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As a small business owner, you wear many hats—designer, maker, salesperson, and, the most confusing one for many, accountant. And for a small business like yours, every dollar is precious. The last thing you want is to give away your hard-earned money by mistake.
As a CPA, I see many home-based businesses in America make a common (yet costly) mistake: they are accidentally paying sales tax twice.
The key is, sales tax should only be paid once per item, even if that item is resold.
In this article, I'll explain who should be paying that tax, help you diagnose if you're the one paying it twice, and show you one simple fix to improve your cash flow.
But first, a mandatory disclaimer. I am a CPA, but my expertise is primarily in income taxes. I am not an expert in the specific sales tax laws of all 50 states, as they vary significantly. This advice is based on general principles and Arizona law. I strongly urge you to check with your local CPA for specific advice for your business and state.
Now let’s get started.
Know The #1 Sales Tax Rule: One Payment, By the End User
The most important concept to understand is simple: Sales tax should only be charged once, and it's paid by the final end user.
If you’re a business selling to customers, your end user is the person who buys your products.
So if you buy a cutting board from MakerFlo and resell it as a custom-engraved wedding keepsake, your customer should pay sales tax on the engraved cutting board. You should not pay sales tax on the cutting board when buying from MakerFlo.
As a maker, you are the manufacturer. When you buy a blank tumbler, you are not the end user. Your customer is. They are the one person who should be paying the sales tax on your finished item.
Where Do You Remit Sales Tax?
A quick primer on sales tax (for US-based businesses). Sales tax is remitted to your local state on every item sold to end users in your state. Once you go over a certain amount or number of sales in another state, you’ll need to start paying sales tax to that state for all sales made to customers there. (Research or ask your CPA about "sales tax nexus" for out-of-state tax rules.)
Are You Paying Twice? A Quick Diagnosis
There are two correct ways to handle sales tax... and two bad ways that costs you money. Let's see which one you're doing.
Path #1: Correct, but Hurts Your Cash Flow
- You pay sales tax when you buy craft blanks.
- Because tax has already been paid, you do NOT charge sales tax to your final customer.
- The Result: You're not paying twice, but you must increase your product price to cover the tax you already paid. It's a "wash," but it means you have less cash upfront to buy inventory, which hurts your cash flow.
Path #2: Correct, and Better for Your Cash Flow
- You provide a resale certificate to MakerFlo and pay NO sales tax on your blanks.
- You MUST then charge sales tax to your final customer (the end user).
- The Result: You pay the collected tax to the state government during tax season. You get to hold onto that tax money for a moment, instead of paying it before you've even made the product. You're not "saving" money—it's a timing difference. But it does improve your cash flow.
Path #3: Incorrect & a Costly Mistake
- You pay sales tax to MakerFlo when you buy your blanks...
- ...AND you charge sales tax to your final customer.
- The Result: Tax is getting paid twice, but you’re incurring an extra expense for your business that you don’t need to pay. And the government is winning because they're getting double. This is a direct loss for your business.
Path #4: Not Collecting at All (Worst Case)
- You pay sales tax to MakerFlo when you buy your blanks…
- But you DON’T charge sales tax to your customer and take all earnings as profit.
- The Result: You get saddled with a big tax bill from your state and you must cut into your profits to pay it.
Note from MakerFlo: Be aware that e-commerce platforms like Shopify let you charge sales tax on purchases without verifying if you're set up correctly. If you’re not buying your blanks with a sales tax exemption, you might be paying twice without knowing it.
The Fix: How a Resale Certificate Improves Your Cash Flow
If you're currently paying sales tax on your supplies, the fix is simple: Get a resale certificate.
A resale certificate (also called a seller's permit, sales tax license, or TPT license in Arizona) is an official document from your state.
It is not a savings tool. It is your promise to the state that you are a reseller, not an end user. You're promising that since you aren't paying sales tax on your supplies now, you will be sure to collect it from your customers later.
Here's the process:
- Get a Certificate: You must register with your state's Department of Revenue (or equivalent). You can find information on your state's official website. You don’t need an LLC to get a sales tax exemption certificate—sole proprietors can apply directly with their state as long as they’re purchasing items for resale.
- Submit it to Your Supplier: Once you have this certificate, give a copy to your suppliers (like MakerFlo) to get a sales tax exemption on your supplies.
How to Get a Sales Tax Exemption at MakerFlo: Visit our Resale Certificates & Sales Tax Exemption page to apply. Once we verify your documents, you will be able to buy our products with zero sales tax.
One More CPA Tip: Laying a Strong Foundation
The world of business finance goes way deeper than sales tax. My advice is, if you're serious about your business, start with a solid foundation.
It’s smart to always separate yourself from the business. And you can do this in two ways:
- Set Up a Solid Legal Structure: A Limited Liability Company (LLC) is a legal structure that separates the business from your personal life. If the business is ever sued, this can protect your personal assets, like your house, from litigation.
- Get a Separate Bank Account: This is important. Keep all your business income and expenses totally separate from your personal spending. If the IRS sees you mixing your money, it could open you up for an audit, and nobody wants to go through that.
Understand Sales Tax & Improve Your Cash Flow
Your main takeaway today should be simple: Sales tax should only be paid once, by the end user.
Now’s a great time to review your sales tax process and make sure you’re following the steps above.
Once you’ve got your certificate ready, make sure to visit MakerFlo’s Resale Certificates & Sales Tax Exemption page to submit it. Once we verify your documents, you will be able to buy our products with zero sales tax.
Finally, for all financial decisions you make for your business, please check with your local CPA. They can help with specific guidance for your state laws and regulations.
Thank you, Garrett, for sharing your expertise with us!
Connect with MakerFlo by joining our free MakerFlo Makers Community and following us on Instagram, TikTok, and YouTube. Next up, find more great resources for growing your maker business by visiting our MakerFlo Pro resource hub.
Disclaimer: The information provided in this blog post is for general informational purposes only and is not intended to be personal financial advice.
All information on this page is provided in good faith; however, we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability, or completeness of any information in the article.
Before acting on any information, you should consider the appropriateness of the information, having regard to your objectives, financial situation, and needs.
