Wholesale to galleries

Jewelry Discussion
1

While I was doing a show, I was approached by a gallery owner who is
interested in handling my work. They do consignment and also
wholesale. Their consignment is 60/40. I believe the artist gets the
60%, but I will have to check on that. They also do wholesale, but as
there were so many customers crowding around we did not really have a
chance to discuss any details. Their gallery is located out of town,
and is an established and reputable one so I have no qualms about
doing business with them.

I would much prefer wholesale, but have no idea what to charge for
my items? Is it 50% of the selling price? How many should I require
that they purchase?

Are there any other things I should be aware of—such as an
agreement to exchange unsold items after a period of time, for fresh
merchandise?

Alma

2

Hello Alma,

How nice to have the gallery opportunity presented. Do check the
Orchid archives. This discussion has occurred before, and is
generally based on your setting a wholesale price that gives you an
appropriate return on your investment of time, talent, and materials.
Once you have that amount determined, you then increase your retail
price to allow a reduction for that wholesale customer.

You also might consider creating a line specifically for galleries,
and priced accordingly. Then the question about pricing becomes
solely how much you want for the piece - the gallery can purchase
wholesale or work out consignment with you, based on that price.

Judy in Kansas, where spring is threatening. Cleaned up the garden &
flower beds… now to order seeds!!

3

Hi Alma - congrats!! To have a gallery come to YOU instead of you
having to market yourself to them - awesome!!

Some things I’ve learned - have a consignment agreement in writing,
after signing you keep a copy, they keep a copy. It should state you
are consigning X pieces, worth X wholesale, the gallery is
responsible for them while in their possession but they remain your
property (in case the gallery goes belly-up - you don’t want the
courts to count your pieces as their assets)- gallery will cover your
losses due to theft, loss or catastrophe, gallery will remit payment
on X day of the month, artist to get 60% of retailprice, any
markdowns will be taken out of the gallery’s share unless agreed upon
in writing with you, and anything else you think of. You will want to
ask ahead of time the gallery’s stand on competition (you stocking
another store in town or within 50 mile radius, etc.) - NOT their
permission but their preference - and whether or not they want your
contact info on your earring cards, tags etc. Some places like this,
some do not. Also ask them what is their preference on restocking -
some places like to call you, some want you to call them every 6
months or whatever. Supply them with a short bio, maybe a pic of you,
and make sure your retail price is the same in your booth, on your
website, and in their store - otherwise you are undercutting them. I
stop in my galleries at least once a year to reconcile my stock list
with their physical inventory, and to swap out older pieces for
fresh. This is where you will find $200-$400 worth of stuff missing -
they need to cover that, as it either was shoplifted on their watch,
or they sold it without paying you for it.

For wholesale, none of the above need apply. You have a wholesale
price, which should be half of your retail price (keystone) but if
you haven’t priced your retail correctly, make sure 1/2 of your
retail price is not a loss for you. If it is, adjust your retail
price or take the hit this time and then adjust your retail prices.
They get to put whatever price they want to on your work if they pay
you up front. You might still supply them with a bio and a pic, ask
about contact info on your tags, and ask when they would like a call
from you, or if they prefer to call you instead for more items.
Minimums exist to discourage shop owners from buying one piece, or
two, for themselves, and/or not representing your line
appropriately. You get to decide if 2 or 6 pieces, or $100 or $300
minimums, would adequately represent your line.

Any questions, feel free to email me. I’ve done 2 years of research
on this topic, and can’t really recommend one source (except for
Ganoksin, of course) for gathering your info. One more thing -
according to HR BLock, you have to pay taxes on the inventory you
stock galleries with - after a few, it adds up. You might consider a
proposal to your new gallery that, while you prefer wholesale, you
will consign with the understanding that after one year or $X? in
sales, they will purchase from you outright, and you also might
consider offering credit in exchange for anything which has not sold
after one year. Up to you, but it takes to risk out of purchase for
them.

(To be clear, you do not refund their purchase after one year, you
offer cost of the item towards another item. That way, you still
have your line with them, your relationship with them, and they have
fresh items to sell.)

Again, congratulations, blessings,

Susan “Sam” Kaffine
Sterling Bliss

4 
...according to HR BLock, you have to pay taxes on the inventory
you stock galleries with - after a few, it adds up....

Could you clarify what you mean by this? Inventory you have on
consignment is still inventory and should be included in your year
end inventory. As you have not sold it, it doesn’t count toward
income, but as you still have it “in stock” it does count as an
asset. Am I missing something?

Mary Ellin D’Agostino, PhD
www.medacreations.com

5

Thanks Judy, Sam and all the other wonderful people who have
contacted me on and off line with advice about wholesale to galleries.
As one of the galleries is located out of town, a good 4 to 5 hour
drive from Portland, Or.

I will opt for wholesale and not consignment. Seems a lot simpler,
with less paperwork, and concern as to being paid on time.

I have gotten such wonderful advice and suggestions from you all.
Thank you very very much.

