I'm considering setting up a sole proprietorship to sell kits (electronics and crafting) that I design. It's my understanding that, in most cases, I would be able to get a exemption certificate that would allow me to buy materials wholesale (without sales tax) and that I would be responsible for collecting sales tax on the kits I sell.
My question is about sales tax on the materials I consume to produce prototypes that won't be sold. Suppose I have a quantity of small motors on hand for kits that require them. If I want to use the same kind of motor in a new kit I'm designing, can I dip into my wholesale stock for use in the prototype or do I have to purchase another motor at retail (paying sales tax)? Perhaps a third option is to sell the motor to myself in order to recognize the sales tax.
I'm in California, USA.