We sell cars, trucks, boats at auction and have for over 25 years. We charge the hammer price, buyer’s premium and sales tax in order to invoice (charge) our buyers. For instance, a hammer price of $4,500.00 plus 15% buyer’s premium is $5,175.00. Then, $5,175.00 plus 7.5% sales tax is $5,563.13, or is it? Actually, it’s $5,563.125.
So can auctioneers round this to $5,563.125 to $5,563.13 and thus charge more than 7.5% (7.50009%) in sales tax? What if this same buyer bought two vehicles at $4,500.00 each? That’s $9,000.00 plus 15% buyer’s premium for $10,350.00. Then, $10,350.00 plus 7.5% sales tax is $11,126.25.
Or, if we hold that we charge 7.5% sales tax (and necessarily not more than 7.5%) then each vehicle would be $5,563.12 which for two such vehicles would total $11,126.24, which is not the same as $11,126.25.
You might rightly say, “It’s only a difference of $0.01 — I find pennies on the ground on a regular basis. Who cares?” I get that. So, what if this buyer purchased 100 vehicles at $4,500.00 hammer price? 1,000 vehicles at $4,500.00 hammer price? Does this rounding issue ever become material?
1,000 vehicles at $4,500 each could be $5,563.12 each for $5,563,120 (or $5,563.13 each for $5,563,130) … or a total of $4,500,000 plus 15% buyer’s premium and 7.5% sales tax would come out to be $5,563,125, which is $5.00 off either way we calculated it prior.
Before you say it, I agree … would a buyer with an invoice of over five million dollars be worried about $5.00? Almost assuredly not. We’re just pointing out that indeed charging fees on the individual items can be different than charging those same fees on the total, depending upon rounding.
Do small numbers ever matter in the auction business? They actually do — for example — in an online auction a bid could be placed with 0.01 seconds left? We’ve been privy to a bid coming in just before the -0- time remaining and not recognized … and the resulting legal issues. Does your auction software allow a bid up until 0.00 or only until 0.01, or 0.10, or 1.00 seconds?
And it’s not just online auctions — what about that interesting line from the UCC § 2-328: “Where a bid is made while the hammer is falling in acceptance of a prior bid the auctioneer may in his discretion reopen the bidding or declare the goods sold under the bid on which the hammer was falling.” Could such involve a fraction of a second?
There is the legal issue of “de minimis” which is Latin for “of the least” which can be an amount (or a fact) so insignificant that a court may (or may not) overlook it. However, “insignificant” is far more subjective than objective, so who knows how any judge and/or jury might evaluate such?
In conclusion, possibly as an auctioneer, cents and/or seconds may actually matter, and they might not. Depends on how well you treat your seller, bidders and buyers to the extent they don’t even think to question your behavior.
Mike Brandly, Auctioneer, CAI, CAS, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, RES Auction Services, and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College, Executive Director of The Ohio Auction School, and an Instructor at the National Auctioneers Association’s Designation Academy and Western College of Auctioneering. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by The Supreme Court of Ohio for attorney education.