Consignment shops work by selling your belongings for you and taking a cut. You bring in items, sign a contract, and the shop displays and prices them for a set window — usually 60 to 90 days. You keep legal ownership until a buyer pays. When something sells, the shop keeps a percentage (commonly 40 to 50 percent) and pays you the rest on a schedule set by your agreement. If an item doesn’t sell by the end of the contract period, you either take it back, let it be donated, or accept whatever the contract’s default terms say.
That’s the outline. The details underneath it — what shops will and won’t accept, how the money moves, who pays if something gets stolen, and what the IRS wants from you — are where consignors get tripped up.
What Shops Will and Won’t Accept
Every shop curates around a target customer. Items need to be in excellent condition: no damage, stains, odors, or heavy wear. Electronics and appliances need to work. Clothing follows seasonal intake, so most shops rotate quarterly and won’t look at winter coats in July. Brands with strong resale value get priority because they move faster.
Beyond quality, some items are illegal to resell at all. Federal law bars anyone, including consignment shops, from selling any product subject to a Consumer Product Safety Commission recall. The category that catches people most often is children’s products: drop-side cribs are banned outright, most cribs made before June 2011 can’t be resold, and infant walkers, bath seats, and toy chests all face specific federal restrictions. Reputable shops screen for recalled items at intake, but the responsibility runs both ways. You can check the CPSC’s searchable database at cpsc.gov before dropping anything off.1CPSC.gov. Resellers Guide to Selling Safer Products
The Contract You Sign
Before the shop takes possession of anything, both sides sign a written consignment agreement. It’s the only thing standing between you and a messy dispute later. Read it. A solid contract covers:
- Your name, address, and contact information, plus the shop’s details.
- An itemized inventory list with brand names, sizes, colors, and unique features for each piece. Vague descriptions like “blue dress” invite trouble. The more specific, the better.
- The contract duration, usually 60 to 90 days.
- What happens to unsold items after the contract ends: returned to you, donated, or disposed of. If you care about getting things back, make sure “return to owner” is what’s selected. Unwanted donations of sentimental or high-value pieces are one of the most common consignment complaints.
- Pricing authority — whether the shop has sole discretion or whether you can set a minimum floor price.
- The profit split and the markdown schedule that reduces prices over time.
- Who bears the risk if items are damaged, stolen, or destroyed while in the shop’s possession.
That last point is the one most consignors overlook. The parties are free to allocate risk of loss however they want through a contract provision, and many commercial agreements require the shop to carry insurance naming the consignor as loss payee. Smaller retail shops don’t always offer that protection. Ask before you sign.
Pricing, Splits, and Markdowns
Shops set prices based on current resale market conditions, the original retail price, brand demand, and the item’s condition. Most contracts give the shop sole discretion, though some let you set a minimum. For anything valuable, negotiating a floor price into the contract is worth the conversation.
The profit split is the most important number in the agreement. Common structures range from 50/50 to 60/40, with the larger share going to the consignor. Items that eat up floor space, like furniture and exercise equipment, often shift the split toward the shop because the opportunity cost of the real estate is higher. Luxury items that move fast at high margins sometimes get a better split for the consignor.
Nearly every contract also includes a markdown schedule to move stale inventory. A common structure drops the price by 20 percent after 30 days on the floor, with a steeper cut of up to 50 percent after 60 days. Those reductions eat into your payout. If you’d rather pull an item than let it sell at a deep discount, make sure the contract lets you reclaim it before the markdown hits.
Drop-Off and What Happens Next
Most shops require a scheduled drop-off appointment, sometimes weeks out, because intake takes staff time. Some locations run walk-in days on a first-come basis, but expect a wait. Bring items clean, pressed if applicable, and organized. Shops are more likely to accept borderline pieces when they don’t have to prep them.
During intake, staff inspect each item for flaws you may have missed: loose buttons, small stains, scuffed soles, battery corrosion. Anything that fails inspection gets rejected on the spot. Accepted items are tagged with a unique identifier tied to your account, and many shops photograph each piece for condition documentation and online listings.
You should walk out with a receipt or digital inventory log listing every accepted item. Keep it. That log is your proof of what you handed over and the condition it was in. Processing times range from same-day to a week or more, depending on the shop’s volume. Modern consignment software often gives you an online portal where you can see which items are listed, what they’re priced at, and whether anything has sold.
How and When You Get Paid
Payout timing depends on the shop. Most run monthly or biweekly cycles rather than paying out immediately after each sale. Common methods include mailed checks, direct bank transfers, and store credit. Some shops offer a better split percentage if you choose store credit, since it keeps the money inside their business.
Expect a short holding period between a sale and your payout. Shops hold funds as a buffer against buyer returns and credit card chargebacks. If a customer disputes the charge through their bank, the shop needs that cushion to avoid paying you from money it hasn’t actually collected. Once the hold clears, the shop issues your share minus its commission.
Save every payout receipt and keep your own running record of what was consigned, what sold, and what you received. Those records matter at tax time.
Who Pays If Something Is Lost or Damaged
The moment you hand items over, a question most people never think to ask becomes important: who pays if something is stolen, broken by a customer, or destroyed in a fire? The answer sits inside your contract. Default rules let the parties allocate risk however they want, and many commercial agreements shift all risk to the shop once it takes possession.
