Consignment shops and 1099 requirements

[mel3121]

Does a consignment shop which sells individual's personal items for them, have to file Forms 1099 Misc for payments totaling over $600? These are used items.  Or are these payments considered for "merchandise" which the IRS says a Form 1099-Misc is not required. 

[TomK100]

Per the IRS, if you pay an individual more than $600 in a tax year, then you are required to issue the 1099-MISC.  

For more information, please read IRS publication: Instructions for Forms 1099-MISC and 1099-NEC

[Opus 17]

If you are buying merchandise and reselling it, a 1099 is not required.

As a consignment shop, you are providing a place for others to display their merchandise, you process the payments and keep a percentage and pay the rest to the owner.  You are required to issue 1099s.  (You are also required to collect your vendors' tax ID numbers using form W-9.)

[AmeliesUncle]

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@Opus 17 wrote:

As a consignment shop, you are providing a place for others to display their merchandise, you process the payments and keep a percentage and pay the rest to the owner.  You are required to issue 1099s.  (You are also required to collect your vendors' tax ID numbers using form W-9.)

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Wouldn't it be the other way around?  The Consignment Shop is RECEIVING money (via commissions), not paying money (they don't own the items).  If the individuals' activity rose to the level of a business, the individuals would need to issue a 1099 to the Consignment Shop.  Right?

[Opus 17]

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@AmeliesUncle wrote:

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@Opus 17 wrote:

As a consignment shop, you are providing a place for others to display their merchandise, you process the payments and keep a percentage and pay the rest to the owner.  You are required to issue 1099s.  (You are also required to collect your vendors' tax ID numbers using form W-9.)

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Wouldn't it be the other way around?  The Consignment Shop is RECEIVING money (via commissions), not paying money (they don't own the items).  If the individuals' activity rose to the level of a business, the individuals would need to issue a 1099 to the Consignment Shop.  Right?

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The consignment shop is the one actually making the payments, so I would say the consignment shop must issue the 1099s.  Conceivably, the consignor and consignee have to 1099 each other, under your argument.  But the business that is actually making the payment is the consignee.  

[AmeliesUncle]

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@Opus 17 wrote:

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The consignment shop is the one actually making the payments,

I admit that I'm not overly familiar with how consignment shops work, but I view it as the purchaser is making the payment.  The consignment shop does not own the item and is just the middle-man, so it is just forwarding the money from the purchaser to the seller (and keeping a commission).

[Critter-3]

This is similar to the property manager for a rental ... the manager takes in the money for property they do not own and keeps a portion for themselves & expenses paid and the rest is sent to the owner to which they must 1099 at the end of the year. 

So if the consignment shop sells the items and takes in the money and then keeps a portion and remits the rest to the owner of the items then they are also required to 1099 those folks.  And with the new rules anything $600 or more must not get a 1099 issued.  

Both of these businesses will report ALL the income they take in on their returns then deduct the expenses they paid out which includes the total they 1099 to others.  

[Opus 17]

@AmeliesUncle 

It is the consignment shop owner or their employee who actually operates the cash register, actually collects the cash, deposits it into their bank account, and then issues the remittances for the consignees’ shares.  Follow the money.  

[AmeliesUncle]

Okay, Critter's point is a good comparison, and is correct the property management owners need to do that, and consignment shops seem to be a similar concept.  Thank you.

As for the "follow the money", that is not always accurate.  For example, sales tax.  In most cases Sales Tax is not part of income; it is merely being held and forwarded to the proper 'owners' (the government).