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Many people mistakenly believe that having a tax license enables them to buy anything they need for their business at wholesale prices. Offering the information that you have a tax license to a resource who knows you aren't reselling the products earmarks you as a beginner. Avoid that embarrassment by familiarizing yourself with the basics of sales tax:
Tax licenses are not meant to save money on taxes. On the contrary, they are meant to ensure that the end user of a taxable product or service pays the taxes that are legally collectible by the state or other taxing agency that prevails in that area.
Here's an example: Alicia's Bridal Couture wants to buy a new sewing machine to use in creating wedding gowns. Because she is the end user of the product, she must pay sales tax on this purchase (if sales tax is applicable in her area).
However, if Alicia is buying a bolt of interfacing to be used in creating wedding gowns, and the interfacing will be a part of the end product, she is not required to pay sales tax; the customer who buys the wedding gown will eventually pay the tax on that product.
Other examples of items used in the production of products for sale: stuffing and pillow forms for a home dec products; findings for wearable art; buttons and zippers for tailored suits; packaging for craft items; batts for quilts;thread, marking utensils, seam rippers, etc. All these items are used up in the creation of a product, and you can legitimately purchase such things without paying sales tax. (But be sure your customer pays it to you, and that you then remit it to proper taxing authority!)
On the other hand, these items are not used up in the course of the creation of a product, and sales tax should be paid: books; stationery and other office supplies; computer software; telephones and other machines used in the business; office furniture.
Disclaimer: If you're unsure about this information for your own local area, consult with the taxing body for that location. Each city and state differ in the US, and there are varying tax laws in other countries, as well. This advice is not meant to be considered as from a lawyer or accountant; any such information must come from one of those professionals who is familiar with your specific business.
Information on Business Resources offered by SewStorm Publishing
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