What is sales tax?
Sales tax is a tax collected on the sale of certain goods or services. It is collected from the consumer by the seller, who then pays these funds to the relevant government authority.
Outside the United States, sales tax goes by different names depending on location — VAT (Value Added Tax, common in Europe and the UK), GST (Goods and Services Tax, common in Australia, New Zealand, and Canada), and HST (Harmonized Sales Tax, used in parts of Canada) are common equivalents — but the underlying mechanism is largely the same.
Sales tax rules vary by location and are subject to change. This article is for informational purposes only — consult a local tax professional for guidance specific to your store.
Why does sales tax matter for resale stores?
Errors in sales tax collection — under-collecting, late payments, or failing to collect altogether — can result in penalties and back taxes. Resale adds some complexity: item or category-level exemptions, the structure of consignment arrangements, jurisdiction, and store type can all affect a store's tax obligations.
How does sales tax work differently in resale?
In most jurisdictions, sales tax is calculated and collected on the final sale price and paid to the tax authority on a schedule determined by sales volume — typically monthly, quarterly, or annually.
Item exemptions and reduced rates
Many jurisdictions exempt certain categories of goods from sales tax or apply a reduced rate. Common exemptions include used clothing and children's items, though what qualifies varies by location.
Tax on the store portion only
While in most jurisdictions sales tax applies to the full sale price regardless of how proceeds are split between the store and the consignor, in some jurisdictions only the store's commission is treated as the taxable amount.
FAQs
Is a consignor payout subject to sales tax?
No. A consignor payout is a transfer of funds owed to the consignor from a completed sale — it is not itself a taxable transaction.
What if a jurisdiction has no sales tax?
Some jurisdictions impose no sales tax. Store owners should confirm with their local tax authority whether this applies to their store type and inventory.