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Auction Software Handling of GST or VAT Taxes
(first published 2001)

SOLD II handles GST or VAT.
First published in 2001, this article is as valid now as it was then.

SOLD II -- Handling GST or VAT

Canada, Australia, New Zealand, South Africa, Great Britain, and much of Europe have some form of VAT (Value Added Tax) or GST (General Services Tax) all of which use a value-added concept.

The value-added concept in a nutshell is that the Government is paid tax on the gross margin of each transaction. Simple in theory, the application of GST, particularly for auctioneers has shown wide variability.  The SOLD II model, however, accommodates these variations if set up correctly.

Please note that the screens in SOLD II which refer to Sales Tax or Sales Tax Jurisdiction are not used for the GST or VAT.  "Sales Tax" refers to the US model where taxes are charged at the State or local level on the entire purchase price and the entire amount is passed through to the taxing jurisdiction.  In most jurisdictions where a "National" GST or VAT is used, there is no local sales tax and these values should be entered as 0 rate (zero).  In such cases, setup a zero rate tax jurisdiction in the tax jurisdiction file and use that for all of your auctions.

The major exception to the above advice is Canada, where in most provinces there is both a local (Provincial) sales tax AND a GST (National) tax. SOLD II handles the combination of both Provincial Sales Taxes and GST, accounting for both in its reporting.

Setting Up the GST or VAT rate:

Go to the "Company Information" Screen (from the Main menu, go to #12 Misc. Mgt., then to #1 Custom Setup; "Company Information will be #1 on that sub menu).  On this screen there is a prompt for "GST Rate" or "Canadian GST Rate" or "GST/VAT Rate" depending upon the version of SOLD II.  Enter the %  rate of your National GST/VAT at this prompt. You only have to do this once (unless your Nation's rate changes) and you are now setup to use GST/VAT at your auctions.

If that's all you do, buyers will be charged GST on the full amount of their purchases (items and buyers' fees) and the reporting will show the full amount of the tax payable to the government. For most consignments, this is the correct model in Canada, for example.  We wish it were all that simple,  but as you know, it's usually not.

Other SOLD II entries which will customize your GST application:

Consignment:  Reimburse GST?
In screen for Adding or Editing Consignments, there is a prompt (#25) "Reimburse GST".  This field defaults to "N" or NO, but in many countries the tax on the "cost of goods" (sales less commissions and fees charged the consignor) is reimbursed to the consignor, particularly is they are a registrant (business with a tax id).  (If this prompt does not show on your consignment maintenance screen, you haven't set up a non zero GST rate in your Company Information screen; please do so, and return to this screen).
The default value for this entry, is "N". If  this field is set to "Y" or Yes,  the net effect in SOLD II reporting will be to pay the GST collected on buyers' fees, commissions, and other consignor fees to the Government, and the remainder of the GST collected to the consignor.
In a given auction, there can be consignments of both types, some where a portion of  GST is paid to the consignor, and some where it is not (all is paid to the govt.).  This is often the case in Canada where the entire tax is always paid to the govt. on non registrants, but for registrants may be handled either way, depending upon private agreement).

Items: Taxable or Non-taxable (or Zero rated):
In some cases, an item may actually be zero rated. For example, food or agricultural items are  zero rated in many countries. In other locations,  "second-hand items" particularly from non registrants (non businesses) are also exempt or zero rated.
Items may be flagged as "N", non-taxable in either Catalog maintenance, or directly from "Consignor Clerking" if you don't pre lot your sales.
When items are flagged as "N",  the buyer will not be charged GST on the sale price of the item but will be charged GST on Buyers fees related to the item (consistent with the value added concept). In this scenario, the GST on consignment commissions and fees will be subtracted from amount paid the consignor, and all of the GST collected on both buyer and consignor (seller) commissions and fees will be reported as payable to the Government.

Note: because there can be both National and local item taxability under differing rules, there are actual 4 possible tax flags for the item. Besides Y and N, there is also F (taxable Federal (national), but non-taxable Local (provincial)), or P (taxable Provincial, nontaxable Federal).  As far as we know, these extra values are only needed in Canada.

Buyers/Bidders:
There is a "GST Taxable?" flag in the bidder registration screen.  This flag is rarely used since exemption from GST is rare.  If the flag is set to N, no GST will be charged on this buyer. This flag supercedes all other entries.
Some exceptions we have run across where this flag is actually used include "Indigenous Peoples" who may be exempt from all taxes and certain cases of exports to foreign nations.

SUMMARY:
SOLD II has been used successfully by clients in at least 5 countries who have a GST or VAT. To date, with appropriate use of the right combination of settings described above, SOLD II has properly handled every GST/VAT situation.

About the Author:

Carl Borning is co-author President of Proven Software and co-author of SOLD II, a leading professional auction software since 1982. He is also co-author of ProvenBenefit software for fund raising auctions and Proven CHOICE accounting software. Carl's considerable volunteer fund raising experience includes campaign and event chairman as well as board member and chair. Carl holds a BA and MBA from Cornell University.


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