Is an auctioneer's separately stated administrative fee (buyer's premium) subject to Colorado sales tax, or is it a non-taxable service charge?

Plain-English summary

An auctioneer that sells new and used equipment, vehicles, and other goods planned to add an "administrative fee" (a buyer's premium) to compensate for value-added services it offers buyers — referrals to shipping/financing/insurance/warranty vendors, online and on-site inspection, a clear-title guarantee, Wi-Fi, loading help, buyer ID cards, and a multilingual auction website. The fee would be 10% on items selling for $2,500 or less, or 2.5% on items over $2,500 (capped at $950 per item), stated separately on the buyer's invoice. The auctioneer asked whether sales tax applies to that separately stated fee. The Department's clear (non-binding) answer: yes, the fee is taxable.

The reasoning starts from a basic point: Colorado taxes sales of tangible personal property but generally not services — yet nearly every sale of goods has labor and overhead baked into it (sales staff, parking, kiosks, amenities). Those embedded service/overhead costs are an inseparable part of the sales price, and a retailer can't carve them out of the tax base just by listing them separately on the invoice.

Some charges are excludable. Under A.D. Stores v. Department of Revenue (19 P.3d 680), charges for dress alterations were "separable" from the sale of a finished dress and excluded from tax. The pivotal factor in deciding separability is whether the buyer can obtain the goods without also buying the service. Auctioneer administrative fees / buyer's premiums are generally not optional — you can't win the item without paying the premium — so they're inseparable from the sale and included in the sales tax base.

The Department noted that most other states it reviewed (California, Illinois, Texas, Minnesota) treat an auctioneer's buyer's premium the same way: as part of the taxable sales price.

What this means for you

Auctioneers and auction houses

If your buyer's premium or administrative fee is mandatory — a buyer can't take the goods without paying it — charge sales tax on it as part of the sale, no matter how it's labeled or that it's on a separate line. Bundling "value-added services" into a non-optional fee doesn't convert it into a non-taxable service.

Retailers adding mandatory "service" or "admin" surcharges

The same logic reaches non-auction settings: a required surcharge tied to a sale of goods is generally in the tax base. To be excludable, a service charge usually has to be genuinely optional — the customer must be able to buy the goods without it (the A.D. Stores alteration model).

Accountants and tax professionals

Separately stating a charge is necessary but not sufficient for exclusion. The controlling question is separability — can the buyer get the goods without the service? Mandatory buyer's premiums flunk it. Watch for the contrast with truly optional post-sale services, which can be separable and excludable.

Common questions

Q: Is a buyer's premium at auction subject to Colorado sales tax?
A: Yes, when it's mandatory. Because a buyer can't get the item without paying the premium, the fee is inseparable from the sale and is included in the sales tax base — even if stated separately.

Q: If I list the administrative fee on a separate line, is it exempt?
A: No. Separately stating a charge doesn't make it non-taxable. The fee is taxable because it's not optional and is part of the sale of the goods.

Q: When is a service charge actually excludable?
A: When it's genuinely separable — the buyer can obtain the goods without buying the service (like optional dress alterations in A.D. Stores). A required fee tied to the sale isn't separable.

Q: Can I rely on this letter?
A: It's a General Information Letter — non-binding general guidance. It clearly states the Department's view, but a binding answer on your facts would require a private letter ruling.

Citations and references

Statutes and cases:
- § 39-26-104(1)(a), C.R.S. (sales/use tax on tangible personal property)
- A.D. Stores v. Dep't of Revenue, 19 P.3d 680 (Colo. 2001) (separability of services)
- Persuasive: California, Illinois, Texas, and Minnesota rulings treating an auctioneer's buyer's premium as part of the taxable sales price

Related rulings

• [[gil-11-004-sales-tax-collection-by-auctioneers]] — when an auctioneer must collect sales tax
• [[gil-11-002-taxability-of-personal-property-tax-sales-tax]] — separately stated charges still in the tax base
• [[gil-12-011-reimbursable-expenses]] — separability / true object for bundled charges

