garment registration number, they'll shut you down till you get one.
Foreign Entities
Again, Amelia says much of the application information only applied to CA residents so it was confusing. She ended up expediting matters by having her CPA contact the Secretary of State's office to clear it all up. She had to go through the complete requirements list and indicate what didn't apply as a foreign entity. Some things that didn't apply were "must be in good standing with the state of CA". Rather, she had to be prove she was in good standing with her state of residence -getting a certificate from UT- and had to file this in CA to register as a foreign entity. There's a separate fee to file for this in California; the online information wasn't good. There it said eight hundred dollars. She says the actual fee was $100, plus a $25 processing fee. She also had to supply articles of incorporation to prove she was not incorporated in CA.
Other things that didn't apply was requiring that one have a separate business address and most of the tax issues such as a quarterly filing report and worker's comp insurance. She did not need a worker's compensation certificate or public health license. The matter of "policy declaration binder, information page, annual rating endorsement, for payroll is not acceptable" does not apply. Good thing too, it sounds complicated. Lastly, you will have to file an IRS 8821 (pdf) so that the IRS can confirm you're also in good standing with them. This can be faxed to California to complete your foreign entity registration.
In summary, even if you're living out of state but you're using a California contractor, you need a license. Your contractor is required to keep your license information on file. It's possible that Amelia's friend was audited because her contractor was audited and they didn't have a number for her. I'm sure said contractor was levied a fine for failing to have it.
Caveat for in-state residents:
Read the definition of manufacturer and contractor carefully. If you do all your production in-house (separate business location is required) you may be a contractor. The license for a contractor is only $100. A manufacturer is the party who is contracting to have the garments made.
Further complicating matters, if you are sewing for profit, have no employees other than yourself, do all of your own work, and do not contract anything (even including dyeing or embroidery) out, you may not need a license. If you're selling your own stuff you most likely don't. If you're producing it for someone else to sell such as in a private label agreement, you're technically a contractor and need a license. Your client does too; their contracting with you to produce makes them a manufacturer.
Posted by Kathleen Fasanella at April 10, 2008 1:18 PM | Email to a friend
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Comments
I'm using local contractors (PA), and I won't ever be looking for a CA contractor after reading this! Yikes, this sounds horribly complicated. Thank you for the post.
Marguerite
Posted by: Marguerite Swope at April 10, 2008 2:18 PM
Oh my god. Does anyone know if one needs a license to use a pattern maker in California, even if they don't do any production? Or even sample making?
I will call them directly tomorrow to find out - they only answer their phones M, W, and F.
BTW - is this true of any other states that people know about?
Posted by: Jennifer Michelle at April 10, 2008 2:49 PM
I'm right there with you Marguerite! I assume these measures are in place to help stem employee abuse, but they need to find a way to make this easier. This must make it tough for companies like the Evans Group to do business outside the state. How do they navigate this tape?
dieter
Posted by: dieter at April 10, 2008 3:21 PM
Guess I'm crossing CA off my list of possible places to manufacture.
I'm in NY and we, too, have to get a license to manufacture:
http://www.labor.state.ny.us/workerProtection/LaborStandards/workprot/garment.asp
Our fee is $200.
With friendship,
Lisa
Posted by: Lisa DOWNTOWN JOEY at April 10, 2008 6:42 PM
Yikes!! I hope my aunt has her act together. She sews all her own stuff and sells it, so she might not have to have a license, but I still hope she's got it together.
If you're in Oregon, you don't need a license for sewing (I hope I'm right because I've been doing this for a while), just file any DBA names with the state. If you're in Portland or Multnomah County, you have to file with Portland for a business license (min. $100 fee) or an exemption (if you make less than $50,000 annually). Either way, you have to file a property return with the county. All of this is simple and fairly straightforward, which seems opposite of CA!!
Posted by: Lisa Bloodgood in Portland at April 10, 2008 7:11 PM
NY also has a license. I haven't researched it in any detail. But, the legislation is moving in the direction of CA - so, be aware.
