Auctioneers deal with all types of numbers — when writing a contract, bid calling and settling auctions.
In the latter, auctioneers must correctly calculate seller commissions, sales tax and buyer premiums — both when reconciling with bidders and when settling the auction with the seller.
Among questions I often hear when I’m teaching auctioneer continuing education or at auction school include two about this topic:
- Is sales tax charged on the hammer price or the hammer price + the buyer’s premium?
- Is seller commission charged on the hammer price or the hammer price + the buyer’s premium?
We’ll address these questions by using several examples. In these scenarios, the base numbers are as follows:
- The item’s hammer price is $1,000
- Sales tax is 7%
- Buyer’s premium is 10%
- Seller commission is 15%
Case #1 Seller commission, with no sales tax nor buyer’s premium:
- Buyer pays $1,000
- Seller nets $850
- Auctioneer earns $150
Case #2 Buyer’s premium, with no sales tax nor seller commission:
- Buyer pays $1,100
- Seller nets $1,000
- Auctioneer earns $100
Case #3 Sales tax (with no other charges):
- Buyer pays $1,070
- Seller nets $1,000
- Auctioneer pays $70 to state or local taxing agency
Case #4 Seller commission with sales tax, with no buyer’s premium:
- Buyer pays $1,070
- Seller nets $850
- Auctioneer earns $150
- Auctioneer pays $70 to state or local taxing agency
Case #5 Buyer’s premium with sales tax, with no seller commission:
- Buyer pays $1,177
- Seller nets $1,000
- Auctioneer earns $100
- Auctioneer pays $77 to state or local taxing agency
Case #6 Seller commission with buyer’s premium, with no sales tax:
- Buyer pays $1,100
- Seller nets $850
- Auctioneer earns $250
Case #7 Seller commission with buyer’s premium and sales tax:
- Buyer pays $1,177
- Seller nets $850
- Auctioneer earns $250
- Auctioneer pays $77 to state or local taxing agency
All these calculations assume that the auctioneer does not charge seller commission on monies earned as buyer’s premiums nor sales tax.
For example:
- If the seller commission is applied to the total the buyer pays inclusive of the buyer’s premium, the seller’s net is reduced by 1.50% (0.10×0.15).
- If the seller commission is applied to the total the buyer pays inclusive of sales tax, the seller’s net is reduced by 1.05% (0.07×0.15).
- If the seller commission is applied to the total the buyer pays inclusive of the buyer’s premium and sales tax, the seller’s net is reduced by 2.655% (((1.10×1.07)-1)x0.15).
These three preceding examples show what I think would be unusual charges if they took place. However, if the auctioneer and seller contracted as such, with the auctioneer having the seller’s knowledge and consent of this manner of charging seller commission, then it would be acceptable.
Regardless of how seller commission, sales tax and buyer’s premiums are calculated, auctioneers, clients and customers must all have knowledge of — and consent to — the exact manner in which they are in order to properly play their role in auction settlement.
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 serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.
January 14th, 2012 at 12:32 pm
Mike,
Good post for students and newbies…
This goes back to “…if it ain’t in writing, then it ain’t for real…” when it comes to an auctioneers agreement with the seller / employer.
I have never heard of charging a commission on a sales tax that is traditionally collected by the auctioneer and paid to the taxing authority…
A few years ago while living in Maryland the State Auctioneers Association successfully lobbied that the buyers premium was a “service fee” and as such not taxable in the State as part of the purchase price. MD has no State license law or auctioneer commission.
Cross the State line North to PA or South to VA where a State License is required and there is an active auctioneers commission (regulatory body) and sales tax is required on hammer price plus high bid… Except when selling for an estate of a deceased person then there was no sales tax charged at all.
The 21st Century Auctioneer has the luxury of being able to enter all the variables you mentioned in the post, into their auction software. Settlements are as simple as pushing a button.
Seller reconciliations with a description of each item, break down of charges, bid card # (or bidder information if a legal auction), sales tax collected or not collected for each line item, auction event, even if a multi-seller auction.
Your closing statement is the key…
Regardless of how seller commission, sales tax and buyer’s premiums are calculated, auctioneers, clients and customers must all have knowledge of — and consent to — the exact manner in which they are in order to properly play their role in auction settlement.
Back to what the grizzly old broker in a 78 Lincoln Town Car told me on a dusty back road… “If it ain’t in writing, then it ain’t for real…”