STATE OF NEVADA DEPARTMENT OF TAXATION

Automobile

Two of the main chapters of the Nevada Revised Statutes and Nevada Administrative Code discussed today are:

• Chapter 372: Sales and Use Taxes

• Chapter 482: Motor Vehicles and Trailers: Licensing, Registration, Sales and Leases

Also referenced will be chapter 374, Local School Support Tax

LAWS GOVERNING AUTO INDUSTRY

AUTOMOBILE INDUSTRY

The Department of Taxation administers the sales/use tax laws and regulations while the Department of Motor Vehicles (DMV) administers laws and regulations governing the licensing, selling, titling and other related issues involving vehicles which are required to be licensed to drive on a public highway(NRS 482.135)

AUTOMOBILE INDUSTRY

The Department of Taxation looks to some of the definitions contained in NRS Chapter 482 for guidance in making determinations of taxability.

Automobile IndustrySome useful sources of information can be found at:DMV main website: http://dmvnv.com/

DMV Registration/Title Guide: http://www.dmvnv.com/pdfforms/regtitle.pdf

Department of Taxation: http://www.tax.nv.gov

Statutes and Nevada Administrative Code at http://www.leg.state.nv.us/law1.cfm

• Statutes a/k/a NRS• Regulations a/k/a NAC• Publications Tax Notes

Technical Bulletins• Other FAQs

For sales and use tax, references are to Chapters 372, 374, 360 and 360b; reference is also made to NRS chapter 482

Sales/Use Tax References

SALES

SALES TAX

Sales tax is due on the sale for retail of Tangible Personal Property which may be:

Seen Weighed Measured Felt Touched or is In any other manner perceptible to the senses.

The sales of all tangible personal property is taxable unless specifically exempted by statute

NRS 360B.095

SALES

• NRS 360B.480 and NRS 372.025 are the primary statutes describing what is included in gross receipts and what is not.

IncludedAll receipts, cash, propertyManufacturer’s discounts, or rebatesMandatory warrantiesServices that are part of the sale or

necessary to complete the sale (Doc fees)

SALES

• NRS 360B.480 and NRS 372.025 are the primary statutes describing what is included in gross receipts and what is not.

ExcludedDiscounts offered by the sellerUnwindsLabor charges when separately statedTrade-in of used vehicle / vessel*

* Vessels are subject to partial tax credit

TAXABLE SALES

• Sales to students are generally taxable• Sales to Native Americans are taxable unless the vehicle is

delivered to the reservation. • Sales to persons in the military and who are stationed in

Nevada are considered residents and subject to Nevada tax. If the military person has papers verifying immediate deployment, a drive away affidavit can be issued.

• Maintenance Contracts: If the contract is negotiated at the time of the sale, it is considered part of the taxable sale. Optional warranty contracts are not subject to tax at the time of the sale and sales or use tax is due on any parts included in the warranty at the time of repair.

TAXABLE SALES - MILITARYSales to Military personnel are generally subject to sales tax.

Occasionally a dealer may get this Active Duty Military Governmental Services Tax Exemption Affidavit.

NOTE THAT THIS FORM DOES NOT EXEMPT THE TRANSACTION FROM SALES TAX…..it only exempts the Governmental Services tax.

NOTE: This exemption applies ONLY to members of the Military, and not the members of the Nevada National Guard.

TAXABLE SALESSnowbirds is a term often associated with people who move from colder climates and migrate southward in winter months to warmer locales such as Nevada, Arizona, etc. Sales to this group are generally taxable if they have a residence hereRebates: Rebates do not affect the sales tax on the selling price of a vehicle. Instead, the rebate can be used as a reduction in the amount the customer will owe at completion of the transaction. After-Market Warranty Repair: The parts included in an After-Market Warranty repair sold separately from the vehicle sale, are subject to tax. Since this type of transaction is not part of the original manufacturer’s warranty, the sale is considered a separate transaction and is subject to sales or use tax. If the parts are shown separately, then only those tangible parts are subject to sales or use tax. If the parts are not shown separately, the transaction is considered ‘bundled’ and the entire transaction is subject to the tax. (NAC 372.045)

TAXABLE SALESTheft Deterrent Systems: Car alarms are subject to the sales tax. Examples include DataDot, Karr Alarm.

Application of product to protect vehicle exterior and interior: Applying a special product to a car to protect it from wear and tear is subject to tax. Any service required as part of the sale is subject to sales tax. This also includes any service that is necessary to complete the sale. (NRS 372.025, NRS 360B.480)

TAXABLE SALES

Vehicle Give-aways:

When a dealership enters into an agreement with a casino to display their vehicles in a contest program developed by the casino, the Department considers the transaction to be between the dealership and the casino.

