Thursday, November 16, 2006

Do I have to charge tax if I've already paid tax?

Here's the question:

I have a question for the sales tax guy! I have not yet been able to find the answer. My business is registered as a self proprietership. I make jewelry. I buy my supplies from various locations, some of which charge me tax. If I pay tax on the supplies, do I still have to charge sales tax to my customer? What if I make a piece of jewelry where some I paid sales tax on some supplies, but not others?

Here's the answer:

I refer to this as the "Second Golden Rule of Sales and Use Tax."

ANYTIME there is a retail sale, tax must be charged (except for many, many exceptions). By selling your jewelry, you are making a retail sale and should be charging tax to your customers.

What you should do is buy your ingredients, the stuff that goes into your product, for RESALE. Then you don't pay tax on your purchases. You only charge tax to your customers (and remit to the state, of course).

The fact that you already paid tax doesn't get you off the hook. The object is to tax what YOU sell to the final consumer. The tax will be higher because it has your profit in it. Which is what the state wants.

So register with the state, get your resale number, use it to buy your ingredients for resale and charge your customers tax.

By the way, the other stuff you buy that doesn't go into your product, IS taxable. In that case, YOU'RE the end user. However, there might be manufacturing exceptions here, depending on the state your're in.

Thanks for the excellent question. I'd strongly suggest you talk to your CPA about this as well.

Sales Tax Guy
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