I noticed that there are green boxes in the NPC shop when you already own an item in the shop, either in your inventory or in your merchant shop. I wanted to know, do the green boxes also account for items in your collections, or just in your inventory or stocked in your shop?

I tested this out with one of my items. The green box only appears if you have that item in your Inventory. It can't "see" items in your Storage or Collections. When I put the item in a collection or my storage, the green box disappeared. I am a Rancher, so I can't test out the Merchant Shop, however, I would guess that it can't see that either.

I tested it out in my merchant shop and it did register the items as green for some reason! But good to know that it doesn't recognize the ones in the collection.