If its a business, and they're reporting their income, there is sales tax on any property sold. Dogs are property and therefore a legitimate business should be reporting and collecting sales tax on the things they sell.
Most breeders don't do this because they aren't really an on-the-books business and many times the transactions happen in cash so that there isn't proof of any type of sale happening. The states also tend to turn a blind eye on such small amounts of transactions because generally they have bigger fish to fry than a breeder not paying sales tax on $5000 worth of sales.
You can also use the argument that the puppies were originally the breeders "personal property" and they legally don't have to charge sales tax on a sale of personal property (the theory is that the sales tax was paid when the property was originally purchased and you only have to pay sales tax on an item once).