Other than that, most states are much easier to do business with. In CO you have to pay use tax on the depreciated value of your property and maintain both a business license and a reseller's certificate. Sometimes zoning variances are needed. But, that's about it.
I'm not permitted to have employees in my home. But, that's not because it's a garment-related business. Only sole-operator business can be situated in a home. If I decide to employ stitchers, I need to move to a semi-industrial facility that meets health, parking and acessibility regulations. But doing so also means I need to comply with other state employment regulations re: benefits, provisions, etc.
The physical entity of the business is what matters in the majority of states. Operating principles are left to management and are governed by the original agencies (i.e. OSHA, Wage & Hour, etc). Speaking of... who was asleep at these agencies when the CA employees were being abused, eh?
As I understand it, there are garment industry regulations in Canada. The details of which I'm unclear about. But, I think those regulations are largely related to worker's health and employment conditions. (They're health nuts up that way)
Posted by: J C Sprowls at April 10, 2008 7:30 PM
What an amazingly informative post!
Thank you so much Kathleen for taking the time to outline every detail.
Posted by: Ms. Max Schroder at April 10, 2008 9:27 PM
Ok, can anybody answer this for me? My fabric supplier, pattern maker, and my dye house are in California, but all my cut and sew is done in Minnesota. I have all my ducks in a row for business licenses here in my state, but do I also need to get one for California?
Posted by: April Femrite at April 10, 2008 9:44 PM
My fabric supplier, pattern maker, and my dye house are in California, but all my cut and sew is done in Minnesota... do I also need to get one for California?
I'm guessing that if your service provider needs a license, you do too. I don't think your fabric supplier needs one but it's likely your pattern maker does (if they do any sewing at all) and most likely your dyer. Can you ask them if they have a license?
Off topic (nothing to do with April's comment): I realize licensing is onerous for really small companies but believe it or not, small companies are more likely than large ones (who can't hide as easily) to pay improperly or impose substandard working conditions on their workers. Small companies don't have the resources or infrastructure to implement standards and established practices like larger enterprises. As any of us who've worked for small companies can attest, not all of them are as disciplined and ethical as all of you. Still, I wish CA could develop some kind of provisional program that wouldn't impede smaller companies getting off the ground.
Posted by: Kathleen at April 11, 2008 7:33 AM
I just talked to Deputy Hermanez with the State of California. Yes you do have to have a license to bring designs, hire a contractor and do anything manufacturing related. When I asked her why they are penalizing the "client" bringing money and work to her state - she responded with - to protect our workers. So pony up the $750 bucks, take a test if you want to take your designs and have them made in California - even if its a few t-shirts....
Posted by: Jim at April 11, 2008 11:10 AM
I used to live in LA and had a small line there. I encountered this same issue and had to take the test and get the license as well. This was about 10 years ago now, but I can easily recall that it was a very detailed and time consuming process. I passed the test the first time, but I studied my butt off. I don't think I would have passed it if I hadn't studied hard. I was suprised by how many people were also there taking the test on the same day and how many were taking it for the 2nd and 3rd time. The other thing I remember is that it was hard to get all the answers I needed to even get as far as understanding whether I even needed to take the test and other answers that were needed for the forms, etc... I just remember that I was so thankful when it was over. Then I moved to AZ and have been making everything myself. There is literally one contractor here and I've used him to do a few multiple runs of some items. But, I wasn't sure if I needed to get a similar license in AZ. I haven't been able to find anything like that here, so I've just been assuming that I don't. Recently, I was going to go back to LA to contract out some work, but wasn't sure if I needed that license again since I didn't live there anymore. Thank you so much for posting this so I now know the answer.
Posted by: Angela Johnson at April 11, 2008 12:13 PM
So, if you live in another state you have to travel to CA to take the test? My business/design studio is in Las Vegas, but my clothing is being made in CA. Am I understanding this correctly?
Posted by: Molly at April 17, 2008 3:23 PM
Wow. I'm glad I got wind of this bad news now. This stuff is frustrating when all you want to do is produce good art. Oh well...
