H&M, Primark, Etsy, and ThredUp demand sales-tax exemptions for resale clothing

A coalition of fashion brands and resale marketplaces wants to abolish the sales tax on resale clothing, arguing that because sales tax was collected when the items were new, taxing them when they’re resold amounts to double taxation.

Retail brands that have signed on to the effort include H&M, Primark, Arc’teryx, Lacoste, Stella McCartney, and Wilson Sporting Goods; resale marketplaces include ThredUp, Vestiaire Collective, The RealReal, Etsy, and Depop.

Spearheaded by the UK-based Ellen MacArthur Foundation, the effort to eliminate the tax on used clothing is part of a broader campaign to bolster the circular economy globally. A new report from the foundation also advocates for lowering labor taxes for jobs integral to the resale industry, including clothing sorters in warehouses and repair workers who mend garments to make them suitable to resell.

“Our focus is to get the largest brands to have a larger percentage of their revenue come from circular business models,” Danielle Holly, executive lead for North America for the Ellen MacArthur Foundation told Retail Brew.

When resale shoppers pay tax on used clothing, it’s “double taxation,” Alon Rotem, chief strategy officer at ThredUp, told Retail Brew.

“Used goods have already been sold once in the stream of commerce, so the government has already collected taxes on the item,” Rotem said. “It shouldn’t be taxed twice.”

While the coalition is new, the idea to abolish taxes on resale goods isn’t.

• James Reinhart, co-founder and CEO of ThredUp, was already advocating for removing the sales tax on secondhand clothing when Retail Brew interviewed him in 2022.
• During Earth Month in 2024, Ikea Canada started a petition on Change.org to eliminate Canada’s tax on secondhand items, and exceeded its goal of 35,000 signatures by more than 1,000.

Tax and mend: One way to help clothing brands boost the portion of their revenues that come from resale programs, Holly said, is “to decouple growth from production.”

The report noted that it can be more expensive for a company to resell a product than to manufacture one because only mass production enables economies of scale.

“Sorting, cleaning, and repairing 100 items of used clothing takes 100 times the effort of sorting, cleaning and repairing one,” according to the report, which uses the term “linear economy” to refer to new products. “In the linear economy on the other hand, increasing production leads to lower costs per unit produced, which is essential to price competitiveness.”

Along with being a resale marketplace, ThredUp partners with clothing companies including Tommy Hilfiger, J.Crew, and Cotopaxi to build their branded resale e-commerce programs through its resale as a service (RaaS) offering. For both aspects of its business, the company employs about 2,000 people for sorting and preparing the items to be resold.

If the salary tax that companies like ThredUp pay on behalf of these employees were lowered, it could help them attract, hire, and pay better wages to such employees, and in turn could help create jobs for domestic resale workers rather than jobs in offshore factories.

“In the circular economy industry…we’re talking about onshoring jobs in North America and bringing them to the United States” and “creating more jobs in the states of Georgia, Pennsylvania, Arizona, and Texas, where our distribution centers are,” Rotem said.

If resale companies could ease their wage tax burden by 20%–30%, “you would either be able to hire more people in the industry or you’d be able to pay them more, because your budget would allow it, and the job would become more compelling,” Rotem said.

“If governments are serious about circularity, they need to act by removing double taxation, reducing labor costs, and removing other barriers that hold resale back,” Leyla Ertur, chief sustainability officer at H&M Group, said in a press release announcing the initiative. “Fixing the economics of resale is one of the fastest and most concrete ways to scale circularity in fashion.”