Consignment works like this: you hand your goods to a shop, the shop displays and sells them on your behalf, and when something sells the shop keeps an agreed commission and pays you the rest. You keep legal title the entire time the goods sit on the shelf. If an item doesn’t sell during the agreed period, it comes back to you. The shop never buys your inventory, which is what separates consignment from wholesale and what creates most of the legal wrinkles the arrangement is known for.
The Basic Mechanic
You deliver merchandise. The shop prices it, displays it, and handles the customer. When a sale closes, the shop deducts its commission from the gross sale price and sends you the remainder on whatever schedule the agreement sets. Some agreements also let the shop deduct credit card processing fees, which can pull another 2% to 3% out of your proceeds if you don’t catch the clause on the way in.
Reputable shops track every item from intake through sale or return using inventory management software, and many provide online portals where consignors can watch their pieces move in real time. If a shop can’t tell you exactly which of your items sold, when, and for what price, that’s a warning sign. You want transaction records, not a lump-sum check at the end of the month.
If an item doesn’t sell within the agreed period, the shop should tell you. You can then pick the goods up, drop the price, or extend the consignment window. What happens to merchandise you don’t collect promptly depends on the contract; some agreements transfer ownership of abandoned items to the shop, and that clause is enforceable if you signed it.
What Belongs in the Written Agreement
The written agreement is the whole game. Shops usually hand you a standard intake form, but the terms are negotiable and the consignor who signs without reading almost always regrets it. At a minimum, the agreement needs to cover:
- Commission rate. Rates commonly run between 25% and 60% depending on the merchandise, the shop’s foot traffic, and local competition. Higher-end goods and shops that invest in marketing tend to charge more.
- Minimum sale price. The floor below which the shop can’t discount without your approval. Without one, your $500 jacket can be marked down to $50 during a clearance event.
- Consignment period. How long the shop will display the item before returning it. Sixty to ninety days is typical for retail goods, sometimes longer for high-value or specialty pieces.
- Payment schedule. When you get paid after a sale, and how. Monthly payouts by the 15th of the month following the sale are standard.
- Handling of unsold goods. The window you have to pick items up, and what happens if you miss it. Many contracts allow the shop to donate or dispose of merchandise you don’t retrieve.
- Insurance and liability. Who insures the goods while they’re in the shop, and who pays when something is stolen, damaged, or destroyed.
Document what you deliver. Photographs, written condition notes, brand names, serial numbers, and model information are the evidence you’ll need if a dispute comes up later. Most shops assign each piece a barcode or SKU for tracking, and that number should tie back to your intake record.
Who Owns the Goods While They Sit on the Shelf
Title stays with you. The shop is holding your property, not buying it. Ownership only transfers to a third party when a customer completes a purchase.
That’s straightforward until you consider how it looks from outside. To a bank extending the shop a loan, or a creditor with a judgment against the shop, the merchandise on the shelves looks like the shop’s inventory. Under UCC Section 2-326, goods delivered to someone who runs a business selling that type of product are treated as being on “sale or return” and are exposed to the consignee’s creditors, unless the consignor takes protective steps.1Legal Information Institute. UCC 2-326 – Sale on Approval and Sale or Return – Consignment Sales Your handmade furniture, sitting in someone else’s shop, can be seized to pay someone else’s debts if you haven’t filed the right paperwork.
The Uniform Commercial Code also draws a definitional line around when Article 9’s protective framework applies at all. Under UCC Section 9-102, a consignment exists for these purposes only when each delivery has an aggregate value of $1,000 or more, the goods aren’t consumer goods at the time of delivery, and the merchant operates under its own business name rather than yours.2Legal Information Institute. UCC 9-102 – Definitions and Index of Definitions The merchant also can’t be an auctioneer, and it can’t be widely known among its creditors as a business that mainly sells other people’s goods. If your delivery is below the threshold, or you’re leaving personal items at a friend’s garage sale, Article 9’s protective machinery doesn’t apply and different, generally weaker, rules govern.
Protecting Your Inventory With a UCC-1 Filing
The single most important thing a consignor can do is file a UCC-1 financing statement with the appropriate state office, usually the secretary of state, before delivering the goods. The filing creates a public record of your interest. Under UCC Article 9, a consignor’s interest in consigned goods is treated as a purchase-money security interest in inventory.3Legal Information Institute. UCC 9-103 – Purchase-Money Security Interest – Application of Payments – Burden of Establishing The practical effect is powerful: a properly filed statement can give you priority over the shop’s other creditors, including banks that already hold a lien on the shop’s inventory.
Filing fees are modest, typically $10 to $25 depending on the state. The filing names the consignee as the debtor and you as the secured party, with a description of the consigned goods as collateral. You can use “consignor” instead of “secured party” on the form without affecting its validity.
Filing alone may not be enough if the shop already has creditors with a blanket lien on its inventory. To beat those earlier creditors, you have to take an additional step: search the state’s filing records to identify existing secured creditors, then send each one a written notice, before you deliver the goods, stating that you have or expect to acquire a security interest in consigned goods at the shop.4Legal Information Institute. UCC 9-324 – Priority of Purchase-Money Security Interests The notice must describe the goods and must reach the creditor before the shop takes possession. The notification remains effective for five years and needs to be renewed before it expires.