Thanks for the post Kathleen.
Posted by: Mark C. at April 17, 2008 3:53 PM
I just wanted to add that my pattern maker/production manager is in Nevada. I write a check to her for production/supplies, etc. Since she has a CA garment license and is the one paying the contractor in CA she said I don't need a CA garment license. I don't know if this is true. I'm going to look into it further. But just thought I would throw it out there in case someone knows the answer :)
Posted by: Molly at April 18, 2008 8:55 AM
I am so glad that I read this before I started production here in CA. I just filled out the forms and ponied up...cough cough....$775 (license plus test fees). All I can do now is wait until I get my test materials and take this test. I'll keep you posted on if I pass or not!
Posted by: Laura J at April 22, 2008 1:48 AM
Hello everyone!
I’m sorry for the delay of this response but it looks like many people have outstanding questions on if you need a manufactures license if you only use pattern makers, dye houses, etc. I’m the individual Kathleen interviewed regarding the out-of-state license (the above post) and I have a few comments regarding your additional questions. As far we my company knows – the license (for both instate and out of state companies) only applies to the actual construction of produced garments (i.e. the sewing process). We also have used a pattern maker in California before and there was no need for a license at that time. When reading through the licensing materials and taking the test – the overall tone was the actual manufacturing of the product. We also use a cutting facility in CA (which we absolutely love) and they never asked for a copy of our license and never mentioned that we needed one just for the cutting of our garments. My overall view of the license is that California is interested in protecting the employees of manufacturing/contact facilities (the actual sewing of apparel), many of the other facilities (cutting, dying, etc) use machines to do 90% of the work – not necessarily actually people so it could be a grey area. By the way – I completely sympathize with attempting to contact the DLSE. Who works a M, W, F schedule anyway? You may want to consider faxing in information as well – but overall if you want information, sometimes the easiest way it to “cough up” the $775 and get and ID number associated with you/your company (although I wouldn’t recommend submitting the money if you really don’t plan on getting a license – you won’t get it back). I hope this was a little helpful and feel free to contact me directly if you want to know additional information on what we had to do as an “out of state” company seeking a California Garment Manufacturing license.
-Emily
www.RedsandBluesCompany.com
emack@RedsandBluesCompany.com
Posted by: Emily Mack at April 25, 2008 11:41 AM
Right now I'm an importer, so it doesn't apply to me, but the info about dying was helpful.
Just a heads up,if you don't have a license, and the contractor you sew at gets busted for labor abuses, you can be forced to pay a portion of the settlement to the workers, even if you have paid the contractor. Keep really detailed records. Po's with your name, date, style #'s amounts, and have the contractor sign them. A labor lawyer at an FBI seminar said that rather than exposing their larger accounts to restitution, the contractor will turn in all their little accounts and lie and say that they made more goods than they really did , so the large account won't get in hot water and pay a fine and restitution!! Totally shocking. I make everything in Asia, and I have considered manufacturing here, but as a small company , it just scares the daylights out of me.
Posted by: designLA at April 25, 2008 8:18 PM
I have a friend who called me a few months ago from Oakland. He is a T-shirt printer, with no sewing machine. He is only a T-shirt printer.
He received a visit from an inspector with the State of California looking for his garment manufacturing license. When he explained that he has been in business for 18-years and never had one or knew about it, they closed him down and forced his employees to go home. He was told that when he acquired the license, which could take 3 to 6 months because of the current backlog, he could reopen his business.
He was told as long as he doesn't have employees he can continue to screenprint and this is how he has managed to stay open. His production has been slowed to the point that he is barely able to keep up the equipment payments and if the license is not forthcoming soon, he may be forced to enter bankruptcy.
He had a lawyer look into the matter and it is legal for the state to act in this matter. They are attempting to thwart the abuse of labor laws and the high number of forced labor shops in California.
Posted by: Bill Hood at May 8, 2008 9:34 PM
