I'm a little confused,
I'll see if I can help.
I thought the federal government taxed based on Income, not on day to day purchases.
Correct, this is no federal sales tax. That law is about states collecting sales tax they are owed under state law.
I agree this is a ridiculous proposition.
Since your premise was wrong, this sentence isn't valid anymore.
If businesses are selling products they will be taxed already as a business.
In most states (I say most but I'm not familiar with every state, but I'd bet it's every state) businesses **don't** pay sales tax on items they purchase (i.e. inventory) they buy for resale. Businesses only pay sales tax (called a use tax) on items they consume. For example, lets say a business sells computers and they by 200 computers for resale - they pay no sales tax on those computers. Now if that business pulls two computers from inventory and uses the computers for the business - then they owe the state the sales (or use) tax.
If individuals are selling, they have probably already paid tax on the item they are selling, the first time when they purchased it.
If an individual sells an item, they are not a business, they are not subject to this law.
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Hope that was helpful.
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