006.05.06 Ark. Code R. 005-GR-12

Current through Register Vol. 49, No. 9, September, 2024

Rule 006.05.06-005-GR-12 - SALE OF MOTOR VEHICLES, TRAILERS, AND SEMITRAILERS

A. GENERAL INFORMATION. All sales of new and used motor vehicles, trailers, and semi-trailers are subject to sales or use tax unless a specific exemption applies. The tax is to be collected as follows:

1. Tax due on vehicles and trailers which are required by Arkansas law to be registered and licensed for use on public streets and highways shall be paid by the purchaser at the time of registration and application for certification of title. Sellers of trailers are not required to collect tax.

2. For purposes of this rule, motor vehicles which are not required by Arkansas law to be registered and licensed for use on public streets and highways are (i) mopeds, motorcycles, and motor-driven cycles which are designed or manufactured exclusively for competition or off-road use, and (ii) three and four-wheel, all-terrain cycles, and motorized bicycles.

3. Tax due on the sale of mopeds, motorcycles, and motor-driven cycles which are designed or manufactured exclusively for competition or off-road use is to be collected by the seller on the full purchase price without regard to trade-in.

4. Tax due on the sale of three and four-wheel, all-terrain cycles, and motorized bicycles shall be collected by the seller on the full purchase price without regard to trade-in unless the provisions of GR-50 apply.

5. Tax due on the sale of motorcycles and motor-driven cycles registered for street use is to be paid by the purchaser at the time of registration and application for certificate of title. However, when the motorcycle or motor-driven cycle was sold in such a condition that it could not be licensed for street use and sales tax was collected and remitted by the seller, upon the purchaser's subsequent application for a license to operate the cycle upon the street, the purchaser shall be entitled to a credit for the sales tax paid by the seller. The purchaser shall present proper proof of such payment of sales tax at the time of registration.

B. CALCULATION OF TAX DUE.

1. Motorized Vehicles Required by Law to be Licensed and Registered.

a. If the total gross receipts or gross proceeds for the sale of a new or used motor vehicle or trailer are less than $2,500.00, then the sales or use tax is not due on the vehicle or trailer.

b. If the total gross receipts or gross proceeds for the sale of a motor vehicle or trailer are $2,500.00 or more, then sales or use tax will be due on the difference between the total gross receipts or gross proceeds for the motor vehicle and any credit resulting from the trade-in of any used motor vehicle or trailer. (See also GR-12.1 and GR-13.)

c. Local Tax. The local sales or use tax due is determined by the location indicated at the time of registration and application for certification of title. (See Ark. Code Ann. § 26-52-521 and GR-76.)

d. For all motor vehicles and trailers purchased after November 3, 1989, no credit will be allowed for sales or use taxes paid to another state on purchases of motor vehicles, trailers, or semi- trailers which were first registered by the purchaser in Arkansas.

e. Warranties. Sales or use tax is due on the gross receipts or proceeds received for an extended warranty or service contract on a new or used vehicle offered either by the manufacturer or the dealer. When the extended warranty or service contract is purchased at the time the new or used vehicle is sold, the price of the warranty is to be included in the total gross receipts or proceeds on which tax is collected at the time of registration. If the new or used car dealer or manufacturer sells a warranty on a new or used car after the car has been registered, the dealer or manufacturer must collect sales tax on the warranty and local tax on these sales is calculated at the rate of the city and county in which the sale occurred. If a vehicle of greater value is traded in for a vehicle of lesser value, the trade-in credit for the vehicle does not apply to reduce the sales price of the warranty. Tax is due on the total amount of the gross receipts for the sale of the warranty or service contract.

f. Trade-in credit shall be allowed only if the item taken in trade for the sale of a motor vehicle, trailer, or semi-trailer is a motor vehicle, trailer, or semitrailer.

2. Motor Vehicles Not Required to be Licensed and Registered.

a. The trade-in deduction does not apply to vehicles not required by Arkansas law to be licensed and registered for use on public streets and highways, as defined in GR-12(A)(2).

b. Local Tax: The local sales or use tax due is determined by Ark. Code Ann. § 26-52-521 and GR-76.

C. TAXABLE TRANSACTIONS.

1. A transaction is a "sale" for purposes of imposing tax when possession or title to a motor vehicle or trailer is transferred from the seller to the buyer for valuable consideration.

2. Examples of taxable "sales" include the following:

a. Sale by a bankruptcy trustee of the debtor's vehicle or trailer;

b. Sale by the holder of a repairman's lien arising under Ark. Code. Ann. § 1845-201 et seq. to either a third party or to himself;

c. Sale by the executor or administrator of an estate; and

d. Sale by the owner for consideration where the seller is unable to transfer title and the purchaser must obtain an order quieting title to the vehicle and ordering the Department to issue title to the purchaser.

