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CPA firm develops Illinois sales tax checklist for dealerships

July 3, 2015
Vehicle dealerships face a broad range of compliance-related concerns associated with sales tax, particularly in the areas of vehicle sales and service department transactions. As many recent Illinois sales tax audits have shown, the potential sales tax liability for errors caused by incorrect or insufficient dealer practice and procedures can be astronomical.  
Proper sales and use tax compliance requires periodic checks to make sure that the dealership staff is compliant with current requirements and proper application of taxability and exemptions.  Michael Silver & Co., a Skokie-based CPA firm and a CATA allied member, has created a comprehensive and complimentary Vehicle Dealer’s Sales Tax Checklist that identifies and outlines the broad variety of areas that should be addressed. 
Many of the issues in the checklist have been subject to audit assessment and areas of focus by Illinois Revenue Department auditors. The checklist has been built from those audit experiences. The following are examples from the seven-page checklist:
 
New Method (use for qualified leases and qualified vehicles on or after Jan. 1, 2015)
 
• Selling price includes the down payment, all acquisition and lease fees, and the total amount of lease payments payable over the term of the lease.  Additionally, the selling price must include pre-paid warranty policies, negative equity from previous leases, and even the lessee reimbursement of lessor sales tax included in the monthly lease payment or at lease inception.  
 
• Select A on Line 7 of Form ST-556-LSE.
 
• Applies to leases with both (1) Fixed term lease contract for a period of more than one year; and (2) Qualified vehicles as defined as first division motor and second division vehicles with a gross vehicle weight rating of 8,000 pounds or less, which includes most automobiles, pick-up trucks, and SUVs along with certain vans, motorcycles, and recreational vehicles.
 
• No Trade-in credits allowed — including advance trade credits and third-party trade-ins.
 
• When vehicle is resold, no credit for sales taxes previously paid.
 
Repair Orders
 
For a Sublet repair (use of outside provider to perform the repair:
 
• Same as in-house repairs — parts are taxable, labor is not. If there is no breakdown on the vendor invoice, assume the parts are 50 percent of the cost.
 
• Provide the vendor with a resale certificate.
 
• Not optional to just pay tax to the sublet service provider.
 
To obtain a copy of the complete checklist, contact Judy Mason, a tax partner at Michael Silver & Co., at (847) 213-2075 or judym@msco.net.
 
 

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