Are Used Items Taxable?
- Sales Tax
- November 29, 2016 | Suzanne Kearns
These days, a lot of individuals and businesses are making a mint by selling used items on platforms like Craigslist, eBay, and Amazon. But many of those sellers--and their buyers--have questions about whether or not to charge sales tax on their transactions.
While we wish we could give you a yes-or-no answer, it’s just not that simple. (We’re talking about sales tax rules, remember?) Every state has its own rules and regulations regarding sales tax and whether or not to charge it when selling used items.
But there are some general guidelines many states follow. In short, most states make the determination based on whether the seller is running a business or only selling items every once in a while. In the latter case, the seller's transactions usually fall under an occasional sales exemption.
Let’s take a look at each type of scenario.
You’re Running a Business
If your business is buying and then reselling used items, you’ll need to collect and remit sales tax to the state you live in, plus every other state where you have sales tax nexus. For example, if you go to yard sales and thrift stores to find inexpensive items and then list them on eBay or, you’re in the business of selling used items to make a profit. And in that case, you’re on the hook for sales tax.
The law doesn’t make a distinction about whether or not the products you sell are new or used. Instead, it makes the determination based on the fact that that you are buying and selling items to make a profit, and in most state’s eyes, that makes you a business owner. And just like all business owners, you need to collect sales tax on your transactions, and then remit that tax to the state.
But how much do you have to sell to be a business in the eyes of states? Each state has its own threshold, and you'll need to contact your Department of Revenue to learn the rules in yours.
For example, sellers in Florida are considered business owners if they sell more than two items in a 12 month period. New York, on the other hand considers you a business owner if you sell more than $600 in a calendar year, deliver the products, and sell for more than four days in a row.
Research your own state's regulations before putting up the yard sale signs.
You’re Selling Personal Items
If you’re just selling off some old china or that exercise machine that’s been sitting unused in your garage for a few years, you likely fall under the occasional sales tax exemption. Most states don’t require you to collect or remit sales tax if you’re just trying to get rid of old items that you don’t want anymore. The logic goes that people who sell the occasional item probably aren’t making a profit because they won’t be able to get more than they paid for it.
But keep in mind that each state has different guidelines about the distinction between business owners and occasional sellers, so you’ll need to check with your Department of Revenue (DOR) to learn about the specific laws in your state.
For instance, the Colorado Department of Revenue states that you are required to collect and remit sales tax even for an occasional sale between private parties. This is true even for people who aren’t registered to collect sales tax in the state.
On the other hand, states like Texas don’t require occasional sellers to collect and remit sales tax unless they make three separate sales in a 12 month period. Once they do, the Texas Comptroller considers them a retailer and they have an obligation to collect and remit sales tax. In this instance, someone who has frequent online garage sales would be considered a retailer in the state.
What About Charity Auctions?
Not everyone who sells used goods does so to make a profit. Charity auctions are becoming more popular as a way to raise funds for a special cause or need. For instance, some communities gather around residents who need help and donate items to be sold to help raise funds.
And while this is a good deed, most states want a piece of the pie in the form of sales tax. Again, it’s important to check with your own DOR to learn about the rules in your area. In many states, you’ll have to collect sales tax when selling those donated goods, even if you’re running a nonprofit, but in some states, charity auctions fall into the occasional seller status. For instance, Rhode Island allows nonprofits to sell tax free as long as they don't make more than five "casual" sales within a 12 month period.
Finally, states have varying laws about which portion of the sale is taxable. For example, sellers who sell at auctions in Rhode Island are allowed to determine the fair market value of an item, and only charge sales tax on that portion of the sale. The rest of the sale is marked as a donation. According to the IRS, in order to determine the fair market value of donated items you should consider the item's original cost, find out what similar items are selling for now, determine its replacement cost, and in some instances, get an expert opinion.
On the other hand, California requires charitable organizations to collect sales tax for the full sales price of items sold. This includes sales that come from local sales, online sales, or auctions. As you can see, it's important to check with your local DOR when thinking about selling items for charitable causes.
What Consumers Should Know
All of this can be confusing to consumers. After all, how do you know when a private seller is supposed to collect sales tax, or when you’re obligated to pay use tax on your purchase?
Again, it depends on your state.
If you make a purchase from someone in your state on Craigslist or eBay and that person is a frequent seller, they will likely have to charge sales tax on the purchase. On the other hand, if they’re just trying to get rid of an old sofa, you won’t have to pay the tax.
If you question whether a seller is right in charging sales tax during a transaction, you can always ask for their sales tax ID number to verify that they are licensed to collect the tax.
And finally, you may have to pay use tax on the purchase of a used item, depending on your state’s rules. Be sure to check with your local DOR to get the answer.