Are an auctioneer's mandatory buyer administrative fees included in taxable Illinois gross receipts, and who owes the tax?

Plain-English summary

A mandatory auction buyer administrative fee was part of the taxable selling price when the underlying sale was taxable. Separately stating the fee or describing buyer services did not remove it from gross receipts.

Undisclosed principal

An auctioneer acting for an unknown or undisclosed principal was treated as the owner of the auctioned property. The auctioneer owed Retailers' Occupation Tax on the gross receipts and filed the sales-tax return.

Disclosed principal

When the principal was disclosed, the principal—not the auctioneer—was taxable on the sale. Disclosure required the principal's name and address to be made known to the purchaser at or before sale and to appear in the auctioneer's books and records.

If the disclosed principal's sale qualified as an occasional sale, it was not taxable.

Exempt underlying sales

When a sale was exempt for resale or another valid purchaser exemption, the administrative fee charged as part of that sale was exempt too.

What this means for you

Auction companies

Document each consignor's disclosure status and apply the same exemption treatment to the buyer fee as to the property sale.

Consignors

Providing identity only to the auctioneer is not enough for disclosed-principal treatment; the buyer must receive the name and address by the time of sale.

Common questions

Q: Is a separately stated buyer premium or administrative fee taxable?
A: Yes when the underlying sale is taxable.

Q: Who pays the occupation tax for an undisclosed principal?
A: The auctioneer.

Q: Does a resale exemption cover the administrative fee?
A: Yes when the underlying sale validly qualifies.

Citations and references

• 35 ILCS 120/1 — selling price without deductions for service or business costs.
• 86 Ill. Adm. Code 130.1915(b) — disclosed and undisclosed principals.
• 86 Ill. Adm. Code 130.110 — occasional sales.
• 86 Ill. Adm. Code 130.410 — nondeductible costs of doing business.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2011.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2011/st-11-0053.pdf

Original ruling text

ST 11-0053-GIL 07/05/2011 AGENTS
An auctioneer acting on behalf of an unknown or undisclosed principal is responsible for
Retailers’ Occupation Tax on the gross receipts from the sale. However, if the auctioneer is
acting on behalf of a known or disclosed principal, the sale of tangible personal property is
taxable to the principal and not the auctioneer if the principal is a retailer of the tangible
personal property being sold at the auction. See 86 Ill. Adm. Code 130.1915. (This is a GIL).

July 5, 2011

Dear Xxxxx:
This letter is in response to your letter dated February 21, 2011, in which you request
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a
tax statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
We respectfully request a letter ruling to confirm the sales tax treatment of the issues
described below regarding whether AUCTIONEER is required to collect and remit tax
on the administrative fees the Auctioneer charges buyers of tangible personal property
at the Auctioneer’s public auctions.
FACTS
Auctioneer is in the business of selling both new and used tangible personal property
through unreserved public auctions. Auctioneer regularly sells industrial equipment,
motor vehicles, agricultural equipment, and other tangible personal property. The
auctions take place throughout the year at a location within the state. The owner of the
tangible personal property (hereinafter ‘the Consignor’) consigns the tangible personal
property to Auctioneer for the auction process while retaining the title to the tangible
personal property. Auctioneer acts as a selling agent for the Consignor and acquires a
power of attorney for the limited purpose of executing all documents required for a title
transfer and registration, without any further action of the Consignor. In addition to
selling property that is owned by a Consignor, Auctioneer also purchases tangible
personal property in its own name to auction

All sales made at the auction are final and sold ‘as is’. Auctioneer does not deliver or
arrange for delivery of any purchases. All buyers must remove the property from the
location of the auction.
Auctioneer charges all buyers sales tax on the selling price of the auctioned tangible
personal property and remits the sales tax to the State unless the buyer produces the
applicable resale certificate, exemption certificate, or other acceptable documentation.
Potential buyers may bid on items at the auction in person, bid by submitting a proxy, or
bid for the items over the internet through the Auctioneers [sic] website. Buyers could
be resident [sic] of the state of the auction, resident [sic] of a different state, or resident
[sic] of a different country.
The Auctioneer is considering a new fee structure where all buyers will be charged an
administrative fee equal to 10% of the selling price for items selling for $2,500 or less;
and 2.5% of the selling price for items selling for greater than $2,500, up to a maximum
of $950 per item purchased. The administrative fee will be separately stated on the
buyers [sic] invoice. The only exception to this fee will be on-site buyers purchasing
equipment from an auction conducted on a farm. These buyers will not be charged the
administrative fee.
The purpose of the administrative fee is to compensate Auctioneer for the many value
added [sic] services that are available to buyers. Buyers at AUCTIONEER have an
array of value added [sic] services available to them. These services are available to all
buyers, however, buyers have no obligation to use them. Some of the services are as
follows:

• Auctioneer offers potential buyers the opportunity to inspect items either on the
  internet or at the auction site;
• Auctioneer guarantees clear title to the buyer and offers a full refund if clear title is not
  passed to the buyer;
• Access to an on-line bidding system;
• Access to a 21 language website which offers a host of services including an
  upcoming auction calendar, equipment inventory searching, equipment specifications
  including high resolution photos, historical auction results, and shipping arrangements;
• Referrals to preferred shipping vendors;
• Referrals to preferred financing vendors;
• Referrals to preferred insurance vendors;
• Referrals to preferred extended warranty vendors;
• Internet Wi-fi access at the auction site during the auction;
• Auctioneer may assist with loading property onto the buyers’ [sic] vehicle;
• Provide ID cards to streamline buyer registration at the auction.
  ISSUES
  1.
  2.
  3.

Is Auctioneer required to collect and remit sales tax on the 10% administrative
fee for lots sold to buyers for a price $2,500 or less?
Is Auctioneer required to collect and remit sales tax on the 2.5% administrative
fee for lots sold to buyers for a price greater than $2,500?
If Auctioneer is required to collect and remit sales tax on the fees, then can
Auctioneer accept a resale or exemption certificate to relieve the obligation to
collect and remit sales tax?

We kindly request a letter ruling to confirm the sales tax treatment of the above issues.
We appreciate your time and attention in this matter. Should you have any questions,
please contact me.

DEPARTMENT’S RESPONSE:
When auctioneers are involved in selling activities, the person who is liable for Retailers’
Occupation Tax will depend on whether the auctioneer is working on behalf of a disclosed or
undisclosed principal. An auctioneer acting on behalf of an unknown or undisclosed principal is
considered to be the owner of the tangible personal property that will be auctioned and is responsible
for Retailers’ Occupation Tax on the gross receipts from the sale, as well as filing a sales tax return.
However, if the auctioneer is acting on behalf of a known or disclosed principal, the sale of the
tangible personal property is taxable to the principal and not the auctioneer. A principal is deemed to
be disclosed to a purchaser for use or consumption only when the name and address of such
principal is made known to such purchaser at or before the time of the sale and when the name and
address of the principal appears upon the books and records of the auctioneer or agent. See
subsection (b) of Section 130.1915. Please be advised, however, that if the tangible personal
property sold would constitute an occasional sale by the disclosed principal, then the sale is not
taxable. See 86 Ill. Adm. Code 130.110 (“Occasional Sales”).
If an auctioneer makes a sale for an undisclosed principal, then the auctioneer is responsible
for Retailers’ Occupation Tax on the gross receipts from the sale. Retailers' Occupation Tax is based
upon the “selling price” of the tangible personal property sold. The term “selling price” is defined
under the Retailers' Occupation Tax Act as the “consideration for a sale valued in money . . . and
shall be determined without any deduction on account of the cost of the property sold, the cost of
materials used, labor or service cost or any other expense whatsoever . . . .” See 35 ILCS 120/1. As
indicated by this definition, a retailer’s cost of doing business is not deductible from his gross receipts.
This principle is also articulated in 86 Ill. Adm. Code 130.410. The regulation specifically states that in
calculating Retailers' Occupation Tax liability, “freight or transportation costs . . . or any other
expenses whatsoever” are not deductible from gross receipts. The tax is based upon the total selling
price, including any administrative fees that may be charged. If a sale is exempt from tax as a sale
for resale or because the purchaser can validly claim some other exemption, then an administrative
fee charged as part of that sale is also exempt.
If an auctioneer makes a sale for a disclosed principal who is a retailer of the tangible personal
property being sold at the auction, then, the disclosed principal is responsible for Retailers’
Occupation Tax on the gross receipts from the sale. In this situation the administrative fee would be
included in the principal’s sales tax base, since the consideration for the sale includes the
administrative fee.
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.
Sincerely,

Samuel J. Moore
Associate Counsel
SJM:msk