Alma

6 
Could you clarify what you mean by this? Inventory you have on
consignment is still inventory and should be included in your year
end inventory. As you have not sold it, it doesn't count toward
income, but as you still have it "in stock" it does count as an
asset. Am I missing something?

Very short answer to a question that depends on what your business
structure is. But basically you have it right, it is an asset, BUT
you paid for that inventory with income so it is considered income.
Inventory is not an expence, the IRS does not care if you bought a
car, dog food, or jewelry with the money you made, it is still money
you made. If you have a loan for the inventory thats a different
story.

Bill Wismar

7 
Very short answer to a question that depends on what your business
structure is. But basically you have it right, it is an asset, BUT
you paid for that inventory with income so it is considered
income.

I suspect that you’re a much better jewelry artist than you are an
accountant :wink:

Jamie (retired CPA)

8 
Very short answer to a question that depends on what your business
structure is. But basically you have it right, it is an asset, BUT
you paid for that inventory with income so it is considered
income. Inventory is not an expence, the IRS does not care if you
bought a car, dog food, or jewelry with the money you made, it is
still money you made. If you have a loan for the inventory thats a
different story.

Ok, as far as it goes. However, you inventory only counts as “income”
once. The value of what is carried forward from year to year is not
taxed. So if you always have $50,000 in inventory at the beginning
and end of the year, it is not subject to tax after the first year.
If however, your inventory increases or decreases from the previous
year’s inventory, then the difference comes into the tax equation.

Mary Ellin D’Agostino, PhD
www.medacreations.com

9 
Could you clarify what you mean by this? Inventory you have on
consignment is still inventory and should be included in your year
end inventory. As you have not sold it, it doesn't count toward
income, but as you still have it "in stock" it does count as an
asset. Am I missing something?

Mary Ellin - Yes, that is what I was told - my inventory, on
consignment, is considered MY asset on which to pay taxes. I bring
this up because I was unaware of it in the beginning, and because
stocking a few galleries with $1000+ (wholesale) worth of goods,
plus of course my own in ventory for shows and my materials, adds up
to $$, so if given the choice, that’s another argument in favor of
selling wholesale rather than consigning. (My other kvetch with this
system is that the courts apparently will consider those assets to
be the gallery’s, should one go under. So it’s mine to pay taxes on,
unless the gallery goes under, in which case it belongs to the
gallery.

Clear as mud?

Susan “Sam” Kaffine
Sterling Bliss

10 
Inventory is not an expence, the IRS does not care if you bought a
car, dog food, or jewelry with the money you made, it is still
money you made.

I don’t know if there’s some crossed wires here but of course
inventory is a business expense and therefor deductable. Dog food
would NOT be a legitimate business expense(unlees you had guard dogs
on premises). Cars…legitimately sometimes, in practice quite a bit.

is considered MY asset on which to pay taxes.

Specifically, what taxes are you talking about? I have read a few
returns and P&L statements from my various accountants over the
years…can’t recall a line that read “tax on inventory $XXX”. Maybe
it varies but in this locale inventory is not taxed as personal
property by the towns.

11 
The value of what is carried forward from year to year is not
taxed.

Maybe not by the feds as income, but if you live in a city, county
and/or state or country that considers your inventory to be a taxable
asset, then you must pay property tax every year on the total
accumulated value. That’s one of the expenses that should be figured,
or at least kept in mind when you figure your cost in a particular
piece. If you have a piece for five years, in some instances the cost
of owning that piece can be increased significantly when property tax
is figured in.

You have paid property tax on it five times and its value hasn’t
gone up, it’s actually gone down - you obviously can’t sell it
without reducing the price. But the money you have invested in owning
that piece continues to goes up every year. At some point the lines
on the graph cross and you’ve lost money even if you sell it for more
than you originally paid for it. Another very good reason to move
inventory out as quickly as possible. Old inventory costs real money!

Dave Phelps

12 
Maybe not by the feds as income, but if you live in a city, county
and/or state or country that considers your inventory to be a
taxable asset, then you must pay property tax every year on the
total accumulated value.

Wow. I had no idea. They don’t tax stuff like that where I live! Only
real estate and vehicles that have to be licensed (cars, boats,
trailers). If I take something out of inventory for personal use, I
do have to pay sales/use tax though!

Mary Ellin D’Agostino, PhD
www.medacreations.com

13 
I don't know if there's some crossed wires here but of course
inventory is a business expense and therefor deductable. Dog food
would NOT be a legitimate business expense(unlees you had guard
dogs

If inventory is an expence, why is it in the asset category of the
balance sheet. When the item is sold, the cost of goods is an expence
but then it is not inventory anymore. You are correct, there is no
line that says tax on inventory. You need to re read my email, I did
not say dog food was an expence. I said the IRS does not care if you
bought dog food or jewelry with the your profit, your net profit is
income, and therefore taxable (not talking about corporations).

And yes Jamie, I am a much better jeweler than accountant, thats why
I give my CPA a small fortune every year.

Please explain why I am wrong, so I can send it to my CPA and refile
my return for last year.

