Navigating sales tax compliance can feel overwhelming, especially when your business primarily sells wholesale. Thankfully, wholesale transactions often get special treatment—but there are some key details you shouldn't miss.
What Exactly Counts as a Wholesale Transaction?
Wholesale transactions are sales to another business or reseller, rather than directly to consumers. Typically, these sales aren't taxed immediately because the end consumer pays sales tax when purchasing from retailers. However, wholesale transactions can still affect your sales tax responsibilities, even if they aren't directly taxed.
Nexus Thresholds: Why Wholesale Sales Still Matter
Each state has different criteria to determine when your business must start collecting sales tax—known as "nexus." For example:
- Alabama: Bases its economic nexus threshold strictly on retail sales.
- California: Considers all sales, including wholesale and marketplace.
- Pennsylvania: Counts all gross sales but excludes marketplace transactions.
This means wholesale transactions could tip your business into meeting the economic nexus threshold in certain states—even though the sales themselves aren't taxable.
What if You Meet Nexus with Wholesale Sales?
If wholesale sales push you over a state's threshold, don't panic. You'll need to register for a sales tax permit, but your actual tax liability will remain very low, typically applying only to any retail sales made in that state. States like Michigan and Utah even exempt you from registration if all your transactions are wholesale.