This is a hot topic in the State of Minnesota. As recently as a few years ago, the Minnesota Department of Revenue began to audit auction companies for compliance with sales tax laws. The audits were not completed uniformly, and different standards were applied. As a result, the Minnesota State Auctioneers Association has had numerous seminars on the topic. Even today, it continues to be a often discussed topic. The question above was most recently addressed to me in an email.
I understand that if selling for a business that would have charged tax, I need to collect on their items. However, it is unclear if I am selling for people downsizing, left over estate items for the deceased or someone just cleaning house…
I am under the understanding from the MSAA that tax MUST be collected on this type of sale. Yet the first response I recieved from the state tells me I do not have to collect sales tax.
There are two other auction houses within 30 miles of mine and they are not collecting tax. I am and this is creating a conflict with my customers.
Minnesota has rules governing the collection of sales tax. The particular area that applies to auctions of personal property is: Minnesota Administrative Rules 8130.5800 ISOLATED OR OCCASIONAL SALES AND SALES OF PERSONAL PROPERTY USED IN TRADE OR BUSINESS.
The answer from the state is correct – but only to a point. They are correct that tax is generally not collected in instances where you are selling for that seller and only that seller (an auction by their definition) not at consignment auction. However, regularly scheduled consignments auctions are not considered auctions (I know it sounds crazy – but that’s the law – see Rules 8130.5800 Subp. 10 B.), and are instead considered consignment auctions. As a result, Subp 10 applies.
Subp. 10. Consignment sales and consignment auctions.
A. For purposes of this part, consignment sales are sales in which a retailer maintains a place of business where tangible personal property owned by others is sold by the retailer in the normal course of business. The retailer may also sell property owned by the retailer. A consignment sale is not an auction, as defined in subpart 8.B. Consignment auctions are events that are regularly scheduled, are open to members of the public to sell their items, and are held at the same location. Consignment auctions are not selling events, as provided under Minnesota Statutes, section 297A.87. Consignment auctions are not auctions, as defined in subpart 8.
C. The sale of items held in inventory, taxable services, and property primarily used in a trade or business is generally subject to tax, as provided in Minnesota Statutes, section 297A.68, subdivision 25.
D. Consignment sales and consignment auctions are exempt from tax if:
(1) the title to the property passes directly from the owner to the buyer;
(2) the payment does not pass through any accounts of the retailer or auctioneer;
(3) the retailer or auctioneer does not carry insurance on the property; and
(4) the rights to accept or reject any offer are retained by the owner.
If all four of the exceptions apply at consignment auction, you are not required to charge tax. If an auctioneer fails to meet any of the four, tax is required to be collected. Of course, there are exemptions that the buyer can have – and most require them to have a tax id number, and all require them to complete an exemption form.
To answer your question, if it’s a regularly scheduled consignment auction, tax should be charged. If is a stand alone auction for a seller, tax is not required to be charged if it meets the exemption explained in the correspondence from the state. In fact, our company has taken the collection one step farther, and collect sales tax on all consignment auctions. We have found the term regularly scheduled to be unevenly applied, and find it financially prudent to charge tax on all consignment auctions rather than risk an audit, and assessment of unpaid sales tax.