Depending on the product, there may also be issues of packaging.
If you’re selling sweet peppers, say, direct to the customer at a farm market or farm stand, you’ll be selling them by the quart or the pound – and will need to have bags and/or quart containers and/or whatever to put them in, as well as somebody’s time to pack them that way, to put the containers out for the customer – and the table to put the containers on, and the building or tent to put them out in, and the scales to weigh individual pounds on, and labels and/or price signs, and considerably cetera. All that’s before the time needed to talk to each customer individually.
If you’re selling those peppers wholesale, even for fresh use, a lot of them go in a single significantly larger box, with one label for the whole thing, and very likely one customer to talk to for a pallet full of boxes. You don’t have retail packaging, and you very likely have no sales space that you want random customers hanging out in who don’t know what they’re doing.
Remember the covid supply problems that were due to items packaged for large quantity workplace purchase suddenly being needed packaged for use in individual homes? It wasn’t just that they had to shut down the line long enough to change packages; it was that they didn’t have the right packages.
There’s a lot of market cornering (monopolistic behavior actually) that goes on in environments where the government can limit competitors to just a small number. Then a different government department stands idly by while one of the few competitors slowly buys up or drives out most of the others, leaving the one survivor with a (practically) captive clientele.
The same thing can happen in the absence of restrictive licensing, but it’s harder to pull off and requires an industry with relatively larger other natural barriers to entry.
This is one area where Canada got it right. There are no point-of-sale tax exemptions for GST/HST up here. Instead registered businesses just take the tax collected, subtract the tax paid out, and remit the difference. At the end of the day, the Feds get their cut equal to 5% of the end customer price and they eliminate all of the loopholes, fraudulent exemptions, and get an auditable trail e.g. why did the roofers claim to have installed 1000 squares of shingles when they bought 5000 squares from Home Depot.
The issue I like to point out, though - a VAT (Value -Added Tax) is essentially a payroll and profit tax, since for most businesses, the majority of mark-up is added by the expenses of labour (where there was no offsetting tax paid to deduct) and profit (the extra that also has no offset). For the material in, there is an offsetting tax on the cost.
OTOH, the system works pretty good and eliminates a lot of the tax inequities. The only gotcha is that various interest groups keep lobbying for an exemption for their favourite item - food, medicine, and rents are logically exempt, but groups keep complaining about items like books (“How can you tax learning!!??”) etc. The tax works best when it applies as broadly as possibly and therefore is as low as possible and the rules are as simple as possible.
The tax applies on restaurants and snacks, but not groceries. A classic Canadian commercial featured a guy with donuts. “You want complicated? One donut, GST. Six donuts, no GST!” A half dozen was the threshold between “junk snack” and “groceries” for GST exemption on some foods.
Some of it may have been because they didn’t have the right packages but some of it is also that workplaces use different products. Take toilet paper, for example - some relatively small offices/stores can and do use consumer quality double-ply toilet paper. They might buy a case of 96 individually wrapped rolls rather than a warehouse store package of 30 rolls *, but it’s the same product. But a lot of other workplaces use completely different products - some use single ply instead of double-ply and a lot use the jumbo rolls that require the giant dispensers. And while a household might buy a box of 96 individually wrapped rolls, I’m not sure many households would buy a case of the jumbo rolls that fit an 11x11 dispenser.
* or they might buy the 30 roll warehouse package.
In my state selling to end consumers, rather than to tax-exempt retailers, adds a significant level of tax-related accounting to the business operation. That extra complexity and the pain in the butt it entails is often reason enough in itself not to do it. I imagine it’s similar in many other states.
I agree with you, I cannot buy a box of donuts and expect that it will last past the first sitting or an hour of TV.
However, the Canada Revenue Agency is far less imaginative or has more willpower. Instead of snarfing down donuts, they spend their time making up rules…
Sweetened goods and similar products
Sch. VI, Part III,
para 1(m)
87. Supplies of cakes, muffins, pies, pastries, tarts, cookies, doughnuts, brownies, croissants with sweetened filling or coating, or similar products are taxable where:
they are pre-packaged for sale to consumers in quantities of less than six items each of which is a single serving, or
they are not pre-packaged for sale to consumers and are sold as single servings in quantities of less than six.
