Are used items taxable?
- Dec 19, 2018 | Mike Plaster
Do you need to charge sales tax on used items?
Used items are big business these days. According to recent Dun & Bradstreet research, stores selling previously owned merchandise generate more than $17 billion in annual revenue — and that doesn’t even include smaller sellers on eBay, Craigslist, Amazon, and other platforms.
Many of those sellers (and their buyers) often have questions about whether those items are subject to sales tax. After all, if the item is used, tax likely was paid on the original purchase. Does it really need to be paid again?
As with almost everything related to sales tax, there’s not a clear-cut answer, because every state has its own rules and regulations about tax on used items.
There are some general guidelines that most states follow, however. So let’s look at some questions that can impact whether you should be charging tax on your sales.
Are you running a business?
If you regularly buy items to resell them for a profit, the law will typically view you as a business owner, even if those items are used. That likely means you’ll need to collect sales tax on your transactions and remit that money to the state where you live, as well as in any other state where you have nexus (see next question).
For example, if you go to yard sales and thrift stores to find inexpensive items then list them on eBay or Amazon, 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.
Are you subject to economic nexus in other states?
If you’re selling used items online as a business, where your customers are located could have an impact on your sales tax, too, thanks to something called economic nexus. Nearly 30 states have enacted economic nexus laws, which impose tax obligations on remote sellers based only on the economic activity they have in a particular state.
The good news is that there are exceptions for small sellers. Many of the states with these laws exempt businesses that have less than $100,000 in gross annual sales or fewer than 200 transactions in the state. Other states have different thresholds, though, and not all of them count transactions in the same way — so be sure to check with the states where you sell.
You might think you’ll never pass those figures, but if you’re growing your business, or plan to in the future, it’s a good idea to stay on top of the laws.
Do you sell used items only occasionally?
How often do you have to sell to be a business in the eyes of states? Each state has its own threshold, so no matter how much or how often you sell, you’ll want to do your research to learn the rules where you are.
This applies even if you’re just selling some old household items or that exercise machine that’s been sitting in your garage for a few years. You’ll likely fall under the occasional sales tax exemption, because most states don’t require you to collect or remit sales tax if you’re just trying to get rid of old items you don’t want. But keep in mind that there are different guidelines about the distinction between business owners and occasional sellers.
For example, sellers in Florida are considered business owners if they sell more than two items in a 12-month period. Yes, that means if you make just three sales in a year, you could be required to register and collect sales tax on the third sale. 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.
And the Colorado Department of Revenue states that you’re 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.
Do you sell to raise money for charity?
Not everyone who sells used goods is trying to make a profit. Sales and auctions to benefit charities 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.
This is a good thing, of course — but most states still take their cut by requiring sales tax, even if the sales benefit a nonprofit. (There are some, such as Rhode Island, that place charity sales under the “occasional seller” category provided they don’t exceed certain thresholds.)
For these types of sales, you need to research the portion of a sale that’s taxable as well. For example, in Rhode Island, when tax is charged, it’s only on the fair market value of an item. Say a $100 item was up for auction to benefit a charity, but the item actually sold for $300. Sales tax would apply to the $100, while the “extra” $200 would be counted as a donation. In California, though, charitable organizations must collect sales tax for the full sales price of items sold. So it's important to check with your local Department of Revenue when thinking about selling items for charitable causes.
Educating your customers and protecting yourself
Sales tax laws are just as confusing for consumers, many of whom assume they won’t need to pay tax on used items. To make their experience better, you might want to let them know before the sale that you’ll be charging tax, and explain why you’re required to do so.
If your business sells used items (or any items, for that matter), Avalara can help make your experience better, too. With our automated solutions and expert support, we ease the hassle of understanding, collecting, and filing sales tax for businesses just like yours.