Sales Tax on Jewelry: Rules for Buyers and Sellers

The purchase of jewelry is subject to sales tax, which is applied to the sale of tangible goods to the final consumer. A percentage of the purchase price is added to the final cost and collected by the seller at the time of the transaction.

The seller then remits these funds to the appropriate government authorities. The rules governing these transactions are established at the state and local levels, defining the taxation process for these items.

Determining the Applicable Sales Tax Rate

The tax on jewelry is not a special “jewelry tax” but the standard sales tax for the location of the sale. There is no federal sales tax in the United States; instead, taxes are set by state and local government bodies. The total sales tax rate is often a combination of rates from different jurisdictions, such as the state, county, city, and special districts.

These individual rates are added together to arrive at the final percentage applied to your purchase. For instance, buying a necklace for $2,000 in a location with a 6% state sales tax, a 1.0% county tax, and a 0.5% city tax would result in a total sales tax rate of 7.5%. The tax owed would be $150 ($2,000 0.075), making the total cost to the buyer $2,150.

The tax is calculated on the final selling price of the jewelry. If a retailer offers a discount, the sales tax is applied to the price after the discount has been subtracted. For example, if a ring is listed at $1,000 but is sold with a 10% discount, the taxable amount is $900, not the original $1,000. This ensures the tax is based on the actual amount the customer pays.

Sellers are responsible for knowing the correct combined sales tax rate for their location and applying it to each transaction. Most modern point-of-sale (POS) systems can automatically calculate the correct rate based on the business’s address. For the buyer, the combined rate and the total tax amount are itemized on the sales receipt, providing a clear breakdown of the final cost.

Sales Tax on Interstate and Online Transactions

Sales tax for jewelry purchased from another state is governed by rules shaped by the Supreme Court’s 2018 decision in South Dakota v. Wayfair. This ruling allows states to require out-of-state sellers to collect and remit sales tax even if they do not have a physical presence in the customer’s state.

For Consumers

If you buy jewelry from an out-of-state seller who does not collect sales tax, the responsibility to pay the tax shifts to you through a “use tax.” A use tax is owed when you purchase items for use in your state without paying that state’s sales tax, and the rate is identical to your local sales tax rate.

For example, if you live in a state with a 7% sales tax and purchase a $5,000 watch online from a seller who doesn’t collect your state’s tax, you are obligated to report and pay $350 in use tax to your state’s revenue department. Many states include a line on their annual income tax forms where residents can report and pay use tax.

For Businesses

For businesses selling jewelry across state lines, the concept to understand is “economic nexus.” Before the Wayfair decision, states could only require a business to collect sales tax if it had a physical presence, such as a store or warehouse, in that state. The ruling established that a significant economic connection alone creates a tax collection obligation. This economic nexus is defined by a sales revenue threshold, commonly $100,000 in sales to a state within a year. If an online jewelry seller exceeds a state’s threshold, they must register with that state, collect the appropriate state and local sales tax from customers there, and remit it.

Taxation of Specific Jewelry-Related Transactions

Several common transactions beyond a new purchase have specific sales tax implications, including repairs, trade-ins, custom pieces, and second-hand sales.

Repairs and Alterations

When jewelry is repaired or altered, the application of sales tax depends on how the service is billed. Many states distinguish between labor and parts. Charges for repair labor are often not subject to sales tax, but any materials or parts used in the repair, like a new clasp or replacement gem, are generally taxable.

Some jurisdictions have rules based on the value of the parts relative to the total charge. For instance, a rule might state that if the retail value of the parts is less than 10% of the total repair bill, the jeweler pays tax when they buy the parts, and the customer’s entire bill is treated as a non-taxable service. If the parts exceed that threshold, the jeweler must separate the charges on the invoice and collect sales tax from the customer on the parts.

Trade-Ins

The handling of trade-ins varies by state. In some states, sales tax is calculated on the net price, meaning the value of the traded-in jewelry is subtracted from the new item’s price before tax is applied. For this to apply, the traded item must be “of like kind.”

In other jurisdictions, sales tax is due on the full retail price of the new item, regardless of any trade-in. In this scenario, the trade-in is treated as a form of payment rather than a price reduction.

Custom-Made Jewelry

For custom-made jewelry, sales tax is applied to the total final price charged to the customer. This price includes the cost of all materials, such as metals and gemstones, as well as any “fabrication labor” involved in creating the piece. Fabrication labor, the skilled work of creating a new item, is considered part of the taxable selling price, unlike repair labor which may be exempt.

Second-Hand or Antique Jewelry

The sale of used, second-hand, or antique jewelry is taxable in the same way as new jewelry. The tax is based on the retail selling price of the item at the time of sale. The fact that an item was previously owned does not create an exemption. The transaction is considered a retail sale of tangible personal property and is subject to applicable state and local taxes.

Exemptions from Sales Tax on Jewelry

While most jewelry sales are taxable, certain transactions qualify for an exemption. These exemptions apply to the buyer’s status or the intended use of the item, not to the item itself.

The most common exemption is for purchases made for resale, which uses a resale certificate. A business provides this document to its supplier to purchase inventory tax-free. For example, a retail jewelry store presents a resale certificate to a wholesaler when buying inventory. This prevents the same item from being taxed multiple times as it moves through the supply chain, as the tax will be collected from the final customer when the jewelry is sold at retail.

To be eligible for a resale certificate, a business must be registered with its state’s tax agency and hold a seller’s permit. Using a resale certificate to purchase items for personal use or for business operations is considered misuse and can lead to penalties.

Sales made to certain qualifying nonprofit organizations are often exempt from sales tax. Many states also provide a sales tax exemption for the purchase of precious metal bullion, such as gold or platinum, when bought for investment purposes and meeting strict criteria for form and purity. This exemption does not apply to items like jewelry, where value is derived from craftsmanship and not just the metal content.