How to Meet Consignment Business Compliance Standards

The elements of a compliant business

Compliance isn't a one-and-done task you have to complete before opening for business. Sure, some of the categories outlined below can be automated more than others, such as meeting credit card information security standards. But as a whole, compliance is an ongoing process that must be completed year in and year out to avoid potential fines and lawsuits. 

So as you read through this article, we recommend listing each item in a Google Doc or Spreadsheet, then doing further research into other regulations you'll have to follow based on your city, county, or state. Then, over time, you can use that list as the basis for keeping track of new or updated requirements.

Taxes

We don't have to tell you why it's important to comply with tax regulations. In order to pay your taxes, you'll first need to register your business with your state, which you can do by going to your state's website or calling your state business administration. Then, you'll need to apply for an Employer Identification Number (EIN), which functions as your federal tax identification number, by using this IRS assistance tool.

You should also look up local tax accountants or CPAs who offer business services. Even if you don't file your taxes through them, they'll be able to guide you through the process of paying all relevant taxes, which can include:

• Sales tax

• FICA

• Self-employment tax

• Income tax

If you structure your business as an LLC (which you should; you can learn why in this article) and you're the sole owner, the IRS will functionally treat you as a sole proprietorship. Instead of paying taxes and filing returns as a business entity, you'll simply report all LLC profits and losses on your personal 1040 form. If your LLC is co-owned, then the IRS will treat it as a partnership, and each LLC owner will pay taxes on their share of the profits through their personal taxes. 

PCI Standards

Payment card industry (PCI) standard compliance refers to the regulations surrounding credit and debit card information security, which are defined and governed by the PCI Standards Council. The most recent version of the standards, PCI DSS v4.0, includes requirements like expanded multi-factor authentication, advanced password standards, and new e-commerce and phishing regulations.

Not complying with PCI standards can lead to stolen data, not to mention consequences like investigations, fines, and card replacement costs. Fortunately, modern card processing platforms make it easy for you to be PCI-compliant by building compliance into their software features. Self-validation is a highly labor-intensive process, so it's definitely worth investing in a system that does the work for you.

ADA Standards

Everyone deserves to enjoy consignment! Making your website easily accessible to all will go a long way towards ensuring business compliance.

The Americans with Disabilities Act (ADA) protects the right of all individuals, specifically those with disabilities, to access "places of public accommodations." According to the United States Department of Justice, this applies not only to buildings and physical locations, but also to online spaces like business websites. 

To ensure that your website adheres to ADA requirements, it's generally recommended that you follow Web Content Accessibility Guidelines (WCAG). WCAG is organized according to four key principles, which state that your content must be:

• "Perceivable - Information and user interface components must be presentable to users in ways they can perceive. This means that users must be able to perceive the information being presented (it can't be invisible to all of their senses)."

• "Operable - User interface components and navigation must be operable. This means that users must be able to operate the interface (the interface cannot require interaction that a user cannot perform)."

• "Understandable - Information and the operation of user interface must be understandable. This means that users must be able to understand the information as well as the operation of the user interface (the content or operation cannot be beyond their understanding)."

• "Robust - Content must be robust enough that it can be interpreted reliably by a wide variety of user agents, including assistive technologies. This means that users must be able to access the content as technologies advance (as technologies and user agents evolve, the content should remain accessible)."

Practically, these principles are applied in dozens of ways. You can find a full list of beginner, intermediate, and advanced WCAG applications here.

Consignor Contracts

Consignor contract compliance falls under the broader category of "contract compliance." This refers 1) to accommodating state-level regulations and 2) to adhering to all agreements defined in the contract. Some of the necessary terms and conditions include:

• Consignment split - how the sale amount for a given item will be split between you and your consignor. 

• Consignment period - how long items will be held on consignment, and what happens to them after the period ends; e.g., inventory will be donated if not picked up within 7 days of the end of the consignment period.

• Unclaimed property - unclaimed property laws vary from state to state, but generally speaking, you're required to report and turn over unclaimed property (inventory, credit, etc.) to the state after a certain period of time.

