Tax Type
BPOL Tax
Description
Local License Tax on Motor Vehicle Dealers
Topic
Local Taxes Discussion
Date Issued
07-10-1990
90-3
LOCAL LICENSE TAX ON MOTOR VEHICLE DEALERS
Background
Senate Bill 138 (1990 Acts of Assembly, ch. 670) creates a uniform definition of a motor vehicle dealer's gross receipts for the local license tax on businesses, professions and occupations.
1991 and after: For taxable years beginning on and after January 1, 1991, a motor vehicle dealer shall deduct the value of trade-in vehicles from the gross receipts reported to any locality imposing the license tax.
1990 and before: For taxable years beginning before January 1, 1991, localities are prohibited from assessing omitted license tax attributable to the exclusion of trade-in values from gross receipts unless the locality enforced a policy of including the trade-in values in a motor vehicle dealer's gross receipts prior to January 1, 1990.
The definition of a motor vehicle dealer's gross receipts for local license purposes has not been uniform among the localities. Some localities clearly defined gross receipts to exclude the value of trade-in vehicles, some clearly did not allow an exclusion for trade in vehicles, and other localities had not specifically addressed the issue. Although the definition of a motor vehicle dealer's gross receipts will be uniform in taxable years 1991 and after, the bill clearly ratifies both definitions for earlier years, but limits the ability of a locality to apply a new policy retroactively. Therefore, the impact of the bill depends on how each locality has administered its license tax prior to January 1, 1990.
Impact in Localities
Where the Definition of Gross Receipts In the Local Ordinance Clearly Excluded Trade in Vehicles
Taxable Year 1990: The definition of a motor vehicle dealer's gross receipts will continue to exclude the value of trade-in vehicles. The existing definition already conforms to the new law.
Taxable Years before 1990: Where a local ordinance clearly excludes the value of trade-in vehicles from gross receipts, any dealer who erroneously included the value of trade in vehicles in gross receipts and paid the tax may apply for a refund in accordance with the locality's ordinance.
Where, Prior to January 1, 1990, the Definition of Gross Receipts In the Local Ordinance, as Interpreted and Enforced by the Locality, Clearly Does Not Allow an Exclusion for Trade-In Vehicles
Taxable Year 1990: Motor vehicle dealers must include the trade-in value in gross receipts. The locality may assess omitted tax attributable to failure of dealers to include trade-in value in gross receipts.
Taxable Years before 1990: The locality may assess omitted tax attributable to the failure of dealers to include trade-in value in gross receipts.
Where the Definition of Gross Receipts in the Local ordinance Does Not Specifically Provide an Exclusion for Trade-in Vehicles, and There Is No Evidence That, Prior to January 1, 1990, the Locality Prohibited an Exclusion
Taxable Year 1990: If a locality cannot demonstrate that prior to January 1, 1990, it had clearly enforced a policy requiring the inclusion of trade-in value in gross receipts, then a motor vehicle dealer may exclude trade-in value from gross receipts, and the locality is prohibited from assessing omitted license tax attributable to the dealer's failure to include trade-in value in gross receipts.
Taxable Years before 1990: Because the locality is unable to demonstrate that it clearly enforced a policy requiring the inclusion of trade-in value in gross receipts, it is prohibited from assessing omitted license tax attributable to a dealer's failure to include trade-in value in gross receipts.
Refunds: In any request for a refund the burden is on the taxpayer to show that the tax paid was erroneous. Because Senate Bill 138 clearly ratifies both definitions of gross receipts for taxable years before 1991, neither definition is clearly erroneous under state law. Therefore, under S.B. 183 a locality would be required to make a refund only if all of the following criteria are satisfied: (1) The taxes paid were the result of an assessment for omitted license tax for a taxable period before January 1, 1991; (2) The assessment was made after January 1, 1990; and (3) The dealer proves that locality had not clearly enforced a policy requiring the inclusion of trade-in value in gross receipts prior to January 1, 1990. The evidence needed to prove whether the locality had enforced such a policy depends on the nature of each locality's administrative practice in interpreting and enforcing its license tax ordinance. A dealer who included trade-in vehicles in gross receipts is not entitled to a refund unless the dealer can satisfy all three criteria, or otherwise show that the tax paid was clearly erroneous under local ordinance.
Adding Separately Stated Tax To Sales Price
A motor vehicle dealer is permitted to separately state the license tax attributable to a sale and add it to the purchase price of a motor vehicle if the purchaser agrees. When computing the amount of tax attributable to the sale the motor vehicle dealer shall use the same method used to report gross receipts to the locality. If a dealer has computed and collected from purchasers a separately stated license tax without excluding trade in value, but excluded trade-in value from gross receipts reported to the locality, then the locality may assess the amount of tax actually collected from purchasers but not paid to the locality.
Rulings of the Tax Commissioner