ECommerce FAQ: If I pay sales tax, do I need to charge sales tax?
byNovember 1, 2020
Have you ever experienced this fairly common scenario? You own an eCommerce business and you want to buy a truckload of pool floats for resale. But for whatever reason, your vendor will not accept your resale certificate. Therefore, if you want to purchase these cute alligator and mermaid floats and add them to your online store’s inventory, you’ll need to pay sales tax on the transaction.
When you start to sell these products in your own store, the question becomes, “Since I already paid the sales tax on all of these floats, do I need to charge sales tax when I sell them to my customers?”
The short answer is: yes.
Why are you required to charge sales tax when selling an item at retail when you’ve already paid sales tax?
Sales tax is a tax on the transaction, not the item. It’s right there in the name – “sales” tax. (Maybe an even better name for it would be “transaction tax.”)
In the US, sales tax is collected by the seller when a purchaser buys an item. This is also why when a purchaser buys an item where sales tax is due, but then seller does not collect sales tax, the purchaser still owes “use tax” to the state.
Back to the example above. Say you do decide that buying those pool floats is a good deal for your bottom line, even if you have to pay sales tax on them. When you sell one of those pool floats to a consumer, your business is still required to charge sales tax. That’s even if you did pay sales tax when purchasing the truckload of pool floats. Free Download: 2021 Sales Tax Preparedness Guide
Exceptions to Charging Sales Tax
Sales tax is very rarely black or white. There are a few exceptions for when a retailer in this scenario is required to collect sales tax.
- You make the sale to a buyer in a state with no sales tax
- You turn around and sell your pool floats to another reseller, and that reseller presents you with a valid resale certificate. Some entities like schools or hospitals are also exempt from paying sales tax.
- Your business does not have “sales tax nexus” in the state where your buyer is located. In this instance, you are not required to collect sales tax from your buyer, but your buyer is generally required by the state to pay use tax on the purchase. (Whether or not use tax payment is actually enforced by the state is a different story.)
The world of sales tax is full of strange, nitpicky incidents like this that don’t always seem to make common sense. Subscribe to the TaxJar blog or browse our archive of over 1,000 posts for more answers to common sales tax questions.
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Connect with TaxJarPlease note: This blog is for informational purposes only. Be advised that sales tax rules and laws are subject to change at any time. For specific sales tax advice regarding your business, contact a tax advisor.
2023 Sales Tax Preparedness Guide
Discover sales tax trends and changes that could impact your compliance in 2023. You’ll also find helpful information on product taxability, and how to manage hitting economic nexus thresholds in new states this shopping season.Read now