Are you calculating the correct amount of use tax on your vehicles every month?
A motor vehicle dealer is entitled to purchase motor vehicles for resale, lease or rental without paying sales tax. The dealer may use the motor vehicle for retention, demonstration or display without becoming liable for the sales or use tax. However, if the motor vehicle is used for “purposes in addition to retention, demonstration, or display,” the dealer becomes responsible for the payment of use tax. Such purposes include personal and business use, such as running errands for parts and supplies and transportation for a salesperson, owner, partner or officer.
Use tax per plate
Examples of motor vehicles subject to use tax based on an amount per plate per month include automobiles assigned to salespersons, the controller and other employees subject to withholding for federal income tax purposes or to sole proprietors, partners, shareholders, LLC members or other owners of a dealership who actively participate in the daily operation of the dealership and use the automobiles for personal travel such as to and from home. It is important to note that motor vehicles provided by a dealer to customers without charge for use while their motor vehicle is being serviced or repaired by the dealer are not subject to use tax.
The amount subject to use tax per month is $144 per plate (regular or dealer) for 2012. This amount is subject to change each year.
Use tax per lease value
Motor vehicles held for sale and not assigned to specific dealer employees subject to withholding for federal income tax purposes on wages or certain dealership owners are subject to use tax based on the “lease value” of the motor vehicle for the period the motor vehicle is used by the dealer for any purpose, in addition to retention, demonstration, or display.
Examples of motor vehicles subject to use tax based on amounts from the IRS Lease Value Table include motor vehicles with the following purposes: used as courtesy shuttles to transport customers, used by spouses or family members of the dealer who are not employees, assigned to owners of the dealership who do not actively participate in the daily operation of the dealership, or to officers and directors of the dealer who are not subject to withholding for federal income tax purposes or provided to celebrities, athletic coaches and others without charge for their use.
Vehicles not held for sale
Motor vehicles not held for sale, which are properly capitalized for income or franchise tax purposes, are subject to use tax based on the sales price of the motor vehicle to the dealer. Examples of this are tow trucks, parts trucks, snow plows, and antique vehicles held for promotional purposes.
Repairs – Parts & Supplies
Persons engaged in motor vehicle repair, including body shops, may purchase property for resale without tax. This includes tangible personal property that is physically transferred to the customer’s vehicle and leaves the repair facility with the repaired vehicle. Such property includes paints, paint hardeners, plastic fillers, welding rods and motor vehicle parts.
Purchases of tangible personal property not physically transferred to a customer or attached to a customer’s motor vehicle are subject to tax. Such property includes tools, equipment and supplies used or consumed in performing motor vehicle repair service. Examples of taxable supplies include the following: sandpaper, masking paper and tape, buffing pads, paint and lacquer thinner, clean and glaze compound, disc pads, paint remover, paint masks, tack rags, steel wool, industrial gases, metal conditioner, brushes, lacquer-removing solvent, rubbing compound, wax and grease remover, fluxing materials, disc adhesive and all other items not physically transferred to the customer’s motor vehicle.
The buyer is subject to use tax on any items acquired without tax with an exemption certificate claiming resale that are used in a taxable manner. Therefore, parts purchased without tax for resale that are installed on service vehicles such as parts trucks are subject to use tax.
Calculating sales and use tax transactions can be confusing. Contact Crystal Krenke, a member of Schenck’s Sales and Use Tax Team, for a free one-hour consultation on how to compute the proper amount of use tax for your dealership. She can be reached at 920-996-1218.
Crystal Krenke, senior accountant, helps businesses ensure their sales and use tax practices are in compliance with state regulations by reducing their exposure and identifying potential liabilities. She has experience with the State of Wisconsin’s recent acceptance into the Streamlined Sales & Use Tax Agreement (SSUTA) and the legislative changes to Wisconsin’s statutes.