Pub. 15 2016-2017 Issue 2

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S I S S U E N O . 3 , 2 0 1 6 20 new jersey auto retailer T here are several sales and use tax topics that frequently cause confusion and mistakes. The following are some of the most common sales tax questions received by NJ CAR: 1. The trade credit and cash back to the customer. New Jersey law allows a credit against the taxable purchase price in the amount of the agreed-upon value of any vehicle taken as a trade- in. A common error is allowing a trade credit in the full agreed-upon value when a customer who has equity in the trade vehicle elects to take cash back out of the transaction. Because the trade credit is based on the fact that a part of the purchase price was paid for by exchange, and not with cash, logic dictates that the trade credit is limited to the amount of value contributed towards the exchange (or towards the payoff of a lien on title to the trade vehicle). Therefore, the trade credit must be reduced by the amount of any cash back to the customer. 2. The non-resident exemption, the residence of a corporation, co-owners and co-signors. NewJersey allows an exemption fromsales tax for customerswho are non-residents ofNewJersey. However, this exemption is onlyavailable to “complete” nonresidents. In order to qualify for this exemption, a purchaser cannot have any residence in New Jersey, even a vacation home, which serves as a secondary residence. A frequent question involves co-signors: what happens if the buyer is anon-resident, but the lender requires a co-signor, who is aNewJersey resident? The answer depends on whether the lender requires the co-signor to be on title as a co-owner. If the co-signor is also a co-owner, the transaction will not be exempt. If the co-signor is not on the title, and only signs the installment sale agreement as a guarantor, the transaction is exempt. One final note involves business entities, such as corporations, and employees. A corporation is considered a resident of the state in which it is incorporated, the state where it is physically located, and alsowherever it engages in business activity. So, a corporationmay be incorporated inDelaware, have its headquarters inPennsylvania, and have some operations in New Jersey. That corporation is considered a resident of all three states, and would not be exempt from the New Jersey sales tax. However, this is not the case for an employee of a business. An employee of a New Jersey corporation is not, by that reason alone, a New Jersey resident. A nonresident does not become a resident just by working in New Jersey. 3. Delivery outside of New Jersey, delivery to a port for shipping. The exemption for deliveries outsideNewJersey is oftenconfusedwith the non-resident exemption, but they are not the same and, in fact, the delivery exemption often applies when the non-resident exemption is unavailable because the buyer is a dual resident. This exemption is governedbyN.J.S.A. 54:32B-3,whichprovides that: If the product is not received by the purchaser at a business location of the seller, Common Sales and Use Tax Questions BY PATRICK COX, ESQ.