One-Time Registration Fee on Vehicle Purchases & Leases

Terry O’Neill

One-Time Registration Fee on Vehicle Purchases

& Leases

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What is the One-Time Registration Fee?

Purchased Vehicles• 5% one-time registration fee

– imposed on the purchase price of a vehicle subject to registration.

• Due from the purchaser at the time of registration.

• Paid to the appropriate county treasurer or the Iowa Department of Transportation

• Dealers may collect the fee from their customers at the time of purchase, but they are not required to.

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Leased Vehicles• 5% one-time registration fee is also imposed on the

lease of a qualified vehicle.

• Based on the “lease price” of the vehicle.

• Vehicle must be leased for 12 months or longer – Must have a gross registered weight < 16,000 pounds.

• Fee paid to the appropriate county treasurer, Iowa Department of Transportation, or directly to the Iowa Department of Revenue

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Not a Sales/Use Tax

• Prior to July 1, 2008– registered vehicles were subject to a motor

vehicle use tax – the same rate as the state sales/use tax

• Beginning July 1, 2008– registered vehicles are exempt from sales/use tax.– subject to the one-time registration fee

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Requirements for Imposed the fee

All three conditions must be met for the one-time registration fee to be imposed:

1. Is it a vehicle subject to registration? Does the vehicle have county plates?

2. Is there a change of ownership? Does the name on the title change?

3. Is there consideration? Do the seller and buyer receive something of value or have given something up for the vehicle?

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Imposed on thePurchase Price

The 5% motor vehicle one-time registration fee is imposed on the

purchase price of a vehicle subject to registration.

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What is the Purchase Price?

The total amount for which the vehicle is sold,

valued in money, whether paid in money or otherwise.

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What’s Included in the Purchase Price?

The purchase price includes:• All accessories• Additional equipment• Taxable services• Freight-in• Mandatory assembly/set-up fees• Manufacturer’s taxes

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What’s Not Included in the Purchase Price?

• Cash discounts.

• Manufacturer’s Cash rebates – if applied to the purchase price of the vehicle.

• Document fees

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Vehicle Trade-Ins• Only the owner(s) with legal title can transfer the vehicle.

– Must be named on the vehicle title.

• Title name(s) – must be on registration for trade-in value to be applied to

the purchase price.

– Must also be the same name(s) on title and registration of new vehicle.

• A vehicle can be used as a trade-in for the purchase of more than one other vehicle.

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Trade-Ins to Dealers

The purchase price subject to the one-time registration fee is reduced by the amount of the trade if both of these conditions are met:

1. The tangible personal property being traded is the type normally sold in the regular course of the dealer’s business.

2. The property traded is intended to be sold at retail or is intended to be used in the remanufacturing of a like item.

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Trade-In to Dealer Example

• Greg purchases a new car froma used car dealership.

• The dealer allows a trade-in of $10,000 for Greg’s old car.

• Greg pays the dealer the difference of $20,000.

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$30,000

-$10,000

$20,000

The one-time registration fee is due on $20,000.

EXEMPTION #1: GIFT, PRIZE, OR TRANSFER WITHOUT

CONSIDERATIONGift Transfers• A gift of a vehicle from one person to another is exempt from

the one-time registration fee.

• For a gift to occur, no consideration can be present.

• Note: Transfers among family involving consideration are not exempt from the one-time registration fee

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EXEMPTION #1: GIFT, PRIZE, OR TRANSFER WITHOUT

CONSIDERATIONRaffle Prize• An organization purchases a vehicle from a dealer.

• Vehicle is used as a raffle prize under Iowa Code chapter 99B.

• No one has to pay the one-time registration fee.

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EXEMPTION #2: CERTAINNONPROFIT ORGANIZATIONS

• Nonprofits are not automatically exempt.• List of exempt non profits on website.

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EXEMPTION #2: PRIVATE NONPROFIT EDUCATIONAL

INSTITUTIONS• Exempt from one-time registration fee

• To claim the exemption– Pay for the vehicle– Take title to the vehicle

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EXEMPTION #2: GOV’T UNITor QUALIFYING GOV’T CORP

• Governmental unit or certain federal corporations are exempt from the one-time registration fee.

• To claim the exemption– Pay for the vehicle– Take title to the vehicle

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EXEMPTION #3TAXABLE BUSINESS TRANSFERS

• A transfer from one corporation to another corporation– Is subject to the one-time registration fee

• A transfer from one LLC to another LLC– Is subject to the one-time registration fee

• A transfer from one partnership to another partnership– Is subject to the one-time registration fee

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EXEMPTION #3EXEMPT BUSINESS TRANSFERS

• Vehicles transferred from a sole proprietorship or a partnership to a new corporation or LLC for the purpose of continuing the business.

• Vehicles transferred from a LLC to a new corporation for the purpose of continuing the business are also exempt.

• Note: All ownership of the old entity and the new entity must be the same.

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EXEMPTION #4DEALERS

• New Car Dealers– Exemption allowed for new vehicles for resale– Only applies to brands licensed to sell

• Used Car Dealers – Exemption allows for used vehicles for resale– Applies to any brand

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EXEMPTION #5VEHICLES PURCHASED FOR RENTAL OR LEASE

Purchased for RentalVehicle is exempt if these conditions exist:1. The person must be regularly engaged in the business of renting

vehicles and licensed under Iowa Code chapter 322; and

2. The vehicle must be held for rental for a period of 120 days or more and actually rented for periods of 60 days or less; and

3. The rental is subject to Automobile Rental Tax and/or Sales Tax.

Note: Motorcycles and motorized bicycles are not eligible for this exemption.

