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 33 new jersey auto retailer W W W . N J C A R . O R G The dealership should claim a sales tax trade-in credit when replacing the loaner vehicle with another vehicle. The dealership should determine the wholesale value of the vehicle being removed from loaner service to determine the trade-in amount. For parts sales, verify proper treatment of taxable and tax- exempt items. Regarding sale for resale situations, make sure an ST-3 is available for any exempt sale. Review proper completion of ST-3 Forms. The forms should be signed by an owner, partner or officer of the company. For repair orders with warranty work included, verify that sales tax is charged on any deductibles or non-warranty work. Verify that invoices for tangible property listed on the fixed asset schedule show sales tax paid or reference month and year use tax is reported on the sales tax return. Trace use tax indi- cated on invoice to worksheets for applicable sales tax return. Verify that invoices for capital improvements on the fixed asset schedule do not show sales tax paid and include Form ST-8. Not all capital improvements qualify for a sales tax exemption. The publications for Form ST-8 on the New Jersey Division of Taxation website are often a helpful reference. When the deal- ership claims a sales tax exemption for a capital improvement, the dealership must provide the contractor with a properly executed Form ST-8. Capital Improvement means an installa- tion of tangible personal property which increases the capital value or useful life of real property (land or buildings). The item(s) installed must be permanently attached to the property. In the event the work performed is taxable, the contrac- tor’s bill should itemize the labor charges and the material charges separately. The contractor only charges sales tax on the labor when the work performed is a taxable capital improve- ment. Verify that invoices for taxable purchases and services show sales tax paid. If not, reference the month and year use tax is reported on the dealership’s sales tax return. Trace use tax indicated on invoices to worksheets for applicable sales tax returns. Review credit card statements for taxable purchases. Again, verify that statements for taxable purchases either show New Jersey sales tax paid or reference month and year use tax is reported. Review postings to accounts for purchases from out-of-state vendors (typically without sales tax). Review monthly use tax calculation on applicable demonstra- tor vehicles and verify that use tax was paid. In addition, if the dealership uses loaner vehicles from an outside company, sales tax must be charged to either the customer or the dealership. If the factory requires a dealership to provide customers loaner cars for warranty work, the loaner charge is exempt from sales or use tax. The requirement for a loaner must be part of the warranty or in writing from the factory at the time of sale. Use tax is due on demos used by owners and employees (other than sales personnel). The dealership should pay sales tax when registering vehicles removed from inventory and placed in loaner service. The dealership should claim a sales tax trade-in credit when replacing the loaner vehicle with another vehicle. The dealership should determine the wholesale value of the vehicle being removed from loaner service to determine the trade-in amount. Any issues that come up can cause a delay due to ambiguity and extend the audit timeframe. Paying close attention to the items discussed in this article can go a long way to make a dealer’s experience with a New Jersey tax auditor shorter and more productive. Louis Young is Director of Client Services for Withum Smith + Brown. He can be reached at 732.572.3900 or at lyoung@withum.com.