Are You Correctly Charging Sales & Use Tax?

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1 Taxware, a Sovos Compliance Company Are You Correctly Charging Sales & Use Tax? Automotive Parts & Service Tax Pack Motor vehicle services are a major revenue source for taxing authorities in the US and around the world, and the taxability issues faced by vendors in this space are particularly tricky. In this environment, getting the correct tax results on daily transactions is absolutely essential. Sovos supports a robust suite of good/ service codes content geared specifically towards the automotive industry which substantially eases the compliance burden on our clients. Repairs While many states exempt most services from sales tax, this does not necessarily mean that motor vehicle repair services are non-taxable. In an attempt to expand their tax base, a number of jurisdictions have begun to tax personal services, and motor vehicle repair services are often a prime target. Whether the state specifically taxes auto repair services; Whether parts are included as part of the total charge; Whether labor and parts are individually itemized; and Whether any element of the repair service is covered by a warranty. A handful of states take the approach that any parts included in a charge for automobile repair are part and parcel of a non-taxable repair (for example, in Maryland and Oklahoma) while a number of states determine the true object of the transaction (parts or repair or both) in determining taxability. Yet other states hold that if any parts are provided (no matter how small) then the repair service becomes taxable (for example, in Florida and Tennessee). States That Exempt Auto Repair Labor Alabama Idaho Maryland Nebraska Rhode Island Arizona Illinois Massachusetts Nevada S. Carolina California Indiana Michigan N. Carolina Texas Colorado Kentucky Minnesota North Dakota Vermont Georgia Maine Mis souri Oklahoma Virginia

2 States That Exempt Auto Repair Labor and the Required Parts Maryland Oklahoma Sometimes charges for automobile repair parts and services are covered by a warranty contract. Some states impose sales tax on the consumer at the time of purchase of a warranty contract, while others consider automotive repair vendors who purchase parts used for warranty repairs the final consumers subject to tax. In order to help our clients achieve accurate tax calculations across the country, Sovos offers good/service codes that cover all the bases: Repair services for automobiles (charge for labor only) where charges for parts appear on a separate line. Repair services for automobiles (charge for parts only) Repair services for automobiles (non-segregated parts and labor charge) Tire Fees Many states impose point-of-sale tire fees in order to address the issues and costs associated with their future disposal. However, consistency is nowhere to be found as fees vary across states based on the size and type of tire. While most fees are a specific dollar amount per tire, some states impose fees that are a percentage of the sales price. As a general rule, tire fees are typically assessed on the sale of new tires but states differ on whether fees apply on the sale of a vehicle (cars, motorcycles, trailers) with tires included. In the US, tire fees range widely from $0.25 to $10.00 as shown by the chart below: Alabama $ $1.00 Alaska $ $5.00 Arkansas $ $5.00 California $1.75 Colorado $1.50 Delaware $2.00 Florida $1.00 Georgia $1.00 Illinois $2.50 Indiana $0.25 Kansas $0.25 Kentucky $1.00 Louisiana $ $10.00 Maine $1.00 Maryland $0.80 Missouri $0.50 Nebraska $1.00 Nevada $1.00 New Jersey $1.50 New York $2.50 Ohio $1.00 Oklahoma $ $3.50 Pennsylvania $1.00 South Carolina $2.00 Tennessee $1.35 Utah $1.00 Virginia $0.50 Washington $1.00

3 If your company sells or plans to sell tires in both the US and Canada, then the complexity increases. Most Canadian provinces collect stewardship fees at the point of sale on the sale of tires. Tire stewardship fees in Canada are generally higher than those collected in the US and can range widely depending on the province and type of tire. Fees can be as low as $3.00 per tire for passenger car tires or as high as $ for large off-road tires. PERCENTAGE STATE BASED TIRE FEE Arizona 2.00% N. Carolina 1.00%-2.00% CANADIAN PROVINCE FEE PER TIRE ($CAD) Alberta $ $ British Columbia $ $ Manitoba $ $ New Brunswick $ $ Newfoundland & $ $ 9.00 Labrador CANADIAN PROVINCE FEE PER TIRE ($CAD) Ontario $ $ Prince Edward Island $ $ Quebec $3.00 Saskatchewan $ $ Yukon Territory $5.00 Nova Scotia $ $ 9.00 Governments aren t the only ones collecting tire fees; many automotive retailers also charge fees to cover their costs of waste tire disposal. Retailer-imposed tire fees may be subject to sales tax depending on whether the state views the fee as part of the sales price of the taxable tire or an otherwise taxable service. Sovos has as many as 60 unique product codes to properly support tire fees across the US and Canada. Sovos has created and continuously supports and updates hundreds of goods/service codes to help our clients calculate the fees associated with tire purchases, services and disposal. Battery Fees Less widespread than tire fees and somewhat less complex (at least for now), some US states (and one Canadian province) also impose fees in conjunction with the sale of lead-acid batteries. Examples of the types of batteries that may be subject to fees include batteries for automobiles, pickups and small trucks, truck tractors, busses, motorcycles and motorized tricycles, construction equipment, recreational vehicles, and boats. Battery fees can range from $0.50 to $3 (British Columbia, Canada imposes a $5 battery stewardship fee) and can vary depending on the battery voltage. STATE FEE AMOUNT STATE FEE AMOUNT STATE FEE AMOUNT Florida $1.50 Maine $1.00 Missouri $0.50 South Carolina $2.00 Texas $2.00-$3.00 British Columbia $5.00