The casino is allowed to pass on its tax burden to the contest winner provided the contest rules have been posted.

TAXABLE SALES

Vehicle Give-aways(continued)

For example, if a California resident wins a vehicle that they get from a Nevada dealership, the sale is considered taxable since the Casino ‘purchased’ the vehicle. The sales tax is either paid by the casino, or the contest winner (if rules were posted). No drive-away exemption is allowed for this type of transaction.

Any upgrades required by the contest winner that is outside the agreement is subject to tax to the winner.

TAXABLE SALES

•Tire Sales (sold separately from vehicle sale)•Smog fees (if sold in conjunction with vehicle sale)•Doc(ument) fees•Parts Sales (unless for resale)•Shop Supplies (minor parts such as nuts and bolts that are included in the repair of a vehicle.)

UNWINDS vs REPOS• When a customer returns a vehicle and cancels the sale,

the transaction is referred to as an Unwind. In this transaction, to cancel the sale, the dealership must make the customer “whole”. In other words, restore the customer to his/her position prior to the unwind. A reasonable restocking fee may be charged. If the trade-in vehicle is no longer in the dealership’s inventory, then the value of the trade-in given before the unwind is the value needed to make the customer ‘whole’.

• If the vehicle was repossessed, there is no refund of the sales tax charged on the original deal. However, the provisions of NRS 372.368, Deduction of certain bad debts from taxable sales may apply.

This form should be in the deal file whenever a repossession occurs. Note this form also includes a notary section.

COURTESY DELIVERIESThe sale price of any vehicle delivered in this state by a registered retailer who is providing a courtesy delivery on behalf of an unregistered out-of-state seller should be included in the gross receipts of the delivering retailer.

Exceptions include:•The customer is a retailer and informs the delivering retailer. In this instance, a resale certificate should be issued by the customer.•The customer informs the delivering retailer that they are an out of state resident and vehicle will be removed within 15 days. Drive-away Affidavits and permits need to be executed in this instance.

DIFFERENT COUNTY SALES

• Sales to residents of another county

Any sale in one county is subject to that county’s sales tax rate regardless of the fact that the purchaser is a resident of another county. Where the sale takes place determines the rate of taxation. For instance,

A customer lives in Nye County, but purchases a vehicle in Las Vegas (Clark County). Clark County tax must be charged on the sale.

ABSORPTION OF TAX

• Taxpayers CANNOT advertise they will pay the sales tax (NRS 372.115)

• Taxpayers CAN state that “sales tax is included….” (NAC 372.760)

• If there is no such statement on the invoice or a sign that states that sales tax is included, then the sale is subject to taxation on the entire amount or portion that is separated out relating to tangible personal property (NAC 372.760

TRADE - INS

TRADE-IN ISSUES

• Trade in of a vessel towards the purchase of a vehicle

You can take a trade-in of a vessel towards the purchase of a vehicle; HOWEVER, the tax trade-in credit is the county tax rate MINUS 2%.

Whenever a vessel is involved, you must use the Supplemental Trade-In form provided by the Department of Taxation.

Form to use when a vessel is involved in the trade in or trade down

TRADE-IN ISSUES

• Trade in of a vehicle towards the purchase of a boat (vessel)

You can take a trade-in of a vehicle towards the purchase of a boat. The trade-in tax credit is the full county tax rate.

• Trade-ins are to be reported as an exempt sale in Column B of the sales tax return. The supplemental form is no longer necessary when only vehicles are involved.

TRADE-IN ISSUES

• Trade-in tax credit on vehicle not purchased in Nevada:

Attorney General’s Opinion #92-15 clarifies that the trade-in tax credit is available for any vehicle being traded in, regardless of where the trade-in vehicle was purchased.

“A trade-in allowance’ would be available to reduce the sales price of an out-of-state purchase of a vehicle by the corresponding value of the trade-in, in order to reduce the applicable tax liability.”

There are no restrictions in NRS 372.025, NRS 372.065 and NRS 374.070, thus allowing the trade-in tax credit for vehicles purchased out of state.

TRADE-IN ISSUES• Trade-downs: When a customer trades in a

vehicle/vessel that is given a trade-in credit which is higher than the selling price of the new vehicle/vessel, the trade-in tax credit cannot exceed the tax of the selling price of the new vehicle/vessel.

• Trade-downs of Vessels are subject to 2% tax on the selling price of the new vessel.

TRADE-IN ISSUES• Negative equity: When debt on a trade-in is higher than

the value given to the customer for the trade-in vehicle/vessel, a negative equity is created. Negative equity cannot affect the tax on the selling price of the new vehicle/vessel, but should be shown as an increase in the new debt the customer will owe.

Likewise, the gross value (before applying the debt owed) is the value upon which the trade-in tax credit is based.

LEASES

LEASE DEFINITIONS

• Residual ValueThe estimated fair market value of the vehicle at the end of the lease

• Capitalized CostThe value agreed upon of the vehicle to be leased, including add-on costs, admin fees, prior lease balance, etc.

• Capitalized Cost ReductionThe amount of any net trade-in allowance, rebate, etc. that is used to reduce the amount to be leased.

LONG TERM VEHICLE LEASES

• A long term lease is for a period over 31 days (NRS 482.053)

• Information on the lease:– Value of leased vehicle– How payment at inception is disbursed– Estimated value at end of lease– Purchase option

TAXABLE ITEMS IN A LEASE

• Monthly payments

• First payment paid to dealership

• Doc fees showing on lease

• “Smog Fees” showing on lease

• Capitalized Cost Reduction

Example of completed vehicle lease

Please note that this is only a partial example of a completed lease

AMOUNT DUE AT LEASE SIGNING OR DELIVERY $10,000.00

MONTHLY PAYMENTS A. Your first Monthly Payment of $647.01 is due on the Lease Date, followed by 62 payments of $647.01 due on the 1st of each month. B. The total of your Monthly Payments is $40,761.63.

OTHER CHARGES (not part of your Monthly Payment) A. Termination Fee $395.00 (If you do not Purchase the Vehicle)

TOTAL OF PAYMENTS (The amount you will have paid by the end of the lease). $50,509.62

ITEMIZATION OF AMOUNT DUE AT LEASE SIGNING OR DELIVERY A. Amount Due at Lease Signing or Delivery: (1) Capitalized Cost Reduction $ 8304.79 (2) Sales/Use Tax on Capitalized Cost Reduction $ 602.10 (3) First Monthly Payment $ 647.01 (4) Refundable Security Deposit N/A (5) Initial Title, Registration and License Fees $ 20.00 (6) Upfront Sales/Use Tax on Vehicle $ N/A (7) Doc Fee $ 426.10 Total $10000.00

B. How the Amount Due at Lease Signing Or Delivery will be Paid: (1) Net Trade-in Allowance $ ____________ (2) Rebates and noncash credits $ ____________ (3) Amount to be paid in Cash $ 10000.00_____ Total $10000.00

YOUR MONTHLY PAYMENT IS DETERMINED AS SHOWN BELOW A. Gross Capitalized Cost. The agreed upon value of the Vehicle ($50,999.26) and any items you pay over the Lease Term (such as service contracts, insurance, and any outstanding prior credit or lease balance……………………………………..$ 51,494.26 B. Capitalized Cost Reduction. The amount of any Net Trade-in Allowance, rebate, noncash credit, or cash You pay that reduces the Gross Capitalized Cost……………………………………………………………………….$ 8,304.79 C. Adjusted Capitalized Cost. The amount used in calculating your Base Monthly Payment………………………$43,189.47 D. Residual Value. The value of the Vehicle at the end of the Lease used in calculating your Base Monthly Payment……………………………………………………………………………………………………$11,761.50

EXEMPT SALES

EXEMPT SALES• NRS 360B.480 and NRS 372.025, - what is

not included:Dealer issued discounts

Drive-away permit costs

Title fees, Registration fees

Optional Warranties, service only warranties

Out of state sales

Sales to border state employees

EXEMPT SALES• Sales to exempt entities

Government (U.S. or Nevada)Religious*Charitable*Educational*Nevada National Guard*

• Sales to residents of other states **• Sales for resale

* Must have department-issued exemption letter on file** Must have completed Affidavit of Purchaser,drive-away permit and supporting documentation*** Must have resale certificates on file

DRIVE-AWAY SALES

If purchaser provides the documentation to prove they will use the vehicle out of state, they have 15 days to remove the vehicle to their home state. Such documentation may include, but not limited to: out of state driver’s licenseout of state insurance documentNote: if the purchaser has a residence in both Nevada AND another state, the sale is subject to tax.

Reciprocity does not affect the transaction.

This is the drive away affidavit. It must be completed in full and customer’s signature must be notarized at time of sale.

DRIVE-AWAY SALES

Vehicles being purchased in Nevada for use in other states that do not have a sales tax, such as Montana, Oregon, Alaska, etc. are scrutinized carefully in the course of an audit and should be monitored carefully.

If the sale is to a resident of another state, and evidence supports that, do not charge sales tax as the customer qualifies for a drive-away. All proof of residency out of state must be in the deal file.

Nevada residents are not allowed Drive-away permits

• Beware of Drive-away permits to these states

• Oregon• Montana• Delaware• Alaska• New Hampshire

USE TAX

USE TAX

What is Use Tax?•Use Tax is a mirror of the sales tax, same rate. The tax is meant to ‘even the competitive advantage’ that out of state vendors have when selling a product without tax, when a Nevada vendor must charge the tax. The tax is due on all tangible personal property brought into this state, for storage, use or other consumption in this state, and where Nevada sales tax has not been charged.

•The use of inventory for resale may be subject to the use tax depending on the circumstances. (see “Loaner-Demonstration vehicle usage”).

•Giving away an item meant for resale is subject to use tax at the cost of the item being given away.

USE TAX• Any tangible personal property purchased for use in the

business is subject to sales/use tax. If the vendor did not charge the tax on the sale, then use tax must be accrued and reported to the Department on the cost of the property.

• Sales tax should be paid to your vendor or use tax accrued on supplies used in the repair of vehicles on purchases of tangible personal property that are not incorporated into the vehicle. Such supplies include cleaning rags, masking tape, gloves, glass cleaner, paint and any other items of a similar nature. If purchased from a Nevada vendor, sales tax must be paid. Otherwise, use tax must be accrued and paid on the purchase.

• Any parts that are incorporated into the vehicle such as grease, nuts and bolts, are considered to be sold to the customer which is then taxed to the customer.

USE TAX

An example of when use tax is due•Giveaway items•Self-use items purchased without tax•Internet purchases for self use where Nevada tax has not been charged•Vehicles placed in service for use by dealership•Parts for company vehicles

Sales and Use Taxes do not apply to the purchase of replacement parts if the repairs are pursuant to the provisions of a warranty or guaranty if the warranty or guaranty was originally taxed as part of a sale

NAC 372.460(1)

USE TAX - REPLACEMENT PARTS

USE TAXLoaner –demonstration vehicle usage prior to 10/24/2014:

NRS 372.185 defines “…use or other consumption …” as subject to use tax. Under this statute, vehicles taken out of the inventory of a vehicle dealer under the provisions of NRS 482.320 and NRS 482.330 were subject to use tax on the cost of the vehicle when used for self-use.•For instance, if a vehicle is used with loaner plates for a customer to drive while their vehicle is being repaired, the cost of the vehicle so used was subject to use tax.•If a representative of the automobile dealership used a car with dealer plates or loaner plates for personal use the cost of the vehicle was subject to use tax.

USE TAXLoaner –demonstration vehicle usage:

Effective 10/24/2014, a new regulation (R129-13) was approved by the Nevada Tax Commission governing the use of loaner/demonstration vehicles. •If the cumulative period of all the loans of the motor vehicle by the dealer is more than 180 days, the usage will be subject to tax at the cost of the vehicle to the dealer. •A written record must be maintained by the dealer and available upon request showing the usage of the loaned vehicle. Absence of such a log could subject the vehicle to tax.

OTHER

TIRE TAX• Tire tax is $1 per tire. (NRS 444A.090 ) (note: this does not apply to the

tires that are on the vehicle being sold)

• When a dealership purchases tires for its vehicles in inventory, a resale certificate should be provided to the tire retailer.

• If the dealership is purchasing new tires for their vehicles placed in service for use in the business, or for personal vehicles, the tire tax should be paid.

• If the dealership is in the business of selling tires, it must register for the tire tax

RECIPROCITYIf a vehicle has substantial use in another state and is subsequently moved to Nevada, there is no further tax due.

If a vehicle was recently purchased in another state, and that state’s tax was charged, and the vehicle is then moved to Nevada, the difference between the other state’s tax rate and Nevada’s (providing the other state’s is less than Nevada) will be due to Nevada. If the tax in the other state is higher than Nevada’s, then no further tax is due.

Electronic Filing RequirementsAll payments of money for taxes, interest, penalties or other obligations in the aggregate amount to $10,000 or more MUST be made by electronic transfer….*

For more information and to register and pay your taxes, go to:

https://www.nevadatax.nv.gov/web

*NRS 353.1467

RECORDS TO BE KEPT

• Purchase invoices• Sales journals• General ledgers• Deal files• Affidavits and Drive–away permits

Must keep records for four (4) years

WRITTEN RESPONSE

Most tax issues can be addressed by the Department of Taxation. Please be advised that any responses to inquires made to the Department are only binding if put in writing, such as Nevada Revised Statutes, Administrative Code, Nevada Tax Notes, or in written correspondence.

DEPARTMENT OF TAXATION Contact Information

Our offices are open Monday-Friday 8:00 AM – 5:00 PM

Southern Nevada:Grant Sawyer Office Building555 E. Washington AvenueSuite 1300Las Vegas, NV 89101 OR2550 Paseo Verde ParkwaySuite 180Henderson, NV 89074

Carson City:1550 College ParkwaySuite 115Carson City, NV 89706-7937

Reno:4600 Kietzke LaneBuilding L, Suite 235Reno, NV 89502

Contact our Call Center at1-866-962-3707