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Lots of auction customers wonder about sales tax and the buyer’s premium. How is it figured? Is sales tax added to only their bid price, or to the total including the buyer’s premium?
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.
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I think it is unfair to the buyer. Premium tax should be between the seller and the auctioneer. Hammer price is the only amount that the buyer should pay. That is a servise auctioneer is rendering to the seller, not the buyers hammer price.
In my opinion, I feel that sales tax should be on the total price of the item and then add in the buyers premium after that. I do not think that buyers premium should be taxed. I know of an auctioneer that charges the highest buyers premium in this city and he taxes it. He really makes out on the items. I am not sure how, but he does. He draws in the crowds. He has started items now out at a minimum bid of what they are worth or above what they are worth. People are paying too. For those who resell, I do not want to see what they are charging for the items they are buying at that auction.
auctioneer is collecting money from buyer and seller for services rendered as a broker, he should not be able to write into agreements that buyer pays tax on his commissions. The seller has to pay tax on his earnings plus a commission to the broker. The broker consignment of products that he sells should be taxed. And the buyer should pay tax on the product. The commission for the auctioneer handling the auction is not the product. I don’t know what State your in, but my state sales tax commission says that the auctionneer is receiving property on consignment and when he receives payment for that property sold. They are to collect and hold sales tax permits, report and remit sales tax measured on the gross receipts from such sale amendment 710:65-19-10.
When there is no buyer’s premium, and only a seller’s premium — do buyers not pay sales tax on the purchase price plus the commission?
For example, if an item sells for $100 and the auctioneer is charging the seller 20% commission, should sales tax be only on $80?
Yeah that’s what I Always said and made sense according to other state auctioneers . But here in California where nothing makes sense you can argue till the cows come home and the state will just repeat nonsense. No wonder we lost a seat in the last census and everybody is leaving for Texas. 😂👍👊
I think the sales tax should only be on the hammer price. Let’s say a painting sells for $100. Buyer’s premium is 10%, or $10. Come IRS tax time, the auctioneer is only going to report profits, or that $10. If the customer sales tax also includes the premium, they are paying sales tax on both the cost of the painting AND the service rendered in selling that painting. They are two separate entities that shouldn’t be lumped together. Similar to automotive work, where you pay tax only on the parts, not the service.
That’s fine, but that same reasoning would say that if the auctioneer was charging the seller 10% that the tax would only apply to the $90 the seller receives? That’s never done anywhere.
Jeffls logic is sould that is how most states tax. Most services are not taxed to the person receiveing the service. There is a sales tax on thr products only. The buyer pays tax based on the value of the property sales price. The seller reports revenue as follows 100 dollars Gross, 10 commission (expense) which equals $90 income subject to an income tax. As a tax professional I suspect that some of the sales tax collected is being pocketed as extra cash while reporting lower income or they are inflating income made in the year. Online they are suppose to use the sales tax of the state an item is being shipped to. However I have seen some try to tax on their own state (I doubt if they pay the whole amount to their own state because the amount is not taxable (sales tax) to the seller’s state..
Got a question. When the auctioneer sends the net proceeds to the seller (after deducting the buyer’s premium), is the seller required to report it to the IRS as income or something? Or, is the seller free and clear? Thanks!
I am a bit confused.
In the 2 examples given, the customer Sally pays the same amount in both situations (and tax is the same too), so why does the seller net $15,000 less in the 1st scenario?
Does it mean its better for the seller to auction there items where a buyers premium is charged?
In the 2 examples, one pays only a BP and the other only pays a seller commission.
Having to pay sales tax on the buyer’s premium is garbage in my opinion. To me sales tax should be on goods or services purchased. The item you buy is the goods. The buyers premium is neither a good nor service to the buyer so why is sale tax charged on it? To me it is just a way the government to pad their pockets.
Anything termed “Sales Tax” should, in fact, be taxes charged by the local/state gov’t etc. that is going to be transferred by the auction house to the local/state gov’t. From what I’ve heard, and seen…since I buy from many auctions in the same local area, and half charge sales tax on their premium, and half don’t…so I’ve asked. The accountants from auction houses are NOT transferring sales tax on their premium (or commission) to the state/local coffers…only the sales tax on the hammer price. So, from that perspective, it would seem, to me at least, that the auctioneer is actually hiding more of their own fees under “Sales Tax”. If that is the case, then I would agree that it is unfair. I would be interested in an actual tax acct or tax attorneys take on this.
So I have bought from a few local auctions and my concern is what they charge. This last auction was $730 for the items that I won, then there is a buyers premium of 15% and then the tax. First, let me state that the auctions are all online and why should I have to pay for the “buyers premium” which is, in essence, the auctioneer’s fee when it should come from the company or person holding/selling the pieces. And in another word, for my win, they charged $730 x 15% x 9.5%, where if they were charging tax and the buyers they should have done both separately and then added to the winning bid to get a total. But still, why am I paying for the auctioneer/software when it should come out of their profit because its all a business write off anyways.
Most auctioneers charge a buyer’s premium these days … and hammer price plus the buyer’s premium is the total purchase price, on which sales tax should be applied.
Buyer’s premiums allow auctioneers to secure consignments (charging sellers less) that they otherwise might not be able to secure.
If you’re bidding with a buyer’s premium, you can “back out” the premium (lower your bid) accordingly, so that you don’t feel as if you are overpaying.
Hey Mike,
What should I do if I am not going to collect sales tax on a vehicle but I set the auction up to have the premium taxable?
They essentially don’t need to pay tax on the vehicle but the tax gets calculated for the BP.. do you just waive the tax on that one lot?
Mike what should an auctioneer for a vehicle where they get charged sales tax at registration.. my software calculates a tax only on the buyers premium and then adds it to the untaxed vehicle.. would you just wave the tax on that buyer overall?
For example? The car sells for $30,000 hammer price. Tax is 7% and the buyer’s premium is 15%. The total purchase price is $34,500 and at 7% tax is $2,415. Grand total including tax is $36,915. You charge them $34,500 and waive the tax, which they pay later.
Buyers premium should not be taxable as the premium is not a purchase tax should only be on taxable item and auction board should change that please reply why I’m wrong
The purchase price includes the buyer’s premium, and as such, sales tax is charged on that total — no different if an auctioneer charged seller commission — it’s charged on the gross, not the net.