[Question] Tax on Inventory

[Girl Monday]

I have a client who works in the construction business and keeps an inventory of parts that they often need, but then charge to their customers as they are used. They were told by a colleague in another part of the construction business that they should not be keeping an inventory, because they are taxed when it comes in and taxed when it comes out. He must have meant at the end of the year, because wouldn't you charge tax when it comes out of inventory, if you are charging the customer for the part?

Now, I'm not an accountant, but that did not seem right to me, so I did some research and this is what I found out.
1. You do not pay sales tax on items purchased for resale, as long as you have submitted a re-sellers certificate with the vendor.
2. The state of South Dakota, where they are based, does not have an inventory tax, nor do they have a personal property tax.

To me, this sounds like they should not be paying taxes on it either time. Can someone tell me if I am missing something or if I concluded incorrectly?

[leedrozak]

It sounds to me that the person giving the information to your client was wrong. Many business owners do not realize that if you resell an item you can be exempt from sales tax by simply submitting the correct paperwork to the supplier. I am assuming that taxed when it goes out refers to the sales tax they should charge on the parts.

I have a client who keeps inventory for her services and because we are set up as a reseller the only time tax is an issue is at point of sale.

[Girl Monday]

Thank you, Lee. That is what I thought, too, and my research confirmed it. I really just wanted an affirmation. I appreciate you responding. I will tell my client what I learned and suggest that they confirm with their accountant, in case there are any obscure laws that I am unaware of.