3. Examples of non-taxable transfers include transfer by the following:

a. Gift, where the donor and recipient of the vehicle or trailer sign an affidavit attesting to the gift and the donor paid sales or use tax at the time of purchase and registered the vehicle in his own name;

b. Inheritance or intestate succession, where the beneficiary provides the Commissioner with a certified copy of a Probate Court order or other proof of testamentary transfer;

c. Court order, other than quiet title actions, where the prevailing party provides the Commissioner with a certified copy of the order or decree ordering the Commissioner to issue title;

d. Repossession pursuant to Ark. Code Ann. § 4-9-501 et seq.;

e. Transfer of title to a damaged or stolen vehicle or trailer by the vehicle owner to an insurance company as a result of the settlement of a claim for damages. A cash settlement includes payment to a lienholder. For the replacement of the motor vehicle by the owner, see GR-12.1;

f. Transfer of title by a dissolving partnership, corporation, or limited liability company to a partner, shareholder, or member as a distribution to the partner, shareholder, or member; and

g. Transfer of title to a newly-formed partnership or corporation by the vehicle owner if the newly-formed partnership, corporation, or limited liability company is merely a change of form of an ongoing business operated by the vehicle owner.

Example: John Smith operates a store in the name John Smith d/b/a Smith's Store. Mr. Smith owns a car which is titled in the name "John Smith." Mr. Smith decides to incorporate his business and transfers all assets to the corporation including the car. The transfer of the vehicle to the corporation is not taxable.

D. EXEMPTION FOR RENTAL MOTOR VEHICLES.

1. The gross receipts or gross proceeds derived from the sale of a motor vehicle to a person engaged in the business of renting licensed motor vehicles shall be exempt from sales and use tax in the following circumstances:

a. The person has a rental exemption certificate and retail sales tax permit issued by the Commissioner; and

b. The motor vehicle is titled and registered in the name of the person holding the rental certificate.

2. Definitions. The following terms for purposes of this rule and rule GR-20 shall have the following meanings:

a. "Licensed motor vehicle" means any automobile, truck, van, motorcycle, truck tractor, or other self-propelled vehicle required to be licensed for highway use under the law of Arkansas. A vehicle which is titled and registered in a state other than Arkansas but which is the type of vehicle that would be required to be registered for highway use in Arkansas is a licensed motor vehicle. Trailers and semi-trailers are not motor vehicles. The term "motor vehicle" does not include special mobile equipment as defined in Ark. Code Ann. § 27-14-211 or implements of husbandry as defined in Ark. Code Ann. § 27-14-212.

b. "Engaged in the business of renting licensed motor vehicles" means that the person regularly and persistently rents licensed motor vehicles for gain or profit.

c. "Rental exemption certificate" means a certificate issued by the Commissioner through the Sales and Use Tax Section which provides that the person is registered to engage in the rental of licensed motor vehicles for either short-term or long-term use.

d. "Short-term rental" means rental for less than thirty (30) days.

e. "Long-term rental" means rental for thirty (30) days or more. Whether a rental of a motor vehicle is considered long-term or short-term is dependent on the written contract and period for which payment is initially due.

Example: If a vehicle is rented initially for fourteen (14) days with the rental contract reflecting a term of rental for fourteen (14) days and the customer subsequently decides to continue renting the vehicle for twenty-one (21) more days, the transaction is treated as two (2) short-term rentals.

3. In order to claim the exemption from sales and use tax, the motor vehicle purchaser must provide a copy of the rental exemption certificate to the Revenue Division Office at the time of registration and titling of each vehicle along with the other documents required by law for registration and titling. The certificate will become a part of the permanent record of the Office of Motor Vehicles and all information must be provided as requested on the certificate. A short-term rental exemption certificate issued previously may not be used to register a vehicle intended for long-term rental. The long-term lessor must register with the Sales and Use Tax Section and obtain a new rental exemption certificate. A separate copy of the certificate must be presented for each vehicle registered and titled.

4.

a. The exemption is valid only if the motor vehicle is used exclusively for short-term or long-term rentals. If the motor vehicle is used for any other purpose, then the exemption granted at the time of registration is revoked and the purchaser is obligated to pay the applicable sales or use tax, plus penalty and interest as provided by the Arkansas Tax Procedure Act.

b. Use of the motor vehicle by anyone other than a short-term or long-term lessee for business or personal purposes will cause the exemption to be revoked. For example, use of a vehicle registered as a leased vehicle as an airport shuttle or free customer "loaner" car will cause the exemption to be revoked. Driving the vehicle to the nearest repair facility for purposes of repairs will not cause the exemption to be revoked.

