Posted on 10/06/2019
A lot of auction customers have wondered about sales tax and buyer's premium. Sales tax by definition is the tax that is on sale or the receipt from sales. On the other hand, it can mean a tax that is paid to the government for the sale of certain goods and services. Most often, the laws allow the seller to collect the funds for the tax from the consumer at the point of purchase. When a tax levied a particular good or a service is paid to a governing body from the consumer directly, it is called use tax. Most people do understand that a sales tax is enforced by the state while use tax which is more indistinct is generally accessed when a buyer buys auction house in one state without paying the sales tax which is not supposed to be like that.
Sales tax is based on what the buyer is paying in full and not what the auctioneer is charging his client nor what the seller is receiving. Commonly, an auctioneer where a buyer's premium is charged is normally included in their terms and conditions that the hammer price plus buyer's premium will constitute the total purchase price. This is when sales tax is charged on the total purchase price.
The proposition 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 the total sales price which includes commission when the seller commissions are being paid so too when the buyer commission is also being paid.
It is important to note that the seller of tangible personal property generally is responsible for paying sales tax in the state of which the sale occurs and collects the sales tax from the purchaser as part of the purchase. All the standard auction contracts drafted with reputable auction companies compel the auction company to collect sales tax and secure the seller against the imposition. On the other hand, a seller who sells through a dealer should inherently specify that the contract obligates the dealer to collect the sales tax and secures the seller against the tax. In a situation where it does not involve a dealer or an auction house, the seller has to collect the sales tax from the buyer and send the sales tax to the reserved taxing authorities.