I've noticed several times when I have given something to Mercurio and replace it with something better, once I take the item I gave him out of his inventory, it shows to me as stolen.

I had him pick up a pair of boots I had bought and was wearing and when I took them back from him and dropped them on the ground they had the stolen tag.

He had been wearing a hood I gave him and then I got one of the dragon priest masks that was better, and when I gave him the mask the hood dropped as stolen..

??

It makes me less willing to use companions if they are just stealing my stuff.

Was this intentional?

thanks

Are you using follower commands to make him pick items up so he can go beyond his encumbrance limit? This is a well-known problem with using that exploit.

No actually I was giving them to him so that I could dupe those boots which boost carry weight by 25 pts. But when I got them back out of his inventory they showed to me as stolen.

The hood he wore for a long time till I got the mask..

edit

=-I did not know I could do that. Once he is all greyed out I just suffer -L-

You could clear the stolen tag with Farengars end table.

What is Farengars end table?