Deferred Sales Tax Audit for Car Dealers in Texas
Deferred sales tax for Texas car dealers is a system where buy-here-pay-here dealers get to pay sales tax from the income stream received from buyers instead of fronting the entire sales tax amount at the time of transfer. It eliminates the payment of tax on any portion of the sales price not paid by the buyer.
THE 60-DAY RULE
A dealer must transfer title to a vehicle in order to take advantage of sales tax deferral and avoid having to front the total sales tax. An agreement was reached that the right to defer sales tax on a vehicle would be waived if the title was not transferred within 60 days of the date of sale. The time limit only applies to taxation and doesn’t affect other areas of the law that address when titles must be transferred.
The transfer is required even if a vehicle is repossessed within the 60-day period. Auditors compare the date of sale to the date of transfer to determine if any 60-day transfer violations have occurred. Where violations are found, sales tax is accelerated as of the 60th day and the dealer is assessed for the full sales tax minus what was actually paid. Then, penalties and interest are added.
SALES OR ASSIGNMENT OF CONTRACTS
In order that deferred sales tax would benefit only buy-here-pay-here dealers, and not banks and financial institutions, the comptroller insisted on the inclusion of a “due on sale” provision when deferred sales tax was approved. If dealer paper is sold or assigned to a third party besides the related finance company, all sales tax becomes due immediately and can no longer be deferred. Auditors are looking for evidence that a contract upon which a dealer is continuing to defer sales tax has been assigned.
Facing a sales tax audit in Texas? Contact our attorney for a consultation.
