No? I was under the impression that if I wanted to buy a bunch of cotton or silicone or diodes that I'd have to pay taxes on that. Then once I manufacture my awesome device using only those materials, plus a Swiss army knife and a rubber band, I could sell it to you and you'd get to pay another round of sales tax. On the backend of this transaction of course is the machinery used to harvest/manufacture the raw materials, for which the farmer/manufacturer also paid a sales tax on. Unless there is some kind of subsidy at play here.
If you are purchasing materials that will be resold, or used to build a product that will be sold, you do not need to pay tax on those materials. It's a simple matter to get a sales tax certificate from your state -- you can do this online in many states. When you buy the materials, you give the seller your sales tax ID number and that will remove his need to collect the tax from you and your need to pay it.
So if either of you are audited, he can point to your ID number as the reason he didn't collect and pay tax and you had better be able to show that you collected and paid tax from the people you sold your product to.
This is per-state. For example, Oregon has no sales tax except for a couple things like tobacco and gasoline. Most states which have sales tax only have retail sales tax (plus a couple random ones). But no, wholesale is generally not taxed. (This is the difference between "sales tax", which happens when the end product goes to the consumer, and "value added tax", which happens multiple times. I don't think a single state will tax you on a box of diodes you order from your supplier, but if you go to Radio Shack they'll probably tax you.)
Value added tax does not happen multiple times, as it is refundable. In effect it is just a retail sales tax. However the rates are high in Europe, often 20%.
Thanks! Follow up question: what is wholesale? Can I buy a yaer's worth of potatoes tax free? How about a lifetime supply of socks?Or are we talking about huge quantities?
(Warning: This post contains lots of generalizations, because every US state has different laws. Look up your state's regulations regarding sales tax if you want to be sure.)
In this context, "wholesale" has nothing to do with the quantities and everything to do with the intended usage. If you're intending to make a product or perform a service which would require you to charge sales tax to YOUR customer, then you can usually avoid paying sales tax to your suppliers, because otherwise the state would be collecting from both you when you buy components and your customer when you sell the finished product. That would get sorted out when you file your sales tax return, but it's easier to only have one link in the chain actually pay the tax in the first place and avoid the situation entirely.
Basically, the idea is that unless the buyer or item being sold is specifically covered under an exemption, sales tax should be applied precisely once on its journey from raw material to the hands of its first actual owner, preferably as late as possible so as to capture the product when it's at maximum taxable value. This is in contrast to a VAT, where the tax is applied at every step in the process proportional to how much "value" was added at that step.
