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tax question - us sales tax

updated fri 4 jan 02


Bonnie/Jeremy Hellman on thu 3 jan 02

Hi Carole,

My understanding is that if you are a resident of a state that has a sales
tax such as MD, and you are a business selling taxable goods or services,
you are supposed to register with the state. You are issued what is called a
"sales tax number" by the state. You are obligated to file sales tax returns
with the state, regardless of whether or not you have actually made any
taxable sales during the period covered by the return. Once you register,
until you cancel your registration, the state will be looking for your sales
tax returns.You may well file returns showing sales of zero dollars, or you
may file returns showing sales of X dollars, with zero taxable dollars, and
zero sales tax. But the state will be looking for you to file returns.

Each state is concerned only with sales within that particular state. One
advantage of registering your business with the sales tax people, is that
your "sales tax number" should make you exempt from paying sales tax when
you purchase the ingredients used to make your ceramics. You need to give
your vendor a copy of your state's certificate (indicating that you are
manufacturing goods for resale), and mention that you are exempt.

In most states you are exempt only from paying sales tax on items consumed
in the manufacture of ceramics, not exempt from paying sales tax on other
items used in your business. For example, even if my business is making
pottery for resale (wholesale or retail), I will still pay sales tax on my
purchase of a computer used in my business. Remember that when you make
ceramics, you are a manufacturer for sales tax purposes, ie you are changing
the chemical state of the product.

My experience is primarily with PA, but there are many things that seem to
be consistent among the states with sales tax. First is that each state only
taxes sales made within that state. Even if my business is located in PA, PA
cannot collect sales tax if I go to another state and make sales in that
state. However that other state (if there is a sales tax) expects me to
register with that state, report my sales in that state, collect and remit
that state's sales tax. Actually they really don't care if I collect the
sales tax. They require me to remit it regardless of whether I collect it,
if I make a taxable sale. Most states have temporary licenses for businesses
with a temporary location in that state, such as someone attending an arts
festival for the purpose of selling.

On the PA Sales tax reporting form, I am supposed to list the dollar amount
of ALL my sales, then subtract the amount of sales not subject to sales tax,
then compute the amount of sales tax I've presumably collected and need to
remit to the Department of Revenue. PA's web site has a lot of information
on this tax, and in fact all PA taxes, as well as copies of the tax forms
and the registration form. In general it seems that most if not all states
have excellent web sites with the official instructions and forms for all of
their taxes. In your situation, I'd start by going online to Maryland's web
site and reading.

Since you have only made wholesale sales in Maryland, your business domain,
your sales to customers in Delware are not subject to Md sales tax because
the sales were either made in Delaware or because they were shipped to
Delaware (ie the customer took possession of the goods in DE). They are not
subject to DE sales tax, because DE does not have a consumer sales tax. Yes,
it sounds like you did not need to collect sales tax on your business sales,
and therefore you do not need to remit sales tax to MD. But I'd bet that MD
really wants you to file sales tax returns.

You would want to ask each of your customers in MD to give you a copy of
their sales tax number on the appropriate exemption form, which should state
that they are exempt from paying sales tax because their purchases are
intended for resale. You only need to get one copy of this certificate,
although many businesses ask for it once a year. Keep it on file. You will
need it if you are ever audited by the MD sales tax people. Do not depend on
being able to get their certificate if you are ever selected for audit in
the future. Get it BEFORE you do not charge sales tax and keep it on file.

In PA the sales tax people are known to not be "user friendly." They come in
for an audit, look at the business' books, at one or maybe a few
"representative" months, figure out what they think you should have paid in
sales tax, annualize it, and compare it to what you reported. If you do not
have sales tax exemption certificates on file for any of your customers, or
documentation that the sales were made or delivered out of state, they think
you owe sales tax. They really don't care whether or not you collected the
sales tax. You owe. So protect yourself up front. And besides, won't be it
nice to not pay sales tax when you buy clay, glaze, clay ingredients, glaze

And congratulations on your fire year of sales!

I've heard stories from retail businesses with store fronts, where they
felt they had to charge sales tax if the purchase occurred in their store,
even if the items were shipped out of state. In those cases, I walk out of
the store and telephone the business to complete my transaction, so the sale
does not take place in the store. However, last year when I was in Tucson
and made a purchase of jewelry there, I asked the store to put my items
aside, that I would phone them later, and ask them to ship the items to me
to an address outside Arizona. They said they would do that, but that they
were still required to charge 3% Tucson city sales tax, even though they
were making the sale to a customer outside of AZ. They said it had been
litigated, and found to be legal. I was (and still am) astonished, but I
paid, since the money involved was relatively small.

Bonnie Hellman, CPA in PA & CO
(I don't do a lot of work with sales tax, but enough. Maybe too much. )

----- Original Message -----
From: "Carole Fox"
Sent: Thursday, January 03, 2002 2:24 PM
Subject: Tax question

Hi . I'm trying to figure out if I owe sales tax. I have a studio in
Maryland, where I have done business with one gallery( wholesale account).
All other sales were made in near-by Delaware where there is no sales tax.
Does this mean I owe no taxes??

This is my first year claiming income from my studio. Does anyone have
suggestions for resources I can use to find out what obligations I have as a
business owner?

Carole Fox
Silver Fox Pottery
Elkton, MD

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