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 32 new jersey auto retailer SURVIVING A SALES TAX AUDIT BY LOUIS YOUNG Upon receipt of a notice from the Division of Taxation, dealers will need to gather materials and data to be reviewed. Typically, The Division will be looking at: 1. New and used vehicle sales with any corresponding pa- perwork that displays the price of the vehicle and the sales tax paid. Any exempt sales will have to be accompanied with properly executed exemption forms. 2. Parts sales with any corresponding parts ticket that displays the price of the part and the sales tax paid. Any exempt sales will have to be accompanied with properly executed ST-3 exemption forms. ST-3 forms should be ac- cessible from one source, typically a folder designated for this purpose. 3. Service work with any corresponding repair orders that display the price of labor, the part and the sales tax paid. Any exempt sales will have to be accompanied with prop- erly executed exemption forms. 4. Purchases with corresponding invoices as backup. This can include credit card bills as well. Any invoice should clearly identify the service or product that is being pur- chased. If sales tax has not been collected by the dealer, proof of use tax paid should be available to the auditor. Keep in mind, sales tax is also due on any freight charge affiliated with a taxable sale. 5. Fixed assets with any corresponding invoices or support documentation that displays the price of the items or ma- terials and the sales tax paid. Some capital improvements would qualify for a sales tax exemption. The best way to survive a sales tax audit is to always have the dealership’s books and records ref lecting an accurate account- ing of the amount of sales tax paid, when it was paid and why it was not paid in certain circumstances. There are a few things to consider before the auditor sets foot in the door. Below is a partial “punch list” of items that should be considered. Select a random sample and test for proper treatment of tax- able and tax-exempt items (vehicle sales, parts tickets and repair orders). Review all invoices for sales where sales tax was not collected and test that proper treatment has been addressed. For new and used vehicle sales, review sales documentation for 100% of out-of-state sales and verify proper treatment of taxable and tax-exempt items. For out-of-state purchases, make sure ST-10’s are included in the deal jacket. A utomotive retailing remains a prime target for the New Jersey Division of Taxation. A key component of their audits is focused on sales and use tax. This article will spotlight the items addressed in an audit and cover some of the issues dealers need to focus on when preparing for an audit.