CHARLESTON, WV - Owners of Charleston Auto Auction had to pay sales taxes on buying and selling fees for auctioned vehicles when sales taxes are typically not charged on wholesale transactions between two businesses, reported the Charleston Gazette-Mail newspaper. West Virginia collected sales taxes on fees from wholesale auto auctions from 1992 to 1994.

Former Tax Secretary James H. Paige III sent a letter to the head of West Virginia Auto Dealers Sept. 22, 1992 stating that auto auctions were subject to buyer and seller fees to dealers that utilitze their services due to an arrangement between the auto auctions and the tax department, as of May 1, 1992, reported the Charleston Gazette-Mail.

Alan Willard and Dan Berry, the owners of Charleston Auto Auction, and who also own Orlando Auto Auction in Florida, decided to challenge the practice of taxing fees from wholesale auctions.

If a vehicle sold for $5,000 at auction, the original owner may be subject to a service fee of about $150. After the tax department issues sales tax on thos fees, total sales taxes could reach up to $10 million, according to one of the auction owners.

After writing to the tax department complaining of this practice, owners of the auction received a letter from a tax department lawyer stating that sales taxes should not be collected on those service fees, explaining that an auctioneer selling property on behalf of another provides a service that is not subject to consumers sales and service tax, reported the Charleston Gazette-Mail. However, it was noted that transportation, storage, and preparation fees would still be taxable.

The state determined that auto dealers and auctioneers could request refunds only on sales taxes paid on transactions made during the previous two years, reported the Charleston Gazette-Mail.