In commercial consignment arrangements, it’s standard for the shop to carry insurance covering the cost of consigned goods and to name the consignor as loss payee. Smaller independent shops may carry limited coverage, or none. Before consigning anything valuable, ask directly: Do you carry insurance on consigned inventory? What’s the per-item limit? What’s the deductible? Vague answers mean you’re gambling.
For high-value pieces like fine jewelry, original artwork, or designer furniture, check whether your own homeowner’s or renter’s insurance covers property temporarily held by a third party. Some policies extend coverage. Many don’t. A scheduled personal property rider can fill the gap, but it costs money, and that cost belongs in your calculation of whether consignment makes sense for that particular item.
Protecting High-Value Consignments
Consignment transactions involving goods worth $1,000 or more per delivery generally fall under Article 9 of the Uniform Commercial Code, which treats the arrangement as a secured transaction.2Legal Information Institute. UCC 9-102 Definitions and Index of Definitions Under UCC Section 9-319, if you haven’t “perfected” your ownership interest, the shop’s creditors and buyers can treat your goods as if they belong to the shop.3Legal Information Institute. UCC Article 9 – Secured Transactions
Perfecting means filing a UCC-1 financing statement against the shop in the correct jurisdiction, a public filing that puts the world on notice that the goods are yours, not the shop’s assets. Skip this step and if the shop goes bankrupt, you may be treated as an unsecured creditor standing in line behind banks and landlords rather than as an owner reclaiming property.
For a handful of designer handbags, the filing hassle isn’t worth it. For a $15,000 Persian rug or a collection of fine art, it is. Some states also provide trust-based protections for specific categories like fine art, where the consigned work is automatically held in trust and shielded from the shop’s creditors. These protections vary by state, so check your local statutes if the goods are high-value.
Taxes on Consignment Income
Money you earn from consignment sales is generally taxable income, whether or not you receive any IRS reporting form.4Internal Revenue Service. Are You Making Extra Cash Selling Stuff or Providing a Service The IRS treats consignment proceeds as either ordinary income or business income depending on your circumstances, and in some situations the gain may qualify for capital gains treatment.5Internal Revenue Service. Fact Sheet FS-2007-23 – Reporting Auction Income and the Tax Gap
If you sell personal items for more than you originally paid, the profit is taxable. If you sell them for less than you paid, which is the case for most used clothing and household goods, you have no taxable gain. But here’s the catch: you cannot deduct the loss either. The IRS does not allow capital loss deductions on the sale of personal-use property.6Internal Revenue Service. Publication 544 (2025), Sales and Other Dispositions of Assets Selling your $800 jacket for $200 does not create a $600 write-off. The loss simply doesn’t count.
The picture changes if you regularly consign goods as a business. Business sellers can deduct ordinary and necessary expenses like consignment fees and commissions, and they report income and expenses on Schedule C.5Internal Revenue Service. Fact Sheet FS-2007-23 – Reporting Auction Income and the Tax Gap The line between cleaning out your closet and running a resale business is a judgment call, but frequency, volume, and profit motive all factor in.
1099 Forms and What You’ll Actually Receive
Consignment shops are generally not required to issue 1099-NEC or 1099-MISC forms for merchandise sales, because the payment represents proceeds from the sale of your property rather than compensation for services. Form 1099-K, meanwhile, is issued by third-party settlement organizations like PayPal, Venmo, and Stripe, not by the consignment shop itself.7Internal Revenue Service. About Form 1099-K, Payment Card and Third Party Network Transactions The 1099-K reporting threshold reverted to $20,000 in gross payments and more than 200 transactions under the One, Big, Beautiful Bill.8Internal Revenue Service. IRS Issues FAQs on Form 1099-K Threshold Under the One, Big, Beautiful Bill If a shop pays you through one of these platforms and your total payments exceed the threshold, the platform may issue a 1099-K. A shop writing you a check is not a third-party payment network.
Regardless of what paperwork you receive, the income is still reportable. Keep your own records of every sale and payout throughout the year.
Sales Tax
In virtually every state that collects sales tax, the shop is responsible for charging the buyer, collecting the tax, and remitting it to the state revenue department. You generally don’t need to worry about sales tax obligations as the consignor. Your payout is calculated from the pre-tax sale price according to your agreed split.
Counterfeits and Authentication
Selling counterfeit goods through a consignment shop creates legal exposure for both you and the business, even if neither of you knew the item was fake. Under the Lanham Act, a trademark owner can sue anyone in the distribution chain for selling counterfeit merchandise. When use of a counterfeit mark is intentional, federal law requires courts to award three times the seller’s profits or three times the trademark owner’s damages, whichever is greater, plus attorney’s fees, unless the court finds extenuating circumstances.9GovInfo. 15 USC 1117 – Recovery for Violation of Rights Even offering a counterfeit item for sale, without completing the transaction, can trigger liability.
That’s why reputable shops dealing in luxury brands invest in authentication. Large platforms employ dedicated teams that check stitching patterns, logo typography, serial numbers, hardware quality, and paperwork. Some use AI screening to flag suspicious listings before a human authenticator touches the item. Smaller local shops rely on the owner’s expertise or third-party authentication services.
As a consignor, the safest approach is straightforward. Keep your original receipts and proof of purchase, especially for high-end items. If you can’t verify where something came from, think carefully before consigning it. A shop that rejects an item over authentication concerns is doing both of you a favor.