Who Pays the Sales Tax When Selling a Product to a Store?
When you’re just a consumer, sales tax seems like a pretty straightforward affair: You make your purchase and the retailer calculates and collects the appropriate tax. When you’re on the other side of the cash register as a business owner, tax districts, licensing requirements and payment methods make sales and use tax much more complicated. That situation can become more complex when you sell a good – or purchase one – to be resold in a retail business.
While sales tax laws vary between states and municipalities, the tax is typically imposed when an item is purchased at the consumer level or when the good or service is put into use. To avoid complicating sales tax collections, sales on a wholesale level between manufacturers, distributors and retailers don’t usually incur a sales tax, though this can depend on the industry and product. Additionally, sales taxes usually only apply to sales made within a taxing district. For example, online retailers selling to people outside the business’ home state usually don’t need to collect sales tax.
In many states, when goods are sold between a distributor and a retailer, or between retailers for eventual sale to a consumer, tax isn’t collected. State laws typically require a store that purchases goods for resale to provide its sales tax identification number to the seller in order to waive the tax collection. The taxing agency can use this information to help track goods, ensuring the retailer collects taxes when the items are sold to the end user. In other states, some wholesale transactions are taxed at a rate that’s different from retail rates.
If you’re selling goods to a retail store, they’re not necessarily exempt from sales taxes. Stores that purchase goods for their own use must pay sales taxes on the transaction. This applies to all goods used in the line of business that aren’t purchased for resale, such as computers, tools and equipment, office supplies, furniture, vehicles and miscellaneous supplies. In this case, the store pays sales tax like a conventional consumer, and it’s the duty of the seller to collect and submit sales taxes.
In most states, the burden of collecting and remitting sales tax is placed on the seller. Business owners must be careful when selling items to stores, and retailers must be careful to pay sales tax on all goods they purchase that aren’t destined for resale. The penalty for sales tax evasion varies between states and by the severity of the evasion. It can range from a fine and back taxes owed to a class 1 felony, which has penalties up to 15 years in prison.