Bill Wismar

14 
And yes Jamie, I am a much better jeweler than accountant, thats
why I give my CPA a small fortune every year.

Please explain why I am wrong, so I can send it to my CPA and refile
my return for last year.

Bill might even be a better accountant than I, but this one is
simple. There are a few “special taxes” - property tax is the main
one, which you pay annually, profit or not. Otherwise, you pay taxes
on income - sometimes that income is (technically) a product. If you
trade and gain, then you are supposed to report the difference. But
you no more pay (income) taxes on your existing inventory than you
do on your shoes and clothes. Business taxes are tied to the size of
your business, and inventory is a part of that. If it’s consignment
or memo, then it’s not your property, it’s borrowed. In the instant
that you sell it, it becomes yours, you pay the vendor and THEN you
pay tax on the income/profit. That’s literally why it’s called
income tax.

15 
And yes Jamie, I am a much better jeweler than accountant, thats
why I give my CPA a small fortune every year. Please explain why I
am wrong, so I can send it to my CPA and refile my return for last
year.

This thread reminds me of “Who’s on First” by Abbot and Costello.
Some people are talking about consigned inventory from the
consignee’s standpoint.

Other’s from the consignor’s standpoint. Two sides of the same coin,
but totally confusing without specificity.

Some people are talking about income tax (federal, state, local, US,
non-US???) and others are talking about personal property tax
(typically state or local in the US).

Finally, there is the discussion of inventory as an expense. Others
(correctly) say inventory is an asset. Carefully reading the thread
indicates that it’s just a layman’s incorrect usage of the
terminology. However, that incorrect usage is similar to referring to
every clear gem as a diamond, it’s not correct. Inventory IS an
asset. The associated or related expense that you report as a
deduction on your income tax return is called “Cost of Goods Sold.”
It is computed as (a) Beginning Inventory; plus (b) Purchases; minus
(c) Ending Inventory (not including the computation of labor and
overhead in some cases, which will only confuse this issue). You
will find this on IRS Form 1040 Schedule C for unincorporated
businesses and IRS Form 1120 (or 1120S) Schedule A for corporations.
But inventory is not an expense.

I suspect that anyone who’s still reading has a headache by now :wink:
I’d recommend that you don’t bother to send this to your CPA,
because he’ll just charge you even more $$$ to confirm the above.

Jamie

16

Hi Bill,

I don't know if there's some crossed wires here but of course
inventory is a business expense and therefor deductable. If
inventory is an expence, why is it in the asset category of the
balance sheet.

Hopefully I can shed some light on this subject via an example. In
addition to being a part-time jewelry artist, I also run a company
where we sell audio CDs, and we run into this inventory/asset detail
every year. We have the CDs manufactured at a cost of about $1.00
each. We sell them for a retailprice of $19.95. When we file the
taxes for our corporation, we list the cost of manufacturing the CDs
in the expense category, and in the asset category we’re required to
list the value of any inventory on hand at the end of that year,
based on what it cost us to manufacture that inventory (NOT based on
the retail price). So if we make 10,000 CDs and sell 8,000 of them,
we’ll have 2,000 of them in our inventory at the end of the year. The
total expense would be listed as $10,000 and the inventory would be
listed as an asset valued at $2,000.

To carry over that example to jewelry-making: You list the cost of
your supplies/components as expenses. If you have any unsold pieces
of jewelry in your inventory at the end of the year, you list them as
assets value= d at the total price of the materials or components
that were used to create them. They’re not listed as assets valued at
their retail or whol= esale selling price. So if it costs you $25 in
supplies to create a piece and you set a retail price of $150 for
that piece, it is valued at $25 when listing your inventory as an
asset on your taxes. In essence, the item’s value as an asset is
based on how much money was tied up in the cost to manufacture it.
The cost of your time spent creating the item isn’t factored into its
value, nor is the mark-up for selling it at a wholesaleor retail
price. (This is, of course, only applicable to artists filing taxes
in the U.S.; I’m not familiar with the tax situations in other
countries.)

Kristen

17

Sam emailed me personally on the question of tax on inventory, which
I reminded her that I’m no accountant. But I went searching and
found something that surprised me. I’m just going to paste my reply
to her here, since it matters:

Well, Sam, you ask the question, you get answers, sometimes. As I
said on Orchid, I’m not an accountant. After reading your mail, I
went looking for some documentation, and I discovered that there is,
indeed, an inventory tax in 15 states - all of which are trying to
repeal it. That seems like a bizarre, draconian tax to me, but I have
never done business in any of those states, though I lived in a
couple. The inventory must be IN the state in question. Here in
California, inventory is just as I said on Orchid - no different than
your clothes or shoes, which you don’t pay taxes on (doh - of
course…). What a strange concept that a state would compel
businesses to pay ongoing tax on goods that haven’t sold… The
simple link that says it is here:

http://answers.google.com/answers/threadview/id/479550.html

I just searched for “inventory tax” which first led to the IRS, which
says nothing. That makes perfect sense because it’s not federal, it’s
state. Here in California, inventory is mostly a way of valuing COGS
and valuing the business as a whole for business taxes, but there is
no tax on inventory as such.