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Sales tax issues for dealers

October 28, 2011
By James Kegl, CPA, and Shawn Kane, CPA, Crowe Horwath LLP
With the recent focus on state sales-tax compliance, evaluating the accounting systems and procedures within your dealership to verify compliance with state and local sales and use tax laws could prove beneficial.
The evaluation should be designed to make sure proper documentation is maintained and that proper sales and use tax is calculated and paid to the U.S. Department of Revenue. For dealerships without the resources to perform a self-evaluation, many outside firms have procedures modules designed for this purpose.
For a limited time, CATA members can take advantage of a 15 percent discount on fees from Crowe Horwath LLP for performing a sales and use tax evaluation. Other CATA allied members also are capable of performing the evaluation.
Some issues to consider include:
Application of Sales and Use Tax on Warranties
  • Factory warranty repairs
  • Extended warranty repairs
  • Goodwill repairs
Application of Sales and Use Tax on Vehicle Repairs
  • Sublet
  • Shop supplies
  • Free oil changes
Application of Sales and Use Tax on Vehicle Sales Price
  • Leases
  • Loaners
  • Employee discounted pricing
  • Dealer versus manufacturer rebates
  • Sales tax for nonreciprocal states
A sales and use tax module looks at how sales tax is recorded on sales and purchases. The report will identify potential areas where tax should be charged and possible changes in the collection system.
Procedures may include but are not limited to:
1. Scanning new and used sales journals and selecting a test month that will be reviewed for transactions with no sales tax collection. Document the reasons for not collecting sales tax for each applicable transaction (for instance, export deal or tax-exempt organization), and trace the documentation that supports this position.
2. Scanning the detail for charges in policy adjustment accounts for the selected test month. Examine copies of repair orders to help determine if sales tax was collected or examine tax exempt cards if no sales tax was collected.
3. Scanning the parts wholesale journal for the test month for charges where no sales tax was collected. Trace such charges to a tax-exemption card.
4. Scanning parts sales journal for the test month. Examine the tax exemption cards for all sales with no tax collected.
Kegl and Kane, of Crowe’s retail dealer group, can be reached at (630) 575-4255 and (630) 586-5250, respectively.