When Wholesalers Pay Sales Tax and When They Don’t

Sales tax is a consumption tax levied by state and local governments on the sale of goods and some services to the final consumer. It is collected by the seller at the point of sale and then remitted to the appropriate taxing authority. Wholesalers generally do not pay sales tax on goods purchased for resale, as the tax is intended to be applied only once, at the final retail transaction.

The Resale Exemption

Wholesalers typically do not pay sales tax on products acquired for resale, not for their own consumption or use. This principle, known as the resale exemption, prevents the same item from being taxed multiple times as it moves through the supply chain. Sales tax is designed to be a single-stage tax, applied only when the product reaches its end-user.

To claim this exemption, a wholesaler provides their supplier with a resale certificate or similar document. This certificate declares that the purchased goods are for resale and are exempt from sales tax at that stage. States have varying requirements for these certificates. The supplier retains this certificate as proof of exemption. Without a valid certificate, the supplier is obligated to charge sales tax, and the wholesaler would be required to pay it.

When Wholesalers Pay Sales Tax

While the resale exemption applies to goods purchased for resale, wholesalers pay sales tax on items acquired for their own business operations or consumption. The intent of the purchase dictates whether sales tax is due. For instance, office supplies, cleaning products, equipment, and vehicles purchased for internal use are generally taxable.

Even if a wholesaler deals in similar products, any item bought for internal use rather than for resale is subject to sales tax. For example, an electronics wholesaler pays sales tax on computers used in their office, but not on computers purchased to sell to retailers. This ensures that items consumed by the business itself contribute to sales tax revenue.

Wholesalers’ Role in Sales Tax Collection

Wholesalers typically sell products to retailers, who then sell to the final consumer. When a wholesaler sells to a retailer who provides a valid resale certificate, the wholesaler does not collect sales tax. The retailer will collect sales tax from their customers upon the final sale. Wholesalers must obtain and retain the retailer’s resale certificate to substantiate the tax-exempt sale.

However, if a wholesaler sells directly to a final consumer, they must collect sales tax from that consumer and remit it to the state. This can occur in business models where wholesalers also engage in direct-to-public sales. In such cases, the wholesaler acts as a retailer and must adhere to all sales tax collection and remittance obligations. Maintaining proper documentation, including valid resale certificates from business customers, is essential for wholesalers to demonstrate compliance during a sales tax audit.