My mother and I were at an antique auction last night, and the auction service has prominently posted their policy of adding a 10% “buyer’s premium” to the total bid price when you check out. My mother purchased a dresser last night for $100. Her total bill reads as follows:
My mother wrote a letter this morning (I think to the PA state taxation authority) asking whether it’s legal to tax the buyer’s premium portion of the sale. In her opinion, the buyer’s premium benefits only the auction service, not the customer, hence she shouldn’t have to pay sales tax on it, since it’s not a “product or service” that she’s buying.
I told her that IMO, the total price of the item she bid on is $110.00, not $100.00 and that they were able to charge tax on the full amount.
I’m too impatient to wait for a response to a letter. Does anyone here know which of us is correct? Which part of the laws pertaining to sales tax would dictate whether this buyer’s premium is taxable?
Even though I think your mother is right logically, you are probably right.
Heck, I even had my city charge tax on a tax! I needed to pay $35 for a ‘license’ for my underground sprinkler system. This is a tax since I received no service or product. They never even looked at it, just wanted $35. Of course, I was then charged a sales tax and a city tax. A tax on a tax. Grrrrrrrrrr.
The $10 is for the service. Why should the service not be taxed? If you take your car to be repaired they tax only the parts and not the labor? I don’t think so.
Chapter 33.2 of the Pennsylvania Code defines the purchase price subject to tax as including…
(6) Amounts representing costs to the vendor…
Most states require any amount paid for the product to be subject to tax. It depends on how the state defines “gross receipts” or “purchase price.” But just about any state would include the auctioneer’s service fee as taxable if it is applied to the property being sold as the auctioneer is usually the vendor responsible for reporting the tax.
However, many states have an exemption for separately stated installation charges, and that would include repair labor charges. Sailor apparently lives in a state that does not have such an exemption. There are currently 46 states (if you include DC) that have sales and use tax laws (or gross receipts tax) and that makes for a lot of variety in the way the tax is calculated.
I’m interested in how your mother came to the conclusion that the auction service, which is presumably running the auction, is somehow not providing a service.