I’ve noticed this question being asked frequently on auctioneer discussion forums, in classrooms, and in the hallways after classrooms — “Is the buyer’s premium a service fee?” The reason for the question is, apparently, sales tax in some jurisdictions does not apply to a service fee.
Given this argument, we could have a different result in the total due at an auction where a buyer’s premium is charged. For instance:
- A total purchase price of $3,000.00 + 10% buyer’s premium = $3,300.00. If sales tax of 7% is added to the $3,300.00 total, then the final total due would be $3,531.00.
- A total purchase price of $3,000.00 + 10% buyer’s premium = $3,300.00. If sales tax of 7% is added to only the $3,000.00 (because the buyer’s premium is a service fee, and is not taxable), then the final total due would be $3,510.00.
I find the service-fee-tax-exemption argument flawed.
For almost all auctioneers who do not charge any buyer’s premium, and for many auctioneers who do charge a buyer’s premium, the seller is also charged a commission.
When auction items are sold with no buyer’s premium, a seller commission is almost a certainty, and sales tax is always charged on the total purchase price, including the seller’s commission.
If the seller’s commission (much like the buyer’s premium, or in lieu of the buyer’s premium) isn’t a service fee then why would the buyer’s premium be a service fee?
We wrote about the buyer’s premium some time ago and the following conclusions are reasonable:
- The buyer’s premium is commission which eventually goes to the auctioneer (in almost all cases.)
- The seller’s commission is commission which eventually goes to the auctioneer (in almost all cases.)
So one is taxable, and one is not?
Most all auctioneers who charge a buyer’s premium state in their contract with their client, and in their terms and conditions for their customers, that the buyer’s premium is added to the final bid price to constitute total purchase price.
Almost all taxing jurisdictions state that sales tax is charged on the total purchase price.
Roger buys a set of new golf clubs from a large sports supply store. The set of golf clubs costs $350 and sales tax at 6.75% is $23.63. One could argue that the store’s cost of the golf clubs was probably no more than $100, and then there was the store’s profit, and then the “service” provided to Roger including making available a location to view various golf clubs and attending to his purchase.
Whatever value that would be assigned to the service component of Roger’s golf club purchase is taxable. No purchases such as this deduct a value for the service provided. Yet, the service-fee-tax-exemption argument maintains that a part of the total purchase price is not taxable because it’s a service fee.
Are there instances where a buyer’s premium may not be taxable? I would suggest that it may not be taxable if it isn’t included in the total purchase price.
For example, if an auctioneer charged a purchaser $3,000.00 for his purchases plus tax of 7% ($210.00), that buyer’s total would be $3,210.00.
Then, if the auctioneer said next,
- “Now, there’s a 10% fee on your hammer price ($3,000.00) for providing our service to you — such as a place to sit, an area where the items could be previewed, a place to park, etc., and that’s not taxable.”
However, this buyer could say,
- “That’s fine, however, you are charging your client commission, and that’s for service that you’re providing your client, so that wouldn’t be taxable either, right?”
Not charging sales tax on the buyer’s premium because it’s a service fee suggests that the seller’s commission, as well, is not taxable.
We concluded that sales tax should be charged on top of the buyer’s premium and would maintain here that even if it’s considered a service fee, it’s still taxable.
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.