Recent Sales and Use Tax Developments
Demonstrators (Demos). Use of a new vehicle from inventory for
demonstration purposes (“Demos”) may be taxable or may not be taxable
depending on how the vehicle was used and whether the use is properly
documented by the dealer. If a used vehicle is used exclusively for test
driving by customers or for demonstrating the vehicle to a specific
customer, and this use can be documented by the dealer, then that use of the
vehicle is not subject to use tax. It is important that a dealer have
documentation to prove that the use was for one of these exempt purposes.
Each legal entity which is a new car dealer is allowed a
certain number of tax-free demonstrators based on the total number of new
cars and trucks sold in a calendar year as follows:
New Vehicles Sold Annually |
Tax Free Demonstrators |
0-25 vehicles |
2 tax-free demonstrators |
26-100 vehicles |
7 tax-free demonstrators |
101-500 vehicles |
20 tax-free demonstrators |
501 or more vehicles |
25 tax-free demonstrators |
This is computed for each calendar year. Tax-free demos may
be carried over from one year to the next year and will not reduce the
number of allowable tax-free demos in the next year.
The new rule is that if a vehicle is not otherwise tax
exempt, for new or used vehicles in excess of the tax-free demos which are
subject to use tax, the first 1,000 taxable miles are not subject to use
tax. Mileage in excess of 1,000 miles is subject to use tax based on 2 ½%
of the cost of the vehicle plus $30.00, times six (6%) percent use tax rate
per month. This amount must be remitted monthly along with all other sales
and use tax.