Eric,
That is a good question. Generally you do not pay sales tax on an item when you buy it as a component part of something else, or if you buy something strictly for resale.
For example, General Motors does not make every single part they use in putting together their cars. When they buy a part from an outside company the generally file what is known as a Tax Exemption Certificate with the party they are buying from indicating that they are not the end user of that part and are therefore exempt from having sales tax charged to them. Otherwise, every time they purchased something for their vehicles, they would have to tack on the additional sales tax they paid, and you know that sales tax cost would ultimately get included and added on to the purchase price that you or I pay when we buy one of their vehicles. Of course, at that time, you or I as the final, ultimate user of the car would also have to pay sales tax on the entire purchase price of the vehicle. If General Motors had to pay sales tax on every item they bought to put into a car that you and I ultimately buy, we would end up effectively paying sales tax on the sales tax that was charged to GM. That could make the cost of things increase dramatically so, the final idea and practice is that only the final, end consumer pays sales tax on the entire cost of an item. That way we don't end up paying sales tax on previously charged sales tax for components and things purchased as part of something we're buying. The same concept works when you buy something as a dealer or wholesaler. Since the dealer or wholesaler is not the end consumer, they would generally be exempt from sales tax collection.
Here's the kicker though. To be exempt from paying the sales tax in the first place, you normally have to fill out and provide the seller with a sales tax exemption certificate of some kind, acceptable to the taxing authority for the state(s) you are in. This may also require you to be registered for a vendor's license or other sale tax registration in that same state(s) to do this also, and will likely require you to then be filing some kind of sales tax return yourself. See, if you claim to be buying items for resale, you can get out of paying the sales tax to the seller but, when you then resell the item, now you are supposed to be subject to charging and collecting sales tax from the persons you're selling to. Unless they also give you an exemption certificate saying they aren't subject to sales tax either. If you sold something to someone who told you they were sales tax exempt, without getting the proper exemption certificate from the buyer, if you ever get questioned about it by some state's sales tax authority, you could end up being responsible for the sales tax (plus interest and penalties) for not having properly collected and remitted the sales tax like you were supposed to.
Again, these laws vary from state to state but, generally follow the same concepts and rules for the most part. And there are exceptions. This area of tax is too broad and vague to be able to give a simple, one answer covers all, response in a thread like this that will answer everyone's questions. Just be aware that sales and use taxes are out there and that they are not going away.
BobC
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