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EXEMPTION #5VEHICLES PURCHASED FOR RENTAL OR LEASE

Purchased for LeaseVehicle is exempt if all of the following conditions exist:1. The vehicle is subject to registration under Iowa Code chapter 321;

and

2. The vehicle has a gross vehicle weight rating of less than 16,000 pounds; and

3. The vehicle is purchased for lease and titled by a lessor licensed pursuant to Iowa Code chapter 321F; and

4. The vehicle is leased for a period of 12 months or longer; and

5. The lease of the vehicle is subject to the one-time registration fee on the lease price.

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EXEMPTION #6INTERSTATE COMMERCE,

LEASED VEHICLETo be exempt:• Leased vehicles for use outside of Iowa• Sole, subsequent use in Iowa is for interstate commerce or

transportation

Vehicles defined under Iowa Code 321.1• Motor trucks• Truck tractors• Road tractors• Trailers• Semi-trailers

Note: Vehicles designed primarily for carrying people are not exempt.

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EXEMPTION #7VEHICLES USED IN

INTERSTATE COMMERCETo be exempt:• Vehicles (power units, trailers, and semi-trailers) are

registered or operated under Iowa Code chapter 326

• They must accrue at least 25 % of their mileage outside Iowa

• They are registered for a gross weight > 13 tons (26,000 pounds)

Applies to Leased or Purchased vehicles

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EXEMPTION #7VEHICLES USED IN

INTERSTATE COMMERCEFor the first 4 years of operation:• The 25 percent out-of-state mileage factor must be maintained.

• If the vehicle is sold, traded, or disposed, the exemption still applies if it met the mileage requirement while owned.

If the mileage factor is not met in the first year:

• The registration fee is due on the full purchase price.

If the mileage factor is not met in subsequent years:• The registration fee is due on book value or fair market value,

whichever is less.

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EXEMPTION #8 OTHERMANUFACTURED HOUSING AND

MOBILE HOMES

• Manufactured housing and mobile homes– Are subject to 6 percent use tax on 20 percent of the purchase price– Do not have a one-time registration fee.

• Modular homes– Are subject to 6 percent state sales tax on 60 percent of their purchase

price.– Do not have a one-time registration fee.

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EXEMPTION #8 OTHER INHERITANCE I WITH/ WITHOUT A COURT ORDER

AND TRANSFER OF TITLETransfers Resulting from Court Orders• Court-ordered transfers of vehicles are exempt from the one-

time registration fee.

• The vehicle must be transferred by court order and not by mutual agreement of the parties.

Example• John and Mary own a Ford Explorer valued at $32,000 and a

Chevrolet van valued $22,000. John and Mary get a divorce. In the divorce decree, John receives the Chevrolet van and Mary receives the Ford Explorer. The one-time registration fee is not due.

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EXEMPTION #8 OTHER INHERITANCE I WITH/ WITHOUT A COURT ORDER

AND TRANSFER OF TITLE

Transfers without Court Order (by will and intestate)• Vehicles are exempt from the one-time registration fee.

• Supporting documentation must be provided– A copy of the will, death certificate or inheritance tax return may be

requested at the discretion of the county treasurer to support the exemption.

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UT510 Exemption CertificateKnowledge

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Other Issues

Disabled Veterans

• If a governmental entity takes title:– The registration fee does not apply.

• If the veteran takes title:– The registration fee will apply.

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Sale of Chassis with Added Equipment or Accessories

• If Dealer provides both

– fee due on whole charge

• If a third party adds the equipment or accessories– registration fee paid on chassis– sales tax paid on equipment or accessories

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Optional Service Agreements

• Sales tax is due on an optional service agreement.

• If the dealer includes optional service agreement in the price of the vehicle– IDR requests county treasurers return documents to the

dealer with instructions to remit the sales tax on the optional service agreement directly to the Iowa Department of Revenue.

– Then the one-time registration fee then submitted to the county treasurer based on the sale price of the vehicle, less the cost of the optional service agreement.

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One-Time Registration Fee on Leased Vehicles

Qualifying Vehicles

• Registration fee based on the lease price rather than the purchase price if:– Gross vehicle weight rating of less than 16,000 pounds– Leased for 12 months or longer

• Registration fee based on the purchase price if:– Weight or lease term requirement is not met

• These provisions also apply to motorcycles and motorized bicycles.

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Imposed on Lessor

• By law, the registration fee on leased vehicles is the liability of the owner (lessor) and not the lessee.

• Iowa law does not prohibit a lessor:– from adding the one-time registration fee to the monthly

lease payment – or requiring the lessee to pay the one-time registration fee

up front.

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Registration Fee Refunds on Leased Vehicles

Refunds are now allowed:• If the lessee moves out-of-state before the end of the contract.

Refunds may be allowed:• under the Iowa Lemon Law (only the manufacturer may file for a

refund);• if the registration fee was computed in error and an overpayment was

made to the Iowa Department of Revenue; • if the one-time registration fee was paid on the purchase price and not

lease price; • if the lease was voided.

Note: Although the lessee may have paid the one-time registration fee, the incidence of the one-time registration fee is on the lessor, and only the lessor is eligible to file a claim for refund.

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Lessee Terminates Lease to Purchase

• The purchase price is subject to the registration fee.

• This situation involves two separate transactions and two separate registration fees are imposed.

– The first fee is on the lease.

– The second fee is on the purchase.

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Extending or Transferring a Lease

• Extending a lease on the same vehicle– The lessor owes the registration fee on the lease

extension.

• Transferring a lease to another lessee– no additional registration fee is due, as long as title to the

vehicle is maintained by the same lessor

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Leased Vehicle WorksheetKnowledge

Leased Vehicle Worksheet for Move-insKnowledge

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Resources

Information OnlineKnowledge

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This presentation is intended for general educational purposes only.

Anyone involved in an audit or protest must contact the Department

representative they are working with on that issue.

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THANK YOU!!