Retail Coalition Launches Campaign to Exempt Secondhand Goods From Sales Tax

A coalition of prominent fashion brands and online resale marketplaces has launched a coordinated campaign to eliminate sales taxes on secondhand goods, arguing the practice constitutes an unfair form of double taxation. The initiative, reported at the end of June, targets state-level tax laws, which currently require sellers to collect and remit sales tax on used items just as they do for new ones.

The group’s central argument, as articulated by participants, is that sales tax has already been paid on these items during their initial retail purchase. “Used goods have already been sold once in the stream of commerce, so the government has already collected taxes on the item,” Alon Rotem, chief strategy officer at resale platform ThredUp, told Retail Brew. “It shouldn’t be taxed twice.” The campaign aims to reclassify these transactions to foster growth in the burgeoning circular economy.

While the “double taxation” argument is compelling from a policy perspective, business owners in the resale market should not alter their current operations. This campaign represents the beginning of a long and complex legislative effort that would need to succeed in multiple states, not a change in current law. In our experience, the most immediate and challenging issue for online sellers is navigating the existing web of state-specific sales tax nexus laws established by the Supreme Court's Wayfair decision. Adding a new, non-uniform exemption for secondhand goods could introduce significant administrative complexity, requiring businesses to meticulously segregate new and used inventory and configure e-commerce systems to handle different tax treatments that could vary from state to state. Our view is that while supporting sustainability is a worthy goal, the proposed solution could create more compliance headaches than it solves. For small and mid-sized businesses navigating these complex sales tax rules, C&S Finance Group LLC provides expert tax preparation and compliance services. Visit us at csfinancegroup.com to ensure your business remains compliant with today's laws.

Beyond the sales tax issue, the coalition is also advocating for tax incentives related to the labor-intensive nature of the resale industry. The group contends that unlike the mass production of new apparel, which benefits from significant economies of scale, the resale model relies heavily on manual labor for tasks such as sorting, cleaning, repairing, and listing individual items. Preparing 100 unique used garments for sale requires substantially more work than manufacturing 100 identical new ones. To offset this inherent cost disadvantage and encourage the creation of green jobs, the coalition is pushing for lower labor taxes for workers in these roles.

Successfully implementing a sales tax exemption for secondhand goods presents a formidable legislative challenge. Sales tax is governed at the state and local levels, meaning the coalition cannot achieve its goal through a single federal law. Instead, it would need to lobby lawmakers in dozens of states to amend their individual tax codes. As a general rule, states consider all sales of tangible personal property to be taxable unless a specific, legally defined exemption applies. California's tax authority, for example, explicitly states that all retail sales are taxable unless the law provides a specific exemption, putting the burden of proof on the seller to document why tax was not collected.

State tax codes are already filled with such exemptions, which apply to specific products, purchasers, or uses. Common examples include exemptions for groceries, prescription drugs, manufacturing equipment, and sales to government agencies or nonprofit organizations. This shows that creating a product-based exemption for used goods is legally plausible and would follow established legislative patterns. However, it’s important to distinguish the coalition’s proposal from the existing “sale for resale” exemption.

Currently, most states allow a business to purchase inventory without paying sales tax by providing the supplier with a resale certificate. This exemption is designed for business-to-business transactions and prevents tax from being assessed at multiple points in the supply chain before the final sale to a consumer. The coalition's proposal is fundamentally different: it seeks to exempt the final sale of a used item from a business to an end consumer, removing that transaction from the sales tax base entirely.

This push comes as many states are looking for ways to expand, not shrink, their tax bases to fund public services. The rise of e-commerce and the digital economy has led to policy discussions about modernizing tax codes, with some policy experts suggesting states should tax digital advertising and other services that are currently untaxed. A proposal to carve out an exemption for the rapidly growing resale market would run counter to this trend and likely face resistance from state revenue departments concerned about the fiscal impact.

Should the campaign succeed, the operational consequences for small and mid-sized businesses would be significant. Retailers selling a mix of new and used goods would need to implement rigorous inventory management systems to track and categorize each item correctly. Their point-of-sale and e-commerce platforms would require reconfiguration to apply sales tax to new items but not to used ones, a complication that would be magnified if only some states adopt the exemption. This could create a compliance patchwork, increasing the administrative burden on multi-state sellers.

The coalition's campaign marks the first major, organized push to secure preferential tax treatment for the secondhand market. Business owners and industry observers should now watch for the introduction of specific bills in state legislatures in the coming sessions, as the group's success will ultimately depend on its ability to translate its policy arguments into enacted law.