This really isn’t complicated. Let’s take two examples:
- Auctioneer Bob doesn’t charge a buyer’s premium. Customer Sally purchases a painting from Bob for $1,650,000 and pays 7.25% sales tax for a total of $1,769,625. Auctioneer Bob charges his seller a 10% commission, and so the seller nets $1,485,000. Sales tax totals $119,625.
- Auctioneer Charles does charge a buyer’s premium. Customer Sally purchases a painting from Charles for $1,500,000 and pays a 10% buyer’s premium for a total purchase price of $1,650,000. 7.25% sales tax makes her total due $1,769,625. Seller nets $1,500,000. Sales tax totals $119,625.
Sales tax is based upon what the buyer (Sally) is paying, in total, and not what the auctioneer is charging his client, nor what the seller is receiving.
Normally, auctioneers where a buyer’s premium is charged include in their terms and conditions that the hammer price plus the buyer’s premium constitutes the total purchase price. Sales tax is charged on the total purchase price.
The argument that sales tax shouldn’t be paid on commission, such as a buyer’s premium doesn’t hold water, as sales tax is applied to total sales prices, including commissions when seller commissions are paid, so too when buyer commissions are paid.
Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He is Executive Director of The Ohio Auction School.