News/Publications

Are You Meeting Your Sales and Use Tax Obligations?

July 26, 2019

The consequences of failing to comply with sales and use tax requirements can be severe. In some states, dealership owners can be held personally liable for unpaid sales and use taxes — even if they’ve delegated this responsibility to one of their employees.

Determining sales tax nexus

For starters, it’s critical to determine which states will require a dealer to collect sales tax when vehicles are sold to out-of-state buyers. In general, if your dealership has a physical presence in a state, you have nexus there and must collect tax on vehicles sold to resident buyers.

You may also have nexus and, therefore, a requirement to collect and remit tax in states where new economic nexus standards based on gross sales are exceeded.

Once a dealership has nexus in a state, it may face many sales-and-use-tax-related questions, such as:

• Are options and accessories installed by the dealership taxable on the vehicle sale or as a separate sale made through the service department?

• Should sales tax be charged on service contracts, restocking fees and document preparation fees?

• Are supply charges in the parts and service department subject to sales tax?

• Are freight costs incurred to obtain parts and passed along to customers subject to sales tax as a sale of tangible personal property?

• Should sales tax be charged on factory warranties sold along with vehicles?

• Do trade allowances reduce the purchase price subject to sales tax?

The answers to these questions can vary from one state to the next. So, consult with your tax professional about the local sales and use tax rules that apply to your situation.

Conducting a compliance checkup

Sales and use tax can be a complex topic, particularly if you sell to customers across state lines, use social media or advertise on the Internet. However, it’s important to get it right — otherwise, you could be hit with an unexpected tax bill, as well as penalties and interest. Contact your tax advisor to conduct a nexus checkup to ensure you’re complying with the relevant guidance.

© 2019