Skip these steps and the consignee is treated as though it has the same rights in your goods as you do, at least for purposes of creditors and buyers.5Legal Information Institute. UCC 9-319 – Rights and Title of Consignee With Respect to Creditors and Purchasers That means a lender who extended credit to the shop based on the value of its inventory can reach your goods to satisfy the debt.
If the Shop Goes Bankrupt
Bankruptcy is where a missing UCC-1 turns into a real loss. When the consignee files, a trustee steps in to gather assets for the shop’s creditors. The trustee has the legal power of a hypothetical lien creditor, which lets them claim any property an unperfected creditor could lose. If you never filed a financing statement, the trustee can treat your consigned goods as part of the bankrupt shop’s estate and sell them to pay the shop’s debts.
The lesson is blunt: if you’re consigning goods worth more than a trivial amount, file the UCC-1 before the first shipment goes out the door. The filing fee is negligible compared to losing your inventory in someone else’s bankruptcy.
When Goods Are Damaged, Stolen, or Lost
Consignment creates what the law calls a mutual-benefit bailment: the shop benefits from commissions, you benefit from access to the shop’s customers, and both sides have obligations. In a mutual-benefit bailment, the party holding the goods must exercise ordinary care, meaning the precautions a reasonable business would take to protect inventory. A negligent consignee is liable for the resulting loss.
The common risks are theft (shoplifting and employee theft), fire, water damage, and accidental breakage. The question is always whether the shop took reasonable steps to prevent what happened. A shop that leaves expensive jewelry in an unlocked case overnight and gets burglarized has a harder argument than one with proper security that still experienced a break-in.
Address liability in the agreement itself. Most well-run shops carry commercial general liability insurance with coverage for property in their care, sometimes through a “bailee’s customer” endorsement that pays claims for damage to consigned goods. Ask about the policy before signing. If coverage has gaps or high deductibles, you may want your own inland marine or personal property floater to fill the difference.
Some agreements cap the shop’s liability at a dollar amount or limit it to the minimum sale price minus commission. These caps are generally enforceable when both sides agreed to them voluntarily. Clauses that try to erase liability for the shop’s own reckless or intentional conduct are widely held to be unenforceable; no shop can contract its way out of responsibility for deliberately mistreating your property.
Taxes on Consignment Income
Income from consignment sales is taxable, and the IRS has said as much.6Internal Revenue Service. Fact Sheet on Reporting Auction Income and Consignment Sales How you report depends on whether you’re occasionally selling personal items or running a business.
If you’re an individual selling personal belongings, you only owe tax on the gain, which is the difference between what the item originally cost you and what it sold for, less the shop’s commission. If you paid $200 for a handbag and it sells on consignment for $150 after commission, you have a loss, and personal-use losses aren’t deductible. Most people consigning used personal items end up owing nothing because their goods sell for less than they paid. A collectible that appreciated in value is different: that profit is a capital gain.
If you consign regularly as a business, the income goes on Schedule C as self-employment income, and you’ll owe both income tax and self-employment tax on the net profit.
1099 Reporting Thresholds for 2026
Consignment shops generally are not required to issue a 1099-NEC or 1099-MISC to individual consignors, because the payment is proceeds from the sale of merchandise rather than compensation for services. For the 2026 tax year, the threshold for most 1099 reporting categories rose to $2,000, up from the previous $600 floor.7Internal Revenue Service. 2026 Publication 1099
Separately, if you receive payments through a third-party processor like PayPal, Stripe, or Square, the processor must issue a Form 1099-K when your gross payments exceed $20,000 and you have more than 200 transactions during the year.8Internal Revenue Service. IRS Issues FAQs on Form 1099-K Threshold Under the One, Big, Beautiful Bill Both thresholds must be met. Whether or not any 1099 lands in your mailbox, the income is still reportable.
Sales Tax
Sales tax is collected at the point of sale, so the shop handles collection and remittance in most states. The shop rings up the customer and is typically treated as the seller for sales tax purposes. If the shop fails to collect and remit, some states hold the consignor jointly liable, so confirming that the shop handles its sales tax obligations is worth a conversation before you sign. Rules vary by state, and some states have specific consignment provisions that differ from their general sales tax framework.
Consigning Vehicles and Other Titled Property
Vehicles, boats, and other titled property add a layer of rules the general consignment framework doesn’t cover. Most states require anyone selling vehicles on behalf of others to hold a dealer’s license and post a surety bond, which protects consumers if the dealer mishandles the transaction. Bond amounts and licensing requirements vary by state and can be substantial.
The title itself raises practical questions. In many states, the consigning dealer must obtain the title or a power of attorney from the owner before offering the vehicle for sale. After the sale, the dealer typically takes assignment of the title in the dealer’s name and then transfers it to the buyer. Don’t sign the title over to the dealer before you’ve agreed on final terms, and make sure the agreement spells out exactly how and when you get paid.
Vehicle consignment disputes are common enough that several states have enacted specific regulations covering disclosure, recordkeeping periods, and the dealer’s duty to identify consigned vehicles as distinct from the dealer’s own inventory. If you’re consigning a vehicle, check your state’s motor vehicle dealer regulations before signing. A dealer operating without the required license or bond is a risk not worth taking.