May 7, 2010
Some Tricky Issues When you Sell Stuff On Consignment
Some Tricky Issues When you Sell Stuff On Consignment Cliff Ennico www.creators.com #147;I am the owner of an antique mall. I sometimes sell items for others on consignment, while some others pay me rent to place their items in my store. I sell the items and collect the sales tax, which my store mails in to the state quarterly. I then keep a consignment fee, and pay the excess over to the seller. The money the sellers make on their items is given to them through my business checking. My accountant claims I am to issue each of my consignment sellers a 1099 form at year's end if I#146;ve paid them more than $600.00 during the year. I am only the middleman for the transactions from seller to buyer. The individual sellers do not in any way work for me, nor do they invest time in the process of these transactions. I am told by many people in this same business that she is wrong. She insists she's right.#148; And so she is. Even though you are a #147;middleman#148;, you are legally required to prepare and send a 1099 to each consignment seller, because they have no incentive to report their receipts to the IRS. According to CPA and tax expert Joseph Sweeney ( joe_sweeney@att.net ), if you sell an antique (for more than $600) to a business, the business is required to send a 1099 to you; you then have to issue a 1099 to the original seller to establish that he or she has the ultimate liability to pay income tax on the sale. If the buyer is an individual consumer, he or she does not have to send a 1099 to you, but you must send a 1099 to the consignment seller if the #147;net#148; to the seller exceeds $600. If you pay less than $600 (total) to a seller during the year, or if your seller is a corporation or nonprofit organization, you do not have to send a 1099 at year#146;s end. If your seller is a partnership or limited liability company (LLC), you still have to send the 1099, according to Sweeney. #147;I am a very successful eBay Trading Assistant. I am trying to get some type of insurance on the items I sell/store for my client's. I currently store these items in a climate controlled storage unit separate from my office. Many of the insurance companies do not understand eBay nor offer me a suitable policy to cover this. The longer I go without the insurance the more vulnerable I feel I am as a business. Any help or advice would be appreciated.#148; According to business insurance expert Susan Krasnow ( susan.krasnow@nicholsonassoc.com ), it#146;s very difficult to get property/casualty insurance for goods you hold on consignment for others. #147;People in this type of business normally carry lots of different inventory, everything from estate jewelry to automobiles, so it#146;s difficult for insurance companies to assess the risks and write a policy that makes sense,#148; she explains. One possibility, according to Krasnow, is to contact Lloyd#146;s of London ( www.lloyds.com ), which has long been famous for underwriting risks no other insurance company will touch. Another possibility is to consider warehouseman#146;s, or bailee#146;s, insurance. While you probably don#146;t consider your business a #147;warehouse#148;, that is technically (and legally) what you are when you accept goods on consignment. If you have companies in your area that conduct estate auctions, pay them a visit, pretending to be a customer. Tell them you are very concerned about the goods being damaged while they are being held for sale, and ask them who they use for coverage. If two or more companies use the same insurance carrier, contact them and get a premium quote. When doing business on a consignment basis, it#146;s important to have a written agreement with the people who consign stuff to you (called #147;consignors#148; in legalese). A good attorney can draft one of these for you (in plain English, and no more than two pages in length) for under $500. Here are three provisions that should be in every contract for the consignment of goods: a provision that prohibits the consignor from selling the goods to someone else while you are trying to sell the goods on consignment; a provision requiring the consignor to pay you a fee (sometimes called a #147;breakage fee#148;) if they withdraw an item from consignment before the contract term ends; and a #147;successors and assigns#148; clause that keeps the contract alive if the consignor dies or becomes permanently disabled during the contract term. Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. His latest book is #145;Small Business Survival Guide#146; (Adams Media, $12.95). This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2006 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com.

Posted by Staff at 1:48 AM