In most states, contractors pay tax on their purchases and don't charge their contracting customers tax. The problem arises for contractors that have a retail side of their business too.
If most of what they buy is for resale, but they do some contracting too, then they'll generally buy for resale and self-assess use tax on whatever they consume for the contracting business.
But if they buy mostly for the the contracting business (their use), but sell some as well, then they should probably pay tax on all of their purchases. But they've already paid tax! Therein lies the problem. What I'll recommend is specifically sanctioned by some states, and makes logical sense everywhere else. When you sell something (and charge tax) on something you have already paid tax on, then simply adjust your use tax basis on your return for the amount that you sold. That should square everything up.
Is is legal? As I said, in many states yes. In other states, they're usually silent on the issue. It certainly is a defenseable (and logical approach to take). Just don't tell em I said so. ;-)
Sales Tax Guy