5. See GR-20, ET-6, and ET-7 for the application of the rental vehicle tax, long-term rental tax, and record keeping requirements.

E. PROOF OF VALUE.

1. When a motor vehicle or trailer is sold or taken in trade, the taxpayer shall provide to the Commissioner documented proof of the gross receipts, or gross proceeds or the value assigned to the traded-in item. Examples of sufficient documents include the following:

a. A bill of sale or financing contract signed by the seller and buyer separately stating the total gross receipts or gross proceeds for the sale, value assigned to the traded-in vehicle or trailer, description, and vehicle identification number ("VIN") of the vehicle or trailer sold and vehicle or trailer traded-in.

b. An affidavit signed by the seller and the buyer stating the total gross receipts or gross proceeds for the sale, value assigned to the traded-in vehicle or trailer, description, and VIN of the vehicle or trailer sold and vehicle or trailer traded-in.

2. If the taxpayer is unable to provide sufficient documentation for either the total gross receipts or gross proceeds for the sale of the vehicle or trailer, or the value of the traded-in vehicle or trailer, or if the buyer and the seller disagree on the consideration (gross receipts) for the sale of the used vehicle, then the total gross proceeds shall be presumed to be the greater of the actual sales price as provided on the bill of sale, invoice or financing agreement, or the average loan value of the vehicle as listed in the most current edition of the National Automotive Dealers' Association Official Used Car Guide or any pricing guide that may be approved by the Director for use in determining vehicle values.

F. USED MOTOR VEHICLES REGISTERED BY VEHICLE DEALERS.

1. Used motor vehicle dealers are prohibited from assigning a motor vehicle using the Manufacturer's Statement of Origin ("MSO"). Used vehicle dealers are required to apply for title and registration to the vehicle before it may be transferred.

2.

a. Pursuant to Ark. Code Ann. § 26-52-510(f), any motor vehicle dealer who has purchased a used motor vehicle for resale may register the vehicle for the sole purpose of obtaining a certificate of title to the vehicle without payment of gross receipts tax except as provided in GR-12(F)(2)(b). No license plate is issued with this registration and the vehicle may not be operated upon the highway without a dealer's plate.

b. The sale of a motor vehicle from the original franchise dealer to any other dealer, person, corporation, or other entity other than a franchise dealer of the same make of vehicle, which sale is reflected on the statement of origin, shall be subject to gross receipts tax.

3. "Used motor vehicle" is defined as any motor vehicle which has previously been sold, bargained, exchanged, given away, or the title thereto transferred from the person or corporation who first took title from the manufacturer, importer, dealer, or agent of the manufacturer or importer, or that is so used as to have become which is commonly known as a secondhand or previously owned motor vehicle. In the event of a transfer reflected on the MSO from the original franchise dealer to any other dealer, individual, or corporation other than a franchise dealer of the same make of vehicle, the vehicle shall be considered a used motor vehicle.

G. SERVICE VEHICLES.

1.

a. When a motor vehicle dealer removes a vehicle from its inventory and the vehicle is used by the dealership as a service vehicle, the dealer shall register the vehicle, obtain a certificate of title, and pay sales tax on the listed retail price of the new vehicle.

b. When the motor vehicle dealer returns the service vehicle to inventory as a used vehicle and replaces it with a new vehicle for dealership use as a service vehicle, the dealer shall pay sales tax on the difference between the listed retail price of the new service vehicle to be used by the dealership and the value of the used service vehicle being returned to inventory. The value of the used service vehicle shall be the vehicle's highest wholesale value as listed in the most current edition of the National Automotive Dealers' Association's Official Used Car Guide or any pricing guide that may be approved by the Commissioner for use in determining vehicle values.

2.

a.

For purposes of this subsection, the term "service vehicle" means a motor vehicle driven exclusively by an employee of the dealership and used either to transport dealership customers or dealership parts and equipment.

b. "Service vehicle" does not include motor vehicles which are rented by the dealership, used as demonstration vehicles, used by dealership employees for personal use, or used to haul or pull other vehicles.

H. Only the first $9,150.00 of the sales price of a new or used Class Five, Six, Seven, or Eight truck tractor that is sold in this state or sold in another state for use in this state is subject to state tax. The gross proceeds in excess of $9,150.00 are exempt from tax. This exemption does not apply to local (city, town, or county) tax.

I. Only the first $1,000.00 of the sales price of a new or used semitrailer sold in this state or sold in another state for use in this state is subject to state tax. The gross proceeds in excess of $1,000.00 are exempt from tax. This exemption does not apply to local (city, town, or county) tax.

006.05.06 Ark. Code R. 005-GR-12

Ark. Code Ann. §§ 26-52-436; 26-52-510; 26-63-302; 26-63-304