• Inventory management - you should establish the right in your consignor agreements to refuse inventory, modify prices and splits, and discount items as needed. 

There are a few other elements your consignor contracts should include, which you can find outlined in this example consignor agreement.

Lost & Unclaimed Property Laws

Lost and unclaimed property laws vary from state to state, but the need to comply with them is universal. Lost property is typically defined as any property---inventory, credit, cash, or anything else---unintentionally left behind by its owner, while unclaimed property may be intentionally or unintentionally left behind. In either case, you may need to turn the property over to the state after a certain period of time. Look up your state's regulations before taking any action on lost or unclaimed property.

Receipts

Even receipts have certain regulations that must be followed for them to be considered valid. For any item purchased between $5 and $20, you must give them a receipt upon request. If the item is over $20, you're required by law to give the customer a receipt, whether they request one or not.

Your receipts also have to contain specific articles of information:

• Your business name

• Your business address

• The amount paid for each item

• The total purchase amount

• The tax paid

• The purchase date

• The make and model of electronic items worth more than $100

Your receipts also can't reveal credit or debit cards' expiration dates. At the most, they can only show their last 5 numbers. 

Data Security

Digital privacy is crucial in any business, and consignment is no exception. You'll have access to the personal information of quite a few people, particularly your consignors, so it's vital that you keep their information secure. 

Both physical and digital information management systems can be compromised. Notebooks can be lost, laptops can be hacked, and passwords can be stolen. If you leave your laptop open at a cafe for a minute while you grab your drink from the counter, someone can easily swipe it and collect consignor and customer information, not to mention your own personal business data. As a general rule of thumb, keep any papers and digital databases secure by hiding notebooks, locking computers, and requiring multi-factor authentication logins.

There's no single law regulating security standards across all industries. High-level codes like the Federal Trade Commission Act and PCI DSS v4.0 protect consumer information in general, but more specific regulations are typically implemented at the state level. Once again, you'll need to get in touch with your state business administration to find out what regulations apply to you.

Insurance Requirements

Insurance is a must: no business is complete without it.

State or federal governments and lessors typically require businesses to hold a certain amount of insurance before conducting business or moving into a space. The necessary insurance policies often include:

• Worker's compensation

• A business owner's policy

• Consignment insurance

• Employment practices liability insurance

By now, you should know the drill: you'll need to look up your state's insurance regulations, but generally speaking, if you have the above four policies, you'll meet the most basic insurance requirements in the majority of cases.

Auditability and Accounting Software

This has less to do with accounting regulation compliance and more to do with anticipating the demands of finance-related situations you might face in the future. In the event of a financial audit, lawsuit, or refund, you want to be able to refer back to the details of a sale, employee paycheck, tax return, or business expense.

The best way to keep detailed records is to use accounting software. We recommend using Xero, which allows you to perform a wide range of accounting functions, including:

• Accepting payments

• Paying bills

• Running payroll

• Claiming expenses

For most business owners, it's not a question of "if" but "when" they'll need to access financial records, so having these records on hand in a platform like Xero will ensure you can easily find the information you need when you need it.

Federal and State Compliance

Most businesses don't need to comply with any federal regulations beyond paying their federal taxes and complying with the Affordable Care Act, which requires businesses with 50 or more employees to report to the IRS that they provide health coverage. If your business has any federal licenses, permits, or certificates, you'll need to keep those up-to-date, too (this also applies at the state, county, and city levels).

If you structure your business as an LLC, it's generally advisable to maintain an updated operating agreement, issue membership shares, record membership interest transfers, and hold annual meetings. It's also a wise idea to document any important business decisions. There are also some common filing requirements, which can vary based on your state and business structure:

• Annual report or biennial statement

• Statement filing fees

• Franchise taxes

• Initial reports following incorporation

• Articles of amendment
  
  

Summary

We've done our best to give you a thorough introduction to the most important regulations you'll have to comply with as a business owner, but it's important to note that there's no "one-size-fits-all" application of business requirements. As we've noted repeatedly, it's best to get in touch with your state's business administration to request any informative documents, infographics, checklists, and forms that will help you ensure complete compliance with all applicable regulations.