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 21 new jersey auto retailer W W W . N J C A R . O R G then the sale shall be sourced to the location where receipt by the purchaser (or the purchaser’s donee, designated as such by the purchaser) occurs, including the location indicated by instructions for delivery to the purchaser (or donee), known to the seller. This exemption is based on the fact that if the buyer does not take possession inNew Jersey, then the sale did not happen inNew Jersey. A sale is considered to occur where the last act necessary to complete the sale takes place. In the sale of a vehicle, the last act necessary is the buyer taking physical control of the vehicle. The law goes on to state that delivery to a shipping company designated by the buyer does not count as delivery to the buyer. For this reason, delivery to a port or shipping warehouse is still considered delivery out-of-state even if the port is within New Jersey. There is one additional requirement that makes this exemption inconvenient to rely on, however. The Divi- sion of Taxation has advised that issuance of a resident or non-resident temporary registration is inconsistent with the requirements for this exemption, and therefore, no temporary registration can be issued. 4. The sales tax on “demos.” The general rule is that when a vehicle in inventory is taken out of inventory and put into use by the dealership, use tax becomes due based on the dealer’s cost for the vehicle. However, there is an ex- emption to the use tax in this situation for vehicles put into use as a “demo” which, in this context, means vehicles assigned to full-time salespersons for their use. No use tax is due on these vehicles. Use tax is due on vehicles provided to management, a dealer principal, or family members of an owner. In these cases, the sales tax regulations allow for a monthly payment method roughly based on the monthly depreciation. All other vehicles which are taken out of inventory and titled and registered incur a full use tax up-front, based on their cost to the dealership (though a credit similar to a trade credit can be claimed if they are put back in inventory and replaced by another vehicle taken from inventory). 5. Extended service agreements and deduct- ibles. Extended service agreements (often erroneously called “extended warran- ties”) are taxed as they are considered pre-payment for taxable services. Therefore, there is no tax later, when service is performed under the extended service agreement, unless there is a deductible, inwhich case sales tax is charged on the deductible only. 6. Sales tax on leases. Questions about the calculation of the sales tax on leases are common simply because the formula is complicated. Under rules adopted in 2005, sales tax on a lease is based on the total amount paid to the lessor under the lease. This includes the total of the payments, any cap cost reduction that is paid, and any origination or other fees charged by the lessor. The complications arise because customers frequently want to amortize all costs associated with the lease into the lease payments, includingmany non-taxable items such asmotor vehicle fees, the sales tax itself, and prior lease obligations. Because these items are not taxable, the portion of the lease payments representing the amortiza- tion of these items into the lease should be excluded from the total of the lease payments. The tax is not based on the actual payments the customer will pay in the end, but rather, on what the payments would have been if the customer had paid all the non-taxable items up-front. Different computer programs used to calculate lease tax payments often use different mathematical formulae to achieve this, and some fail to take into account things like the increase in the “rent” charge attributable to the excluded non-taxable items. As long as the differ- ences are minimal, however, the Division of Taxation has assuredNJ CAR that this should not be a problem. 7. Vehicles sold for resale. The “resale exemption,” also known by the name of the exemption formthatmust be used to claimit (ST-3) exempts fromtax “wholesale” transactions or purchases of inventory intended for resale to another. The most common issue involves attempts by holders of used motor vehicle dealer licenses to purchase new cars, claiming they are doing so “for resale.” The problemis that although such an exemption claim may theoretically be legitimate, these are often good reasons to be skeptical. This raises the issue of who is liable for the tax, if the claim turns out to be fraudulent. 8. The use tax and loaner cars. The use tax generally applies tovehicles taken frominventory andused as “courtesy” loaners for repair customers who are not charged for their use. This is in contrast to the tax treatment of vehicles removed from inventory for use as rental vehicles; as long as sales tax will be charged on the rental, these vehicles are “for resale” and thus remain exempt under the resale exemption. There are situations, however, in which the use tax may not apply to “loaner” vehicles. When the use of a loaner is something the dealer- ship is contractually obligated to provide, under an obligation arising from the original sale on which sales tax was paid, then no use tax is due. The same distinction applies in the case of warranty repairs vs. “courtesy” repairs. There is nouse tax due for parts used in awarranty repair. However, when a dealership performs a “courtesy” repair, one that the dealership performs as an accommodation or for goodwill, and not because it is contractually obligated, then use tax is due on any parts used in the repair.