Navigating Sales Tax in the Online Auction World

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Sales Tax + Auctions: Frequently Asked Questions

The material below is for informational purposes only, and is not intended as a substitute for tax, legal, or accounting advice. Each business’ tax, legal, and financial situation is different, and specific advice should be tailored accordingly. To best address your business obligations, we suggest consulting with your tax, legal and accounting advisors.

Compliance & Reporting

What does being “sales tax compliant” mean for an auction house?

Being compliant requires you to know, understand, and follow your legal obligations in regards to collecting sales tax for all your business’ revenue channels, whether it be direct (e.g. through your own website), or through marketplaces like LiveAuctioneers.

Do I need to report to all states on all my sales? What extra processes would my company have to implement?

You may be responsible for reporting sales to state and local governments where customers’ purchases have been shipped. Determining factors include whether you have economic nexus in those states, what types of items were purchased, how/when those sales were made, and more.

To better understand the extra processes your business may have to implement, we recommend you reach out to a tax expert to help you navigate the process.

If I stop selling through marketplaces, would I not have to collect out-of-state sales tax?

No. As long as you are shipping to out-of-state customers, you are still liable for calculating, collecting, and remitting out-of-state sales tax.

LiveAuctioneers will automatically calculate, collect, and remit sales tax for transactions completed through Live.Payments. For transactions made outside of Live.Payments, either your business or a third party service of your choice is responsible for accurately collecting and paying sales tax to each respective state/local government.

Do these sales tax rules apply to sales made through my website?

Yes. Sales tax rules apply to all revenue channels, whether it is direct (e.g. through your own website) or through marketplaces like LiveAuctioneers. It is recommended that you review all of your revenue channels to ensure you are compliant, as you are required to collect sales tax for all applicable states and municipalities in which your customers reside.

What happens if I sell through a marketplace which is not compliant?

Selling through a non-compliant marketplace could potentially lead to more penalties for you as a business, as the IRS is more likely to investigate non-compliant marketplaces.

Sales Tax Scenarios

If an auction purchase is shipped out of state, is the item subject to sales tax in my state?

The sales tax rate is determined on the customer’s shipping destination zip code, more specifically the full 9-digit zip code. In addition to the 5-digit zip code commonly provided, you should also make sure to collect the additional last 4 digits, which may also require you to collect more nuanced, local-based sales tax.

There are over 50 thousand taxing jurisdictions in the United States based on zip codes. As best practice, your business should keep records of customers’ shipping addresses in addition to billing addresses.

Do I need to apply sales tax on buyer’s premium? What about shipping and handling? Are there any other line items I should charge sales tax on?

Sales tax on buyer’s premium and shipping and handling varies depending on state or locality. While some states / localities may require you to apply sales tax on shipping, handling, and/or buyer’s premium, others do not.

Origin-based states collect on origin, not ship-to. What are the implications for the buyer and seller in those situations?

Origin-based state tax laws only affect local tax within the specific state. For instance, if you have a physical business in Texas and you are shipping to another town in Texas, due to origination, you would charge your business’s origin rate.

Origin-based state tax laws do not affect interstate sales tax. If you are shipping to a customer that is outside of your original state, you are still responsible for calculating, collecting, and remitting tax based on your customer’s shipping destination.

If a client registered to bid with an address where we do not have economic nexus, and then contacts a shipper to have their auction item delivered to a state that we do have nexus, must we then collect sales tax?

Conversely, if a bidder registered with an address where we do have economic nexus and then ships to a state where we do not collect tax, do we waive it?

As the seller, you are required to collect sales tax based on the shipping destination; in this case, the state where the auction item was delivered.

Conversely, if the item is shipped to a state where you are not required to collect sales tax, it can be waived.

As best practice, businesses are encouraged to collect shipping address information at point of sale to ensure compliance. It is also recommended to keep a record of both the bidder’s billing address and shipping address for accurate documentation.

Do we need to charge sales tax to all shipping orders even if certain customers are tax-exempt for their purchases?

If a customer is a reseller and has provided you a valid reseller certificate for verification, you are not required to charge sales tax for their order, as they are tax-exempt.

LiveAuctioneers has a reseller verification management system where bidders can upload their resale certificates onto their LiveAuctioneers accounts. Once bidders are verified, you can view from your seller dashboard what specific states they may be a verified reseller. If you use our Live.Payments sales tax calculation service, our calculator automatically generates tax-exempt invoices for your bidders that are verified resellers.