4 Taxware currently supports lead-acid battery fees with the following specific good/service codes: Lead acid battery 6-11 volts Lead acid battery 12 volts or more Engine OIl Generally, the sale of engine lubricating oil is subject to sales and use tax in the US and Canada. However no rules are without their exceptions: Sovos supports sales and use tax on: Engine Lubricating Oil: 20oz.; 1qt.; 1.5qt.; 5qt.; 12qt.; 1gal.; 5gal.; 5.5gal.; 6gal. 2 Cycle Engine Oil Snowmobile Engine Oil Gear Oil Hydraulic Oil: 1qt.; 1gal.; 5gal. Alabama Exemption The state of Alabama is the only state that specifically offers a tax exemption for sales of lubricating oil. Alabama defines lubricating oil as any devices or substitutes commonly used in lubricating or oiling engines, bearings, journals, axles, hubs and other parts of machinery. This exemption shall not be applied to those products known commercially as kerosene oil, fuel oil, or crude oil. The Commonwealth of Puerto Rico has a similar exemption, but on top of that exemption is a layer of complexity. Puerto Rico Puerto Rico has two distinct sets of fees that apply to the sale of motor oil. The first set of fees applies to the import or manufacture of oil. The second set of fees applies at the retail level. At the import or manufacturer level, Puerto Rico imposes a charge on oil transactions. The amount of the fee is $0.25 per quart or $0.60 per gallon, depending on the size of the container. Specifically, the $0.60 per gallon fee applies if the container has a capacity of 55 gallons or more. For smaller containers, the charge will be $0.25 per quart. Puerto Rico collects a deposit on retail sales of oil. The amount of the deposit is $1 per each quart with an important proviso. If the retail consumer makes a subsequent purchase of oil in the same store where a deposit was previously paid, no new deposit will be required. But if the oil is purchased at a different store, a new deposit must be collected and the store will issue a certificate that will allow the customer to claim a refund of their original deposit from the previous store.

5 Seller Imposed Core Changes Core charges are not easily explained to individuals outside of the motor vehicle industry and often not completely understood by tax administrators. A core charge is similar to a bottle deposit. The charge is collected at the time of sale of certain types of motor vehicle parts (frequently batteries) but will be refunded if the used item is returned to the seller. Unlike a bottle deposit, these charges are privately imposed as opposed to governmentally mandated. Core charges are, to some extent, intended to promote recycling of automotive parts. For example, if a customer purchases a new car battery but refuses to leave their old battery with the seller for proper disposal, a core charge may be assessed along with the purchase price of the battery. Core charges have become crucial to the automotive industry, allowing the refurbishment and resale of more economical auto parts to consumers and repair facilities. In other words, these old parts still have a purpose and if the customer does not let the seller realize that purpose, the charge is assessed. In a majority of jurisdictions (but by no means all of them), seller-imposed core charges are treated as part of the taxable purchase price of the underlying item being purchased. Taxware supports a number of codes to help you to properly apply tax to the assessment of core charges across the country. Core Charges Company imposed Core Charge for new Batteries Company imposed Core Charge for new parts Company imposed Core Charge for remanufactured parts (not including truck parts) Sometimes, the assessment of a core charge causes customers to re-think their decision to keep their old car parts, return the item to the retailer, and seek a refund of the core charge. This transaction has its own tax complexity as some states that tax the initial core charge will not allow tax to be refunded even when the customer receives a full refund of the core charge. Once again, Taxware supports content to address this specific need: Return of Core Charge to customer for new automotive parts, not including batteries. Return of Core Charge to customer for remanufactured parts Return of Core Charge to customer for remanufactured truck parts. Return of Core Charges to customer for new batteries About Sovos Compliance Taxware, a Sovos Compliance Company Sovos Compliance designs technology solutions to help businesses meet the demands of their unique tax compliance and reporting obligations. Our trusted industry expertise and global research capability enables over 3,000 clients to operate with the confidence to efficiently navigate today s dynamic regulatory environment. Sovos utilizes a unique ability to turn knowledge into highly functional, scalable software that seamlessly integrates with a wide-array of applications and information technologies used by businesses today. Ultimately, we give clients peace of mind by simplifying tax compliance, providing greater control and visibility and mitigating compliance risk. Contact Us Today Find out how we can put these solutions to work for you info@sovos.com sovos.com