Rob Boot, 62, who sells flags from his home in Carrum in Melbourne, raised the black-and-white IS flag for all driving along the Nepean Highway to see, The Age reported.
"I am not endorsing the terrorist group, just making a buck," said Boot. "A man paid Aus $40 ($35) for the flag on Wednesday. It was the second I had in stock after selling another one two weeks ago," said Boot.
A similar flag was auctioned at AUS $2,000 at a packed mosque in western Sydney last week.
A similar flag was auctioned at 2,000 Australian dollars in Sydney last week
Boot said there was nothing wrong with flying and selling a flag used by the brutal terrorist group who exercise torture and murder in Iraq and Syria.
"I simply sell the flags, I couldn't care less what people do with the flags once they buy it," he said. "It represents a horrid organisation, I agree. But my flags are not going to motivate someone to go out and commit an atrocity," Boot added.
He bought the IS flags from a company in the US that has also sent him Nazi flags, which he flew outside his home two years ago.
As a precautionary measure, police have asked Boot to note down the registration plates of his customers' cars.