My sister in law lives in West LA and buys clothing at estate sales in nearby Beverly Hills, Bel Air, Hollywood, etc. She sells them on her online boutique.
Two points: One, these clothes were purchased retail by some one else and my sister is the second owner. Even though many of the clothes were never worn by anyone (some still have tags), are they used goods?
Two, she is selling them for less than the original owner paid for them. The tag says $85, she sells it for $50.
I’ve heard that there is no tax (income) liability when selling used goods.
I’ve already told her to consult a tax attorney and I WILL NOT tell her to use your response to this question as legal advise.
She has an income tax liability on all her income.
If she pays $30 for it at an estate sale and sells it for $50, she has $20 of income and both the IRS & the California income tax people will want their cut. What the original purchaser paid for the goods is 100% immaterial.
She probably needs to be charging sales tax and having a California state sales tax license as well. That’s a detailed matter of California which isn’t my area of expertise. If 100% of her sales were to people not in CA she *might *be exempt from collecting sales tax on those out of state sales. But she *may *have a tax reporting obligation to the states where the customers were/are. Some states are getting pushy about that, despite all the lobbying by internet-based outfits that want to keep the internet mostly or entirely sales-tax free.
Some states exempt people who are running garage sales (AKA tag sales) and selling their own used personal property from collecting sales tax. Others don’t. So IF California is one of those states, she wouldn’t need a sales tax license to sell her own used shoes & pots & pans from her garage on a Sunday.
But if she’s buying used goods to re-sell, then she’s a business. And would need a sales tax license, and a business license, and all the rest. At least this is true in every state I’ve ever dealt with this stuff in. CA might be different, but I doubt it.
And to boot, if she’s selling directly out of her house, rather than only online, she’s probably violating local city or town ordinance against doing that in a residential area.
Bottom line: She owes Fed & state income taxes on her profits for sure, period, amen. She might owe additional taxes or need additional licenses. Only somebody with detailed CA knowledge can say for sure. And that somebody ain’t me.
The exemption is for this to happen twice a year. If she is doing this steadily on a daily basis, yes she needs a resale licence and has to charge CA and local sales taxes on CA sales. Out of state sales will generally be exempt from sales taxes.
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and just as a side note, its pretty common knowledge in the biz world, you can play games with the IRS, you DO NOT fuck with CA Board of Equalization (the people who collect sales taxes). A place I worked didnt file their sales tax for 6 weeks (14 store franchise, so we are probably talking $50-$80K in sales taxes easy.
A team of armed guys showed up with warrants to seize all funds on the premises at 9 pm on a friday night. They hit 4 stores at a time and cleaned the tills and safes at every location.
Hell in my biz things were a bit tight for a few months and I got a letter basically saying cough it up or we will revoke your resale licence and shut you down.
I’ll second this. Some states are cracking down on this very thing. If she’s making more than just a few hundred dollars a year, I’d strongly suggest she invest $100 and sit down with an accountant, who can help her set all of this stuff up. It can save her from disaster later.
He’ll also help her to start tracking her expenses, which is an important aspect of small business than many people overlook. At the end of the day, what’s taxable is how much money she gets for each item minus her costs, which includes not just how much she paid for the item but the cost of shipping , supplies, computer equipment, internet access, gas for driving to estate sales, etc.
If you are a business with a license to collect sales tax, then yes, you need to charge tax on the sale. If you are selling it as an individual, you cannot collect sales tax, as you are not licensed to do so.
However, it is the responsibility of the buyer (in most states) to report the purchase on their state income tax form and pay “use tax” on it, which is virtually the same as sales tax. Need I say that most people don’t do this?
Sales tax has nothing to do with gains, but with the sale. If you go to a big end of year blowout sale and the retailer is selling some items at less than cost just to get rid of them, they still charge you sales tax.
Capital gains you do not pay if there is a loss as a business. That’s part of income tax though, and not sales tax.
I can confirm that this applies to ordinary taxpayers as well. For my smallish taxes, IRS is content to exchange semi-polite form letters for years. CFTB, on the other hand, will simply seize, without any notice or court order, any property it can get its hands on.
All CA State agencies are pretty hardcore about collections, but let’s not exaggerate. #1: None of the tax agencies really need a court order to collect from you- this includes the IRS. #2: The State has a much lower threshold for active collections than the IRS because state taxes are lower than Federal. IRS wont really harass you too badly unless you owe over $25k, obviously this number is much lower for the FTB. #3: I have never once heard of anybody getting their assets hit without warning. Again, the state doesn’t have the strict guidelines for collections that the IRS does, but they do send you all kinds of letters. Whether you have your correct address on file or bother reading them is an entirely different matter. #4: The FTB isn’t going to seize your property, they are going to seize your assets (wages, bank accounts,etc)-- “property” makes it sound like they are coming under the cover of darkness and taking your dog*.
*As stated, the BOE will totally come under the cover of darkness, seize your dog, and sacrifice it to John Chiang.
Note that if you are selling once in a while, you don’t collect sales tax. i.e. if you sell that tool at a garage sale.
However, Margosteen’s sister is running a business. She needs to collect and pay sales tax.
Internet sales - which she is doing - are a little different, she only needs to collect and pay sales tax where she has nexus.
However, Mangosteen’s sister also needs to pay income tax on her profit. The price she sold it for - the price she paid for it at the boutique. What the item originally sold for has no bearing on her economic gain.