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-11-003.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL-11-003
April 5, 2011
XXXXXXXXXXXXX
ATTN: XXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXX
Re: Taxability of Administrative Fees / Sales Tax
Dear XXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXXXXXX (“Auctioneer”) a request for guidance on the
application of sales tax to administrative fees. The department issues general information letters and
private letter rulings. A general information letter provides a general overview of the relevant tax
issues and is not binding on the department. A private letter ruling provides a specific determination
for a specific set of facts, is binding on the department but not the taxpayer, and requires payment of
a fee. For more information about general information letters and private letter rulings, please see
Department regulation 24-35-103.5 at www.taxcolorado.org > FYI/Publication > Rulings.
The department initially treats your request as one for a general information letter. If you would like
the department to issue a private letter ruling on the issues you raise, you can resubmit a request and
fee in compliance with regulation 24-35-103.5. It is important to remember that general information
letters, such as this one, are general discussions of tax law and are not a determination of the tax
consequence of any particular action or inaction.
Issue
Is sales tax applicable to administrative fees, which are stated separately on a buyer’s invoices?
Background
Auctioneer conducts the sale of new and used tangible personal property, of which regularly consists
industrial equipment, motor vehicles, agricultural equipment, in addition to other tangible personal
property. Auctioneer does not hold the title to the property at any point. Rather, the owner of the
property cosigns the property to Auctioneer for auction. Auctioneer acts as the selling agent and
acquires a power of attorney to carry out title transfers and registrations. Once the auction is
complete, the buyer tenders payment to Auctioneer. Auctioneer deducts its fee from the proceeds
and remits the balance to the owner. In some cases, Auctioneer has tangible personal property they
sell in their own name.

Auctioneer is considering implementing a fee structure to compensate for value-added services
provided to purchasers. Some of these value-added services included: referrals to shipping,
financing, insurance and extended warranty vendors; opportunity for purchasers to inspect auction
items on the internet or at auction site; guarantee of clear titles to purchasers or a full refund; access
to Wi-Fi during auction; assistance loading property into purchaser’s vehicle; streamlining buyer
registration by providing ID cards; and access to a 21 language website that offers an auction
calendar, equipment inventory and specifications including high resolution photos, on-line bidding,
historical auction results and shipping arrangements. To compensate for these services, Auctioneer
will charge an administrative fee of 10 percent on the final selling price for items sold at $2,500 or less
or 2.5 percent administrative fee on the final selling price for items sold at $2,500 or greater, up to a
maximum of $950 per item purchased.
Discussion
Colorado imposes sale and use tax on the sale and use, storage, or consumption of tangible personal
property. §39-26-104(10(a), C.R.S. With certain exceptions not relevant here, Colorado does not
levy tax on the sale of services. However, nearly all sales of taxable tangible personal property have
some type of labor and overhead cost components. For example, retailers typically employ sales
staff who provide services to customers by assisting customers with their purchases. Retailers may
also provide customers parking, an in-store Internet kiosk from which to place orders, and other
services and amenities that customers may find useful. Retailers recover these labor and overhead
costs in the price of the goods sold. These costs generally are an inseparable part of the sales price
and the retailer cannot exclude them from the sales tax calculation by separately charging for them
on an invoice.
However, not all charges made in connection with the sale of taxable goods are included in the sales
tax calculation. In AD Stores v Department of Revenue, 19 P.3d 680 (Colo. 2001), the Colorado
Supreme Court held that charges for dress alteration are “separable” from the sale of a finished dress
and, therefore, are excluded in the sales tax calculation. One of the principal factors the department
considers when evaluating whether a service is “separable” is whether the buyer has the option to
obtain the goods without also purchasing the service. Auctioneer fees, such as those you have
described, are generally not optional and are typically viewed as inseparable from the sales
transaction. As such, these fees are included in the sales tax calculation.
The majority of other states we reviewed follow a similar approach. See, for example, California
Sales Tax Counsel Ruling 3/16/88 No. 115.0010 (Auctioneer’s 10% “buyer premium,” which is added
to the purchase price, is included in the sales tax calculation); Illinois Private Letter Ruling No. ST 920576-PLR, 11/12/1992 (Auctioneer’s 10% “buyer premium,” which is considered service fee or cost of
doing business, is included in the sales tax calculation); Texas Policy Letter Ruling No.
9003L0996A11, 03/30/1990 (Auctioneer’s 2% - 10% “buyer’s fee” is included in sales tax calculation);
Minnesota Sales Tax Newsletter 12/01/2002 No. 62 (Auctioneer’s premium charge is similar to a
commission and increases the sales price of the item making it part of the sales price and is subject
to sales tax).
Miscellaneous
Pursuant to state law and department regulation 24-35-103.5, noted above, the Department will make
public a redacted version of this letter. Your letter requesting this general information letter is not
made public. I enclose a proposed redacted version of this letter. Please contact me within 60 days
from the date of this letter if you have any questions, comments, or objection concerning the redacted
letter.
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I hope this is helpful. Please feel free to contact me if you have any questions.
Sincerely,

Office of Tax Policy
Colorado Department of Revenue

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