One of the most common errors discovered during dealership sales tax audits is the failure to collect sales tax from customers who do not qualify for the non-resident sales tax exemption. Dealers regularly receive requests from customers for sales tax exemptions. However, if you fail to properly investigate the request the dealership may be liable for the uncollected sales tax plus civil penalties and interest.
A customer is exempt from New York State sales tax only when they can document their non-resident status. Non-resident customers may purchase a vehicle exempt from sales tax by providing to the dealer a properly completed Form DTF-820 (Certificate of Non-Residency). In addition, the customer must produce out of state identification. If there is any documentation or information in the transaction that suggests the customer resides (even part-time) in New York then New York sales tax must be collected. If the customer is a dual resident (has homes in New York and one or more additional states) the transaction is still subject to New York sales tax.
Sales tax auditors frequently check out of state deals to see if the sales tax exemption was properly applied. This includes the completion of the DTF-820 and the presence of proper documentation to demonstrate non-residency. Violations can and are issued to dealers who fail to use the DTF-820 in non-resident transactions. A copy of the DTF-820 is available free of charge from the Department of Taxation and Finance's website (https://www.tax.ny.gov/pdf/current_forms/st/dtf820.pdf).
The following list provides examples of information or documents commonly found in a deal jacket that tip-off sales tax auditors that a customer may not be eligible for a sales tax exemption:
* NY address on a personal check;
* Copy of NY driver's license;
* NY telephone number(s) on the buyer's order; and
* NY residence/ work address and/or phone number on the credit application.
Fines and penalties for improper exemptions are steep. A used car dealer was recently assessed more than $1 million in unpaid sales tax, interest and civil penalties for failing to properly collect the New York State sales tax from customers who did not meet the non-resident exemption criteria. Therefore, It is extremely important to review these rules with dealership personnel and avoid improper exemptions.
For more information on sales tax audits and non-resident sales tax exemptions contact Stevan LaBonte at 516-280-8580.
