Taxpayer asks:
Hi,
So, if I bought, let’s say, some scarfs at a local New Jersey store and paid sales tax on them, then sold them at a house party, am I required to charge and collect sales tax?
Thanks for you input. You’re the best!
Taxgirl says:
The rules for charging and collecting sales tax vary by state, so this is really a state specific question which I usually avoid. But this question does lend itself nicely to a general answer. Remember to consult with your local tax professional, though, for specifics about the rules in your own state.
The general rule is that sales tax is only paid on a product at one time. Wholesalers generally do not charge sales tax (they get a clearance not to do so from the state) and retailers do charge sales tax – to you, the consumer. In this way, the tax gets paid at the end of a series of transactions for the same product.
An exception to this rule involves the resale of a product when the initial seller is not a wholesaler or otherwise exempt. In this case, sales tax would be charged at the first sale – since it’s not exempt – but that doesn’t automatically give you a pass to not charge sales tax when you turn around and sell it again. While the transaction would be likely be exempt, many states will require you to get a certificate to memorialize the exemption.
These rules apply to products that are not substantially altered – like the scarves that you mention that you simply buy to resell. But what if you changed the product? What if you used the scarves to make a cool purse? Or you sewed them together to make a coat? If you significantly change the product in order to sell it, it’s not the same product anymore and the resell rules would not usually apply. Sales tax would likely be charged and collected at each sale.
All of that said, this is not an easy area of tax law to understand because it’s so specific to state (and even local) tax laws. There are exemptions, exceptions and special circumstances according to industry, usage and locality – so again, be sure and check with your local tax pro for more details.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
Have a question? Ask the taxgirl